2. Background Claremont residents and officials have voiced concerns over the water rate increases imposed by the Golden State Water Company (GSWC). On average, GSWC has obtained water rate increases of 11% each year since 2006. As a result, the Claremont City Council has directed staff to pursue the analysis required for potential acquisition of the water system and allocated no more than $250,000 from the general fund reserves.

3. Background Understanding the Regulatory Environment Privately held, public utilities are regulated by the California Public Utilities Commission. Public utilities are government protected monopolies that are sheltered from competition and in turn their rates and services are subject to regulation. The goal of regulation is to provide the kind of protections and efficiencies that competition normally provides to the public in regular markets. However, economist say there are certain types of services that tend to become “natural monopolies”. These involve services that become consistently less expensive as more of a particular type of service is provided. The alternative to regulation of a private monopoly is to have a public agency provide the service, which in turn is legally and politically accountable to the public.

4. Background Government Acquisition If the City determines that acquisition is feasible and financing is attainable, an offer to purchase the water system can be made to GSWC. If an offer is not accepted by GSWC, the City’s only option is to acquire the water system through eminent domain proceedings.

5. Property Acquisition Process Overview 150+days Retain utility consultant for feasibility study Obtain utility plant description/inventory of what is to be acquired Retain utility appraiser for appraising property Retain municipal financing consultant Send a Notice of Decision to Appraise to property owner

6. Property Acquisition Process Overview 120+days Send letter to owner from appraiser Prepare appraisal of property to be acquired Attorney review of appraisal for legal sufficiency Make offer to property owner 180+days Conduct good faith negotiations Proceed with CEQA review

7. Property Acquisition Process Overview 90+days If negotiations are unsuccessful, send out Notices of Hearing on Proposed Resolution At least 15 days prior to hearing date Resolution Hearing (open session); CEQA to be complete no later than hearing File eminent domain action with court, if findings were made public Serve record owner with summons, complaint

8. Property Acquisition Process Overview Several Years Jury trial Verdict/Judgment Appeal The media reported that the City of Felton’s acquisition efforts took more than six years. Processes involved working closely with the County government to form a community facilities district and an election was held to approve general obligation bonds. Ultimately, the system was acquired by the San Lorenzo Water District.

9. Costs Related to Pursuing Acquisition The acquisition process is complex and success is related to how well the city is prepared. The following estimates for the professionals needed to pursue purchasing the system: Feasibility consultant$25,000-$30,000 Financial Advisor$40,000-$50,000 Legal Advisor for initial steps$50,000-$75,000 Appraiser for the system$35,000-$50,000 CEQA consultant$75,000-$100,000 Environmental Lawyer$25,000-$35,000 Bond counsel$20,000-$25,000 *In 2004, when the City last embarked on the acquisition process the costs exceeded over $200,000.