San Jose Water Company’s Merger With Connecticut Utility Sparks Bicoastal Bidding War

A planned tie-up between San Jose Water Company and another investor-owned utility on the East Coast has morphed into a four-way merger battle—and now state regulators want to take a closer look at the deal.

The California Public Utilities Commission (CPUC) in June notified SJW Group—the private corporation that owns San Jose Water—that it must seek regulatory approval for its proposed merger with Connecticut Water Service Inc., which stands to create the third-largest investor-owned water utility in the U.S. with an equity value of $1.9 billion.

SJW Group’s board of directors told shareholders as a selling point that it would finalize the merger without CPUC approval, a process that potentially adds months to the acquisition. But the state oversight commission says it does indeed have the authority to determine how these kinds of deals, which are becoming more common as companies seek to consolidate costs and invest in aging infrastructure, will affect ratepayers.

San Jose’s elected officials share that concern. In June, Mayor Sam Liccardo and council members Don Rocha and Johnny Khamis urged the CPUC to keep a close eye on the pending merger and to find out whether it serves the public interest.

Despite SJW Group and Connecticut Water agreeing to combine forces, the CPUC review has brought other prospective bidders to the table. Eversource Energy, which had an offer for Connecticut Water rejected in April, is reportedly poised to make another pitch.

Meanwhile, SJW Group has been battling what it calls an attempted “hostile takeover” by the California Water Services Group, known as Cal Water, which is also headquartered in San Jose and serves some 2 million customers throughout the state.

Cal Water, in turn, has characterized SJW Group’s response to its “good faith offers” as a “hostile public attack” and has called the pending merger between the San Jose utility and its East Coast counterpart fraught with conflicts of interest. For one thing, Cal Water noted, SJW Group’s current CEO, Eric Thornburg, led Connecticut Water for 11 years before taking the helm at San Jose Water last November—four months before the companies announced their planned merger.

“The ‘merger of equals’ appears to be nothing more than the SJW CEO bringing together his current and former companies at the expense of SJW stockholders,” Cal Water wrote in a communiqué to shareholders. “The transaction was negotiated under conflicted circumstances that, in our view, the board should not have allowed.”

San Jose Water spokeswoman Jayme Ackemann bats away Cal Water’s insinuation of malfeasance as part of a longstanding campaign to undermine the deal.

“We believe that our merger with Connecticut Water is the superior path forward for SJW Group’s stockholders, and we are confident that our stockholders will not be distracted by Cal Water’s personal attacks against our board members,” she says. “Contrary to Cal Water’s misleading assertions, this has been and continues to be a process initiated, led and directed at every turn by the SJW Group board and the board’s finance committee, which is entirely composed of independent directors.”

Thornburg, she clarifies, is not a member of that finance committee.

Both Cal Water and SJW have put out a series of competing pamphlets and fliers rebutting each other’s claims. One handout from San Jose Water (which posts all merger-related communications online here), poses questions for Cal Water workers to ask its own shareholders and executives.

Source: San Jose Water Company's flier for Cal Water employees

A similar leaflet from Cal Water calls the Connecticut deal inferior to its own all-cash offer because, among other reasons, it already has ties to the South Bay. Another of Cal Water’s criticisms of the San Jose-Connecticut merger is that it would burden ratepayers by creating a company with two headquarters—one of them 3,000 miles away.

Cal Water spokeswoman Shannon Dean also points out that SJW seems to have a rockier relationship with customers over the way it reacted to the drought in recent years. Unlike SJW, which calculated drought surcharges and conservation targets based on a system-wide average, Dean says Cal Water determined those same rates on a case by case basis. She says Cal Water also let people bank water and established a “robust” appeals process.

“It was a lot more work, but we just felt like it was worth it,” Dean says, “because our relationship with our customers is probably stronger now.”

San Jose Water, by contrast, has been grappling with blowback over drought surcharges perceived by a coalition of grassroots activists as unfair and unsustainable, in addition to growing distrust after the company admittedly over-billed customers by $1.8 million.

Source: Cal Water

If Cal Water bought out San Jose Water, it would likely put the latter company’s executives—including Thornburg—out of a job. Dean says all other positions from management down, however, would be safe.

“We guaranteed that there would be no employee layoffs below the executive level,” she says. “We definitely wouldn’t need two CEOs.”

Jennifer Wadsworth is the News Editor for San Jose Inside and Metro Newspaper. Email tips to [email protected] or follow her on Twitter at @jennwadsworth.

10 Comments

  1. I have never trusted Cal Water since the 2015 e coli scare. They warned us all weekend that our water in Los Altos was contaminated but when I called to ask for help, I was told to “call back in an hour to see if they had more information.” I couldn’t even tell if my house was on the hand drawn contamination map on their website – I feel like they put me and my family at risk. SJW isn’t perfect, but putting Cal Water charge isn’t going to fix it.

  2. If the info above is true, how can Mayor Liccardo and the Council even consider Cal Water a good partner?!?! can’t imagine that taking on $1.5B in debt on top of $2.5M in losses is going to bring our rates down. Thumbs down.

  3. Let’s face it, SJW’s rates are not in line with many other cities. In the drought they resorted to gouging. That is why WRATES came along at the grassroots level.

    I know nothing about Cal Water, but but from personal knowledge do not support SJW. I would also be dubious of claims of support for SJW. Its customers are not happy.

  4. California water rights are now the equivalent of the California gold rush. Your future rates will unfortunately be reflected in any merger. The politicians can’t save you! Greed is good!

  5. Impressive… Sj inside still takes comments… More brass and interaction than the murky… Honestly becoming the better option for news

  6. I laugh when people complain about water charges when they are far less then most other bills. The same people complaining wouldn’t bat an eye to paying $250 per month for satellite TV. My last water bill was $175. That was for 3 darn months!! Quit the crying about water rates.

  7. I am a SJW Shareholder, and I am getting bombarded by mail and email from Cal Water, almost daily, telling me not to go along with this merger. Frankly, I feel bad for the Cal Water rate payers because their rates are going to have to go up because of all the money they are spending to try and stop this merger. I also see “publications” from Cal Water personally attacking the CEO and other Directors like Robert Van Valer. I think that is pretty “Low-Budget” by their CEO. As a shareholder of SJW I think it is pretty clear the merger would be the best thing for my money and the share price.

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