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 battleâand now state regulators want to take a closer look at the deal.
The California Public Utilities Commission (CPUC) in June notified SJW Groupâthe private corporation that owns San Jose Waterâthat 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 Groupâs 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 Joseâs 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 outÂ 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 âhostile takeoverâ 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 Groupâs response to its âgood faith offersâ as a âhostile public attackâ 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 Groupâs current CEO, Eric Thornburg, led Connecticut Water for 11 years before taking the helm at San Jose Water last Novemberâfour months before the companies announced their planned merger.
âThe âmerger of equalsâ appears to be nothing more than the SJW CEO bringing together his current and former companies at the expense of SJW stockholders,â Cal Water wrote in a communiquÃ© to shareholders. âThe transaction was negotiated under conflicted circumstances that, in our view, the board should not have allowed.â
San Jose Water spokeswoman Jayme Ackemann bats away Cal Waterâs insinuation of malfeasance as part of a longstanding campaign to undermine the deal.
âWe believe that our merger with Connecticut Water is the superior path forward for SJW Groupâs stockholders, and we are confident that our stockholders will not be distracted by Cal Waterâs personal attacks against our board members,â she says. âContrary to Cal Waterâs 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 boardâs finance committee, which is entirely composed of independent directors.â
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 otherâs 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.
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.Â Another of Cal Waterâs criticisms of the San Jose-Connecticut merger is that it would burden ratepayers by creating a company with two headquartersâone 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 aÂ ârobustâ appeals process.
âIt was a lot more work, but we just felt like it was worth it,â Dean says,Â âbecause our relationship with our customers is probably stronger now.â
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.
If Cal Water bought out San Jose Water, it would likely put the latter companyâs executivesâincluding Thornburgâout of a job. Dean says all other positions from management down, however, would be safe.
âWe guaranteed that there would be no employee layoffs below the executive level,â she says. âWe definitely wouldnât need two CEOs.â