San Jose Water Co. Finalizes Merger with East Coast Utility

San Jose Water Company has officially tied the knot with an East Coast counterpart, making it the nation’s third-largest publicly traded water utility with customers in California, Connecticut, Maine and Texas.

Eric Thornburg, the generously compensated president of San Jose Water’s parent company, SJW Group, praised the $1.1 billion merger with Connecticut Water as a benefit for investors and ratepayers alike. By expanding across state lines, he said the newly linked companies will have greater capacity to upgrade aging infrastructure.

“As a leading national water and wastewater utility, we are well-positioned to deliver significant benefits to all of our stakeholders, including shareholders, customers, employees and the local communities we serve,” Thornburg, who helmed Connecticut Water until taking over his current post in 2017, declared in a press release last week. “This transformative combination provides us with the financial strength, geographic and regulatory diversity and increased scale that we believe will enable growth and create sustainable shareholder value.”

Locals who’ve been keeping a close eye on San Jose Water over the past few years of rate and fee hikes—and apparent over-billing—say California regulators failed to determine whether the merger serves the public interest. Rita Benton, co-founder of citizen accountability group WRATES (Water Rate Advocates for Transparency, Equity and Sustainability) said the California Public Utilities Commission (CPUC) conducted only a perfunctory review of an enormously complicated transaction.

“Once again, the CPUC is not willing to regulate SJW,” she said. “The lack of interest, oversight and commitment to [state] code by the CPUC is a complete dereliction of duty.”

CPUC’s counterpart in Connecticut balked at the tie-up when it was announced a little more than a year ago and required SJW Group to submit a few revised petitions to address a wide range of concerns. The final application included stronger assurances for East Coast customers, job guarantees for the utility’s 221 employees, $120,000 a year in charitable contributions and a formal promise that the merger would have no effect on base rates until at least 2021.

In all, Connecticut’s Public Utilities Regulatory Authority (PURA) held SJW Group to 80 commitments to protect the public and impose additional conditions on the corporate merger. California’s utility regulators secured no such assurances for San Jose Water’s million-plus customers in Silicon Valley.

“We have done everything but light our hair on fire to get the CPUC involved, but they’re taking a hands-off approach and not even getting involved,” Benton said.

Water company officials did not respond to San Jose Inside’s requests for comment by press time. Neither did state utility commissioners.

The city of San Jose—one of the water company’s single largest ratepayers—urged the CPUC to investigate the potential impacts of the merger on Santa Clara County customers. Mayor Sam Liccardo relayed the request to regulators in a May 21, 2018, letter. A couple months later, the CPUC initiated what’s called an Order Instituting Investigation to determine whether the state has an obligation to review the merits of the merger and take appropriate action.

By spring of this year, however, a judge suspended the review until Connecticut’s regulatory agents issued their own ruling on a new application.

On April 19 this year, San Jose had one of its attorneys ask the CPUC to re-open the investigation to find out if any protections for local consumers were included in the revised merger proposal submitted to Connecticut authorities. “San Jose Water’s promises to Connecticut consumers to reduce and freeze costs may enable them to expand their utility empire,” Liccardo said at the time, “but must not come at the expense of California consumers who continue paying higher rates to the same company.”

Yet California regulators never picked up where they left off.

On Oct. 9, San Jose Water announced that it consummated the deal anyway.

CPUC tried to get definitive answers out of water company officials about the merger’s impact on local ratepayers as early as last summer. But, in prepared testimony, San Jose Water Company Vice President Palle Jensen offered only vague assurances.

During a July 12, 2018, CPUC proceeding, Jensen was asked how the merger would affect overhead between SJW Group’s two operating divisions, whether it would reduce investments in San Jose infrastructure and how borrowing for consolidation would affect future rates. The executive, who once worked for the CPUC, responded carefully. “I expect that the planned transaction will not cause SJW Group to reduce its investments in San Jose Water in comparison to what it would have done otherwise,” he said.

And the basis of that expectation?

“SJW Group’s investments in San Jose Water are driven mainly by San Jose Water’s own need—first to make investments in utility plant in order to ensure its ability to provide reliable, high quality water service to all its customers, and second to maintain a balanced capital structure,” he continued. The planned merger, he said, “will not prevent SJW Group from making new equity investments in San Jose Water to meet those needs, and implementation of the planned transaction will increase SJW Group’s capacity to do so.”

Jensen went on to blame the CPUC and “highly critical” involvement of public advocates for preventing the water company—a so-called “dividend king”—from charging customers more so they could pay for improvements.

“The effective constraint on infrastructure investment is not a reluctance of the parent company to invest, but the unwillingness of regulators to allow rates that would affect all the potential equity investment,” he lamented.

Michael Blomquist, a San Jose Water customer who registered as a party to the CPUC review, said the state abrogated its responsibility to hold the utility company accountable. Now that the merger’s a done deal, SJW Group will be that much harder for any state to regulate. And he’s all but certain that California ratepayers got screwed.

“It’s a total sham from start to finish,” he said of the CPUC’s weak oversight of the deal. “If anything, we’re more entitled to a review than ratepayers in Connecticut or Maine.”

Jennifer Wadsworth is the news editor for San Jose Inside and Metro Silicon Valley. Email tips to [email protected]. Follow her on Twitter at @jennwadsworth.

6 Comments

  1. > with customers in California, Connecticut, Maine and Texas.. . . .

    > By expanding across state lines, he said the newly linked companies will have greater capacity to upgrade aging infrastructure.

    Your going to have to explain this one, Eric. It’s not obvious.

    Isn’t a water pipe from California to Texas to Maine going to cost a lot of money?

    The water will flow from Maine to California? Yes?

  2. Eric Thornburg, “the remarkably well-heeled president of San Jose Water’s parent company, SJW Group,” should know this: I’m aware of more than a couple of your residential customers tapping backyard wells to provide the bulk of their water requirements. Your ever-increasing rates can only hasten more of the same… and you deserve it!

  3. I just can’t imagen why they didn’t merge with PG$E as well and really screw the rates to the costumers.
    BOHICA!

    • Both broken systems. What can you do? The jury is still out for me on installing solar and the water well in the backyard is a good idea. My dad did that in our backyard as a kid and the family drank it unfiltered. I’m 77 and I’m still alive.

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