Status update on the sale of the Skylonda Mutual water system to Cal Water.
After many years of potentially doing the ground work, I’m pleased to announce that the Skylonda Mutual Water Company has reached an agreement to transfer the Skylonda Mutual water system to the California Water Service Company (CalWater). The boards of directors for both companies have approved the transfer.
The next step is for the shareholders of the Skylonda Mutual Water Company to vote to approve the transfer.
If you are the owner of property served by the Skylonda Mutual Water Company, you are also a shareholder of the company. A majority of the shareholders that vote on the question must approve the transfer in order for it to move forward. Ballots will be mailed to shareholders in the coming weeks.
The Asset Purchase Agreement (APA) states that CalWater will assume ownership operations of the Skylonda Mutual Water Company’s water sources and storage, drinking water treatment plant, and the water distribution system. CalWater will merge the Skylonda system into their Bear Gulch District. CalWater will charge former Skylonda Mutual water customers the same water rates as are paid by other Bear Gulch District Customers. CalWater will not charge Skylonda Mutual or its customers any additional fees above and beyond the usual Bear Gulch District rates as approved by the California Public Utility Commission.
Assuming the Skylonda Mutual shareholders vote to approve the transfer, regulatory approval from multiple regulatory bodies will be required for the transfer to be completed. These regulatory bodies include the California Public Utilities Commission, and the California State Division of Drinking Water.
In the interim time period between shareholder approval and final regulatory approval, the companies have negotiated a separate Operations Transfer Agreement (OTA) This agreement will transition the water systems operations, billing and customer service to CalWater under a paid contract. Skylonda Mutual will continue to own and be responsible for the water system until final regulatory approval is granted and the APA transfer goes into effect. Once the water system assets have been transferred to CalWater, Skylonda Mutual will seek to dissolve the mutual benefit corporation in a timely and orderly manner.
Due to COVID-19 restrictions, Skylonda Mutual will not be holding an in person shareholders meeting to discuss and vote on the Asset Purchase Agreement. Instead there will be one or more shareholder meetings held by teleconference (likely a zoom meeting.) and voting will be conducted by mail in ballots. The annual shareholders meeting and election of board members will also be held by teleconference and mail in ballots.
In addition to the shareholders meeting Skylonda Mutual will hold one or more community meetings to provide information and answer questions about the proposed transfer of the water system to CalWater. Representatives of both Skylonda Mutual and CalWater will be available to answer questions.
What will be the source of our dinking water?
For the past three years Skylonda Mutual has been purchasing all of the water we provide to our customers from CalWater. The water comes from the Hetch Hechy water system. In the future CalWater may also use some of our local water sources including our wells and water from our surface water treatment plant in addition to the water they pump up the hill from their Hetch Hechy interconnections.
How will my water bill change?
In the long term, your bill will be based on CalWater’s Bear Gulch District Water Rates. Your bill will be from CalWater and your payments will be made to them. They have all the modern payment amenities, like auto pay, that Skylonda Mutual has never had. Customer support will done by CalWater as well. Which will mean that your calls will be answered by CalWater customer support employees, instead of Skylonda Mutual’s answering machine.
Here is a bill comparison between SMWC and Cal Water for four different monthly usage levels.
100 Gallon Units Per SMWC Cal Water Month Bill Bill --------------------------------- 25 $111.00 $45.20 50 $132.00 $69.70 100 $190.00 $120.21 150 $264.00 $172.21
A more detailed rate comparison is here.
In the interim period prior to regulatory approval of the transfer, the plan is to transition billing and customer service to CalWater. We intend to move to the Bear Gulch rates, but anticipate there will be an additional fee that covers the costs of Skylonda Mutual’s ownership of the system. Skylonda Mutual, will still be paying for electricity, insurance, water, laboratory analysis, regulatory fees, and a part time administrative employee. We anticipate these costs will exceed the revenue generated by the Bear Gulch rates.
What will happen to the reservoir behind Alice’s?
In the near term, Skylonda Mutual and then CalWater will continue to maintain the reservoir as a source of water for fire protection. Longer term, CalWater has expressed interest in upgrading the surface water treatment plant so that the water rights that go with the transfer can be utilized and water from the surface water treatment plant can be blended into their system. Having sources of drinking water that are already on the top of the mountain, provides CalWater with a valuable emergency source of water should the pipelines used to pump water up the mountain fail for some reason.
What will happen to the Skylonda Mutual Water Company once the water system has been transferred to CalWater?
Following final regulatory approval and the transfer of the water system assets, Skylonda Mutual will seek to dissolve the mutual benefit corporation in a timely and orderly manner. We will pay our final bills and taxes, and file the required paperwork. There will be some assets left over at the end of this process. The board will make a determination of what to do with the final assets. If the remaining cash balance is large, we will distribute it to the shareholders. This distribution will likely be taxable and the company would need to provide 1099 forms and the like. If the value of the cash and physical assets is low, it may not justify the time and expense to distribute it to the shareholders. In this case the board would likely donate it to one or more local charitable organizations.
Why shouldn’t we stay a small independent community water system?
Skylonda Mutual was incorporated in 1933 as a California Mutual Benefit Corporation. We operate as a non-profit corporation who’s shareholders are the property owners that benefit from our water service. As the Skylonda community developed the water system grew to its current 154 water service connections.
The company has been run by an elected volunteer board of directors. The system was designed and built by a mixture of retired Silicon Valley engineers and local folks hired to do hourly labor. Jamie Kerr remembers working for the water company putting in water mains as a high school kid.
The quality of the water we have provided to our customers has improved dramatically since the 1930’s. Initially creek and lake water was pumped through a sand filter, and disinfected with chlorine. We measured the chlorine much as you would a swimming pool. The system went through many incremental improvements, leading to a state of the are membrane filtrations system with continuously monitored water quality and disinfectant levels.
But our water quality improvements have not been able to keep up with the regulatory standards for what is now considered safe and desirable drinking water. Naturally occurring elements in our water that never caused concern before, are now regulated. Simple methods of reducing these naturally occurring substances by blending with other sources of water are no longer approved. This change meant that our well could no longer be used as drinking water sources without adding expensive and complicated treatment systems.
In the eyes of the agencies that regulate us, the quality of water we deliver has never been worse. We struggled for several years with regular violations of water quality standards. Finally several years ago having made good progress towards transferring the water company to CalWater, they agreed to sell us water from their system.
Work that could once be done by knowledgeable volunteers now needs to be done by licensed professionals. Now there are water quality regulations, environmental regulations, workplace safety regulations, reporting requirements, water quality testing requirements, and business practice requirements, all of which make it nearly impossible to run a small water company, with mostly volunteer labor.
If we reject the proposal to transfer our water company to CalWater. We will face some very uncomfortable and expensive choices.
There are no other likely candidates that would be interested in taking over our water system. Rejecting CalWater would be choosing to continue on our own as an independent water company.
If we reject the CalWater transfer, they would be unlikely to be willing to supply us with water on a long term basis. We would be choosing to do whatever it takes to bring our local water sources up to the current regulatory requirements. This would likely be difficult and expensive. This cost would be shared between our 154 customers.
The volunteer board of directors has had it sights set on bringing this transfer of the system to CalWater for many years now. They have all invested significant effort towards this. A rejection by the shareholders would likely result in significant board turnover. This will require new volunteers to step forward from the community to guide the company through this challenge.