Securing Approval from the California Public Utilities Commission for a Water Company Purchase & Sale

We achieved a successful result on behalf of both the buyer and seller of a California water company. We secured full approval from the CPUC—with amicable waivers obtained all around—and upheld state policy encouraging consolidation of smaller water systems.

We achieved a victory at the California Public Utilities Commission (CPUC) by securing CPUC approval for the sale of one client, East Pasadena Water Company, to another client, California-American Water Company. In this proceeding, separate Nossaman teams represented East Pasadena Water and California American Water.

East Pasadena Water is a CPUC-regulated public water utility serving approximately 3,000 connections in the Cities of Temple City, Arcadia and San Gabriel and an unincorporated portion of Los Angeles County south-east of the City of Pasadena. California American Water is a CPUC-regulated public utility providing water and/or wastewater utility services in parts of San Diego, Los Angeles, Ventura, Monterey, Sonoma, Yolo, Sacramento, Merced and Placer Counties. California American Water serves approximately 680,000 people in 50 communities and is part of a family of companies that comprise American Water, the largest investor-owned water utility business in the country.

The 80-year old owner of East Pasadena Water, facing evolving California water challenges resulting from stricter water quality standards, water supply issues and the need to develop new conservation strategies, was ready to “pass the baton” to California American Water. Due to its substantial expertise and larger size, the new owner is able to increase the benefits to customers through its conservation, rate assistance and customer service programs, while also providing improved access to the capital and critical economies of scale required to meet future water system needs.

Although it recognized the benefits to customers of both systems, the Public Advocates Office at the CPUC made the argument that CPUC’s “gain on sale” rules, which historically have required a sharing of gain on sales of particular utility assets no longer needed for utility service, applied to the transaction. Therefore, a substantial portion of the gain the owner would realize from the sale would have had to be passed on to East Pasadena Water customers. This was contrary to more than a decade of CPUC precedent, and, if adopted by the CPUC, would have likely killed this deal and discouraged water companies from undertaking similar transactions in the future. We filed multiple pleadings on behalf of California American Water and East Pasadena Water (most of them joint filings) noting that the CPUC’s gain on sale rules did not apply to this transaction and pointing out that such a result would be contrary to state policy encouraging consolidation of smaller water systems.

The CPUC approved the transaction by unanimous vote on August 5, 2021, rejecting the arguments made by the Public Advocates Office with respect to the gain on sale. The transaction, whereby California American Water purchased all of the East Pasadena Water assets used or held for use in the operation of its water system, including water rights, for $34 million, closed in September 2021.