Countywide : Study Says Sale of Water District Would Hike Fees, Cut Service

Citing the possibility of higher user fees and reduced services, an Orange County study released Thursday recommends rejecting an unusual bid by a private firm to buy the Santa Margarita Water District.

The study’s conclusions were immediately called misleading by officials of California-American Water Co., who contend that the takeover would result in lower costs for customers of the South County water district.

The Local Agency Formation Commission, which oversees takeovers and consolidations of special districts, began the study nearly a year ago after Cal-Am proposed buying the water district for more than $300 million by assuming all its outstanding debt.

Water district officials applauded the report.

“The LAFCO report confirms our same findings,” said John J. Schatz, district general manager. “There is the potential for service standards to be reduced if they take over. The bottom line for [Cal-Am] is financial.”

Schatz said he believes the district is worth at least $80 million more than Cal-Am’s buying price.

But a statement released by Cal-Am President Ted Jones Jr. said, “We don’t feel the report reflects the ratepayers’ desires, or what is really in their best interest.”

The district has had its troubles. Two longtime managers were convicted last year on criminal conflict-of-interest charges.

The proposal to buy the district is drawing interest because it represents the first attempt in state history to privatize a public agency, officials said.

LAFCO has scheduled a July 10 public hearing on the matter, officials said.