General Questions and Answers
The City will pay EPCOR the fair market value of the Bullhead City water system. Fair market value is defined as the most probable cash price a willing buyer would pay a willing seller where the seller had a reasonable time to find a buyer and the buyer knows everything about the property being acquired. In a court proceeding to acquire the EPCOR Bullhead City system, EPCOR will be treated as a willing seller, regardless of any claim that it is not for sale.
The City’s consultants estimated the fair market value of the Bullhead City water system is $55 million. EPCOR has stated that the value of the Bullhead City water system is $130 million. The interest rate on any purchase price will be dependent on the economic conditions in place at the time the Bonds are actually sought.
The City will be publishing a further report showing potential sample water rates assuming various potential system purchase prices and financing interest rates.
If Proposition 415 is approved, before filing a lawsuit the City must make an offer to EPCOR based on the City’s appraisal and determination of just compensation. If EPCOR rejects the City’s proposal and the City and EPCOR cannot negotiate a price, then the City may file the lawsuit that begins the acquisition process.
Upon compliance with statutory and constitutional requirements, the court must allow Bullhead City to acquire the water system. EPCOR will be given an opportunity to explain why the City should not be allowed to acquire or be granted possession of the water system. The only issues are whether the property is being sought for a public use authorized by law and whether the property being acquired is necessary to accomplish the authorized public use.
A judge will decide whether the acquisition of EPCOR’s Bullhead City system is a public use authorized by law. The court must normally defer to the City Council and the voters as to whether the acquisition is necessary to accomplish the public use.
The only remaining issue would be just compensation, or the amount of money the City will be required to pay EPCOR. A judge or jury, if either party requests one, would determine just compensation if the two parties cannot agree.
The City has the right to dismiss the lawsuit at any time and for any reason, even after a judgment in court. For example, if the verdict in EPCOR’s favor were higher than the City wanted to pay, the City could dismiss the lawsuit and the City would be responsible for EPCOR’s reasonable and actual costs, disbursements and expenses, including reasonable attorney, appraisal and engineering fees and EPCOR would retain control of the water system.
A basic difference between municipally owned utilities and those owned by private companies is who sets the rates for customers and makes decisions about operational matters, such as water treatment. If Bullhead City owned the water system, decisions about rates and water treatment would be made by the Bullhead City Council. If EPCOR continues to own the Bullhead City water system, decisions about rates and whether to approve merger of rates with other communities would be made by the Arizona Corporation Commission. EPCOR would continue making decisions about water treatment.
Another difference is that a City-owned system would operate on a non-profit basis. EPCOR is a for-profit corporation and under Arizona law is entitled to make a profit on its investment in and operation of the Bullhead City water system.
Because EPCOR claims the system is worth $130 million. The City disagrees, and estimates just compensation is $55 million for the acquisition of EPCOR’s Bullhead City assets. Approval of the $130 million by the voters does not mean that the City must seek $130 million but only authorizes up to that amount.
If an agreement cannot be reached both sides will have an opportunity to present their valuations in court. Using EPCOR’s valuation to set the amount of the bond authorization gives the City flexibility to pay an agreed upon purchase price or judgment exceeding the amount of the City’s estimate. Whether to accept an agreed upon price or settlement, or pay any judgment, will be a decision made by the City Council at a public meeting with public participation based on information available at that time, including such factors as the effect paying the settlement or judgment might have on water rates or service.
The $130 million bond authorization also allows the City flexibility to possibly acquire other EPCOR or non-EPCOR water assets. If that were to happen then the total cost of the bond would be spread over all customers affected, not just EPCOR’s Bullhead City customers.
Both sides will have an opportunity to present valuation
evidence. A court or jury could return any
verdict within the range of testimony.
EPCOR discussed cases from other jurisdictions
in which the value of the water company was
determined at the end of the case instead of the
beginning. Intervening factors, under such circumstances,
can cause the original estimates of value
to become outdated.
In Arizona, municipalities have the right to seek
immediate possession upon filing a condemnation
case, so the date of value is fixed early in the case.
The City anticipates that it would seek immediate
possession of the Bullhead City water system if the
voters approve the acquisition and condemnation
becomes necessary. If the court awards the City
possession before the end of the case, it must pay
EPCOR statutory interest on the final award at the
prime rate from the date it takes possession.
operate a utility only if the voters approve. A utility
under Arizona law includes water systems.
or may not relate to the useful life of an asset. The
City looks at the actual useful life of its assets and
determines whether they can continue in use or
need to be replaced. Fully depreciated assets may
have no “book value” but they may still have a
useful life. If so, the City may not need to replace
that “fully depreciated” asset.
because EPCOR is the water utility that is of interest
to the public at this time. If the proposition passes, it
would allow the City Council to consider the acquisition
of other water utilities in an around the City
at some point in the future without holding another
public election. If the City Council were to consider
the acquisition of other water utilities in the future,
the City Council’s proceedings would still be subject
to public notice and meeting requirements and
allow for community input.
July 16, 2019 - Regular City Council Meeting