Eminent Domain Report

There has been a remarkable movement lately throughout California:  local government agencies are attempting to take over investor-owned, quasi-public utility companies in an effort to reduce utility bills to their constituents.  A number of electric and water utilities are facing pressure from agencies to sell their assets -- or face having them acquired through eminent domain.  Does this make sense?

As just one example, according to one recent article by Garth Stapley in the Modesto Bee, SSJID can boot PG&E from Ripon, Escalon, Manteca, the South San Joaquin Irrigation District has approved the acquisition of PG&E's assets in order to control the delivery of power to about 110,000 residents.  The District believes it can lower electric bills by 15%.  PG&E called such savings a "pie-in-the-sky projection," instead predicting that rates would rise.  The take-over decision came after 11 hours of testimony among various attorneys, engineers, and other experts, and even District staff only calculated the savings at 2.5%.

A big factor in the ultimate savings calculation will be the determination of how much the District must pay for PG&E's assets through a forced acquisition.  That will be for a jury to determine.  Is the District, in its savings calculations, undervaluing the business assets?  The valuation is more than just PG&E's physical improvements, equipment, etc.  The biggest component of the compensation in an eminent domain action may turn out to be PG&E's business goodwill.  (See Code Civ. Proc., sec. 1263.510.)  These are the intangible assets -- the likely projected future revenues and profits that can be derived through PG&E's delivery of utility service.  PG&E's initial valuation is apparently $600 million.  The ultimate determination of just compensation is based upon the "highest price" that a willing buyer would pay for the business.  And that valuation figure is money the District will need to pay now.

These takeovers will be interesting to follow, and years from now we can look back and see whether the take-over was worth the fight and the ultimate cost.  Stay tuned.