SJW Corporation, Subsidiaries and Structure

SJW Corporation & Subsidiaries  

During the mid-1980s San Jose Water Company separated the regulated (water utility) from other parts, of their business. This resulted in a public corporation, SJW Corporation and several subsidiaries. 


The SJW Corporation depends on the the San Jose Water Company for the majority of it's revenues. The return is regulated by CPUC, presently 8.38%. There are also added components that will likely increase the effective ROR (Rate of Return). The current structure of a regulated water utility, allows them to total expenses incurred in serving the (ratepayers), including capital costs of new construction and fair market value of facilities.

SJWTX, Inc., a wholly owned subsidiary of SJW Corp., was incorporated in the State of Texas in 2005. SJWTX, Inc. is doing business as Canyon Lake Water Service Company (CLWSC). CLWSC is a public utility in the business of providing water service to approximately 9,000 connections that serve approximately 36,000 people in western Comal County and southern Blanco County. The company’s service area comprises more than 237 square miles in the growing region between San Antonio and Austin. It should also be noted that a massive rate increase, of 71%, has been requested, by CLWSC.  The proposed water rate increase requested by CLWSC consists of a 71% rate hike comprised of two scheduled implementation dates. The first part of the increase (38%) went into effect on October 27th. The second half of the increase (33%) was scheduled to go into effect on March 15th.  A non-profit group (CEWR, Coalition for Equitable Water Rates) has opposed the rate increase and has brought suit against CLWSC and forced a hearing.  The regulatory environment is purported to be less restrictive than California. In Texas the responsible agency is Texas Commission on Environmental Quality (TCEQ) an the environmental agency, rather than a utility regulatory agency CPUC and concerned with conservation. http://www.tceq.state.tx.us/ . In California we also have a Division of Ratepayer Advocates, as well as non-governmental consumer advocates.

Many water companies are buying private water companies around which to build water utilities, with effectively captive clients and apparently significantly less regulation, compared to other states.

Texas Water Alliance Limited (“TWA”), a wholly owned subsidiary of SJW Corp., is undertaking activities that are necessary to develop a water supply project in Texas. This appears to be primarily a company formed to lobby and represent the interests of SJW Corp., in the Texas water market.

Conclusions

Several points are closely related to the corporate structure of a water utility, a public utility generally separates it's component functions, into a regulated subsidiary and a Publicly traded corporation and subsidiaries. Regulatory oversight represents, interference and complexity, restricting the actions of the corporation. In the case of water utilities municipal water utilities generally have controlled rate increases and adapted better to lower demand.

1. The rate increases requested and previously received have been significantly higher than the inflation rate. The present SJW and subsidiaries requested rate increases are 44%-San Jose and 71%-Texas.
2. The effort to promote conservation has resulted in lower amounts of water being sold in San Joe and the associated municipal water systems it operates (in portions of the cities of Cupertino and San Jose and in the cities of Campbell, Monte Sereno, Saratoga and the Town of Los Gatos, and adjacent unincorporated territories, all in the County of Santa Clara in the State of California). The arguments suggests that fixed costs don't change or SJW seems to prefer, to increase the approved ROR (Rate of Return), based on the need to cover "fixed costs".
3. The effort by SJW to get California Public Utilities Commission to decouple sales from revenues through a Water Revenue Adjustment Mechanism (“WRAM”). The intended effect of a revenue decoupling mechanism is to ensure that a utility’s authorized revenue levels are achieved regardless of the level of customer usage. Which guarantees SJW a guaranteed revenue stream based on the CPUC negotiated ROR, independent of the water use by ratepayers. There appears, to be, no motivation to control costs and improve operational efficiency, if SJW Corporation is allowed to implement "WRAM".
   
4. 
   California: Water Revenue Adjustment Mechanism (WRAM)
6. 
   Necessary to offset financial instability that would result from 
7. Conservation Rates (e.g.: inclining block rate structures)
9. Tracks changes in recovery of authorized fixed costs due to variations 
11. in water sales because of conservation or other issues affecting sales 
12. Surcharges possible when combined effect of these programs 
14. exceeds 2.5% of revenue
    
15. The structure of the corporation and subsidiaries seems conducive to long-term higher rate increases, due in part to the public nature of the holding company (SJW Corporation) and the requirement to pay dividends. In reviewing the last 4 Annual Reports,"Maximize shareholder value by achieving strong earnings, sustainable growth, and competitive total returns" or very similar words, can be found, a head of any comment regarding the ratepayers benefits. 
16. "Investor owned utilities typically charge 33 percent more for water and 63 percent more for sewer service than local government utilities", as published in Food & Water Watch. The article offers many insights into the operational differences.