Acquisitions 2018-08-03T16:17:28+00:00

Acquisitions

SJWTX Out in the FieldTexas is blessed with an abundance of public and private water utilities that are very well operated and managed.  There are times, however, when some systems, typically those in rural areas that are challenged by ever-changing and more complex regulatory requirements, infrastructure maintenance and expansion, and the development of new water supplies, need the breadth and depth of operational, financial, regulatory and managerial resources SJWTX can provide.  Our primary objective and business model is to look for opportunities to consolidate and regionalize these distressed systems and ensure these customers can benefit from the economies of scale this kind of approach provides.  SJWTX has considerable experience in the acquisition of several types and sizes of both public and private water systems in Texas.  To begin, it is important to understand how SJWTX began its utility operations in Texas.

Coming to Texas

SJWTX Coming to TexasSJW Group formed its’ Texas subsidiary, SJWTX, Inc., in 2005 to initiate, negotiate, and ultimately complete the acquisition of utility assets of Canyon Lake Water Supply Corporation (“WSC”).

Initial discussions focused on the question, “Why do anything?” Both parties agreed that the primary criteria should be public health and safety, and the quality of life of the communities being served. Additional criteria included environmental stewardship, sustainability, reliability, corporate citizenship, and economics.

The WSC Board quickly recognized personal liability issues arising from their fiduciary and legal responsibilities as Board members. Having answered the question of “Why do anything”, the discussions quickly proceeded to, “How can we make this work?” To address this key question, the parties’ legal advisors first confirmed that the sale of the utility assets was legal under Texas law. SJWTX recognized that employee retention was critical to ensure goodwill with employees and customers and to facilitate continuity of water service operations. A three year rate plan that protected customers while ensuring the financial viability of the utility was mutually agreed upon.

A series of customer meetings were held to explain the process and rationale of the proposed acquisition as well as to answer questions. Concurrently, due diligence was undertaken and discussions were held to determine valuation, payments, risk transfer, employee retention arrangements, and how any payments would be distributed to the WSC customers. The transaction was approved in October of 2005 by member vote during a WSC customer meeting in accordance with the by-laws. Filings were made with the Texas Commission on Environmental Quality (TCEQ), and upon receipt of their approval, the transaction closed in May of 2006.

Acquisition Implementation

SJWTX Acquisition ImplementationSJWTX began a year-long integration process after closing on the acquisition of Canyon Lake Water Supply Company in May 2006. SJWTX, now doing business as Canyon Lake Water Service Company, began simultaneous improvements to the utility’s operations, management and infrastructure in order to fulfill its commitments. Throughout the implementation phase, SJWTX maintained its focus on the needs of the key stakeholder groups: customers, employees and co-op members.

Soon after closing of the sale of the utility to SJWTX, co-op members benefited from a distribution of cash equity from the sale of the assets, which was based on the difference between the value of the assets paid by SJWTX and the debt and other liabilities of the WSC. The WSC board determined the method of allocating the distribution among members.

Customers of the utility, most being also co-op members, were eager for service improvements. To achieve this, SJWTX embarked on an initial $9 million Capital Improvement Program, completed in the first 2 years, that included major upgrades to two surface water treatment plants that both increased capacity and improved water quality. In addition, a new half million gallon water tower was constructed to improve pressure and fire protection. New transmission mains were constructed, well sites improved and support facilities expanded.

Besides the visible physical plant improvements, SJWTX implemented managerial and information system improvements in order to more efficiently employ its assets and staff. Modern corporate accounting systems were implemented to better track costs and assets. A new advanced Supervisory Control and Data Acquisition (SCADA) system was deployed to aid operators charged with controlling facilities distributed over a large service area. A facility Geographic Information System (GIS) was developed to keep track of over 480 miles of buried water mains and to assist engineers to plan improvements.

Through these improvements and others, customers saw immediate and extended benefits. Service interruptions were significantly reduced. Water loss was reduced from over 30% in 2005 to less than 15% in 2010, and is under 10% as of 2014 . Water quality violations were corrected. Over 70 fire hydrants that had been out of service in 2005 due to lack of maintenance were repaired.

SJWTX recognized that the third groups of key stakeholders, employees, were critical to meeting its commitments to the other two groups. Nearly all employees of the WSC agreed to stay on with SJWTX after the transfer, including the General Manager who agreed to a one year contract before his retirement. SJWTX undertook a review and modernization of employee benefits with the aim of improving recruitment and retention. For the first time, the utility’s employees were offered life insurance and full dental, along with improved medical insurance and a 401K retirement plan. An employer-sponsored training program was implemented along with incentives for employees who obtained needed licenses. Over time, pay scales, which had averaged about 25% below comparable utilities under the WSC, were adjusted to attract and retain qualified operators, managers and customer service staff.

Our Business Model

Canyon Lake Water Supply Corporation (“WSC”) became an operating entity in 1994 as a member-owned water utility created by consolidating 46 separate groundwater systems. SJWTX acquired the assets of the WSC in 2006 and has continued to regionalize the service area’s water utilities through acquisitions of adjacent water companies, water supply corporations, and municipal utilities.

Each acquired system consisted of one or more unique Public Water System (“PWS”) Consolidation of small PWS is a policy goal of the state, as it facilitates objectives such as improved economies of scale, improved water supply reliability and reduced administrative costs for both the utility and the regulators. Customers benefit from regionalization by having access to a more reliable water supply at a lower cost of service, compared with smaller systems. SJWTX’s goal is to consolidate all PWS in our CCN in western Comal County into a single, interconnected system.

SJWTX provides water service to nearly 12,000 connections in six separate PWS within its 240 square mile CCN, down from 12 PWS in just the last few years.From its inception, SJWTX intended to use the base of the CLWSC service area to consolidate a multitude of smaller water systems near Canyon Lake into a regional system.

With over 30 separate water utilities in Comal County in 2006, SJWTX had to focus its efforts. Initially, SJWTX focused on the neighboring utilities that were closest to its existing system as these could most easily be interconnected via pipelines, there by improving efficiency of operations and reliability of service. In some cases, acquisitions were made of utilities that were already interconnected to SJWTX, who served as the wholesaler.

In such cases, the acquisition unified management of the water supply from source to customer tap, eliminating operational and regulatory inefficiency.

The following table summarizes the 11 acquisitions made by SJWTX in Texas between 2006 and 2014. The table illustrates the diversity of systems acquired, in terms of size, prior ownership and the key transaction drivers. Two utilities were previously owned by Water Supply Corporations, five by investors, one by a MUD, and one jointly by a city and a River Authority. Two included wastewater systems.

 

SJWTX Acquisitions 2006-2014

 Acquisitions 2015