Editor’s Note: This article has been updated.

The city of Claremont has been dealt a setback in its effort to take over Golden State Water Co.’s local operations under a tentative ruling this month that could have far-reaching implications as California water utilities attempt to fend off government takeovers.

The city has been trying for two years to wrest local operations from Golden State because of residents’ concerns about high water rates. That effort was dealt a serious blow with the tentative Nov. 10 ruling by Los Angeles Superior Court Judge Richard Fruin, who found Claremont failed to make a case that it could provide water at lower rates while maintaining water quality and repairing an aging pipe system.

Golden State Water, a subsidiary of publicly traded American States Water Co. of San Dimas, is facing a similar takeover attempt of its system in Ojai and had briefly faced a takeover attempt in Los Osos. Other investor-owned utilities have had their water systems targeted with eminent domain proceedings, though the Claremont case is the first to have gone to trial.

“The main argument proponents put forward is that the private water utilities are charging too much and that public agencies can do it at lower rates,” said Jack Hawks, executive director of the California Water Association, which represents investor-owned water utilities regulated by the state Public Utilities Commission. “This trial and this ruling really call that claim into question.”

Claremont and Golden State Water have until just after Thanksgiving to present arguments to Fruin before he makes the tentative ruling final.

If the ruling holds, City Manager Tony Ramos said in a statement on Claremont’s website that the city intends to appeal.

Golden State executives welcomed the decision.

“From the outset of the trial, we have maintained that the city’s claims were without merit and continued to demonstrate that Golden State Water has operated transparently and in the best interest of the community,” said Denise Kruger, the company’s senior vice president of regulated utilities.

American States Water’s shares, which had dipped on the New York Stock Exchange prior to the Nov. 10 ruling, closed up 6.7 percent for the week ended Nov. 16 at $42.26, their highest level since August.

Takeover vote

The Claremont case stems from overwhelming voter approval two years ago of a measure authorizing the city to issue $135 million in bonds to finance a takeover of Golden State’s water system there.

The company, which has operated for more than 80 years, provides water to about 255,000 customers in 76 communities spread across 10 counties from Northern to Southern California. Claremont’s plan called for the neighboring city of La Verne, which has its own municipal water agency, to provide water service instead.

Golden State has steadfastly refused to sell, forcing a trial over the use of eminent domain. Each side reportedly spent about $3 million to make their case.

Claremont officials said municipal control would ensure more transparency and community input in setting rates. Golden State argued at trial that La Verne would not be able to operate the system effectively while charging lower rates and that La Verne had its own challenges in meeting federal and state water-quality standards.

Fruin’s ruling against the use of eminent domain, if upheld on appeal, would effectively nix the takeover attempt.

Ripple effects

Hawks said Fruin’s ruling raises the bar for municipal agencies to prove they can do a better job than private water utilities in providing high-quality water at lower rates.

“Other municipalities thinking of doing this will have to think and look longer and harder at absorbing all those legal costs and the risk if they lose,” he said.

The takeover attempt in Ojai is furthest along. Voters in that Ventura County city authorized the neighboring Casitas Municipal Water District to buy the water system there from Golden State three years ago, using eminent domain if Golden State did not want to sell.

Golden State’s Kruger declined to comment on the implications of the recent ruling for the takeover attempt in Ojai.

Hawks said the burden of proof will likely be much higher on the Casitas water district to show it can deliver water at lower cost while meeting clean-water standards and replacing aging pipes. For utilities such as Golden State, he said, the Public Utilities Commission’s rate-setting process already takes all this into account, granting them a minimal profit margin.

It’s almost impossible for a municipal water agency to charge less while still delivering clean water and replacing pipes, Hawks said.

In Fruin’s ruling in the Claremont case, he slammed Claremont City Manager Ramos for admitting in testimony that “lower water rates were not likely to be realized from the city’s exercise of eminent domain over the Claremont water assets.”