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Montebello to Seek Bids on Unprofitable Water System

July 02, 1987|RICHARD HOLGUIN | Times Staff Writer

MONTEBELLO — Gov. George Deukmejian has signed into law a bill that allows Montebello to sell its water system without voter approval, clearing the way to market the utility which is barely breaking even.

The city is considering selling the municipal water system as a way to earn more money on its multimillion-dollar investment, City Manager Joseph M. Goeden said.

The value of the water system has been estimated at $3 million to $7 million, Goeden said, but the city won't know the market value until it receives bids from prospective buyers. Bids probably will be sought this month.

The water system serves about 1,550 residential, commercial and industrial customers in north and south Montebello and a small area of Commerce to the west.

Market Value Is Factor

"Until we know what its market value is . . . we won't know if what we're currently getting is a good return or if we ought to sell it and invest our money elsewhere," Goeden said.

In Sacramento, Deukmejian signed into law last week a bill that allows the city to sell the utility without voter approval. State Sen. Joseph Montoya (D-El Monte) introduced the bill. The city sought the legislation because state law is ambiguous as to whether a vote is required to sell a municipal water system, a Montoya spokesman said.

The City Council must approve the sale of the water system, one of five serving Montebello. The state Public Utilities Commission would have to approve any rate increases if the water system were sold to a private company, Goeden said. With a city-owned system, the council sets the rates and they are not subject to PUC approval.

"Our system is such a small part of our city that it didn't seem to make sense to put it to a vote of people, (many of whom) weren't being serviced by our system," Goeden said.

Montebello entered the water business in the mid-1960s when it bought the small Chapin Water Co. for $5,000. In 1972, the city paid $521,000 and added the Park Water Co. to its holdings in the southern industrial section of the city, officials said.

Water lines were not carrying enough water to the area, and at least one company--a paper distribution firm--had difficulty obtaining fire insurance and threatened to leave the city, Goeden said.

"Our original intent was to protect our industrial base," Goeden said.

Montebello later expanded the water system to serve residential and commercial customers in the developing north end of the city.

While exact figures are still being collected, the city has spent millions of dollars throughout the years upgrading aging portions of the system and building expensive new reservoirs, City Engineer Ayyad Ghobrial said. The last segment was completed in 1985.

Better Investment Sought

Montebello officials are concerned that the city may be tying up its money in an unprofitable utility. The city's budget in fiscal 1986-87 was $28 million.

The municipal water system would have finished the 1986-87 fiscal year $107,000 in the red if the City Council had not approved a 15% rate increase, which took effect June 1. City officials estimated the increase would enable the city to finish the year with a profit of about $10,000, according to finance director Ted Nix.

Once bids on the water system are received, the City Council will decide whether to sell the system and invest elsewhere. The annual earnings of the city's $12.4-million investment portfolio are just under 7%, Goeden said. If it doesn't invest the proceeds, Montebello could use the money for public improvements, such as widening streets, to attract business to the city, he said.

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