Unhappy customers call for oversight of AV Water

Brett Berntsen
Mike Melott, left, Jason Martinez, center, and Robert McGimsey, right, load up water for their neighbors in Crouch Mesa on June 20, at McGee Park. In back is Mike Mestas with the San Juan County Office of Emergency Management. The water company that supplies that area is under investigation by two state agencies.

FARMINGTON – As the public outcry grows over a month-long boil advisory affecting Crouch Mesa residents, concerns have focused on the AV Water company and what some say is the mismanagement of a public resource.

“Private companies should never control water systems,” said Eleanor Bravo, a senior organizer with the New Mexico chapter of the advocacy group Food and Water Watch. “This case seems especially exaggerated.”

Customers of the AV Water company, which serves more than 6,000 Crouch Mesa residents, have been living under a boil advisory and intermittent water shortages for more than a month due to consistent failures at the company’s treatment plant. The lengthy crisis, combined with a stretch of unseasonably hot temperatures, has sparked a chorus of criticism revolving around high rates, poor service and a lack of transparency from the company. Bravo said the complaints are classic symptoms of profit taking precedence over service.

And for Crouch Mesa water users, the issue is nothing new.  

Bruce Childers, a builder and member of the Crouch Mesa Ratepayers Association, said residents have had grievances with the water company since it was managed by local developer and businessman Geoff McMahon.

“They’ve been operating largely unregulated for years,” Childers said. “We’ve been paying the most money for the least quality water.”

McMahon built the system in the late 1970's, and incorporated it as the Morningstar Water Users Association — a type of organization designed to be self-regulating and governed by individual stakeholders.

The New Mexico Public Regulation Commission, which regulates public utilities, does not oversee rates and business practices of water user associations with that kind of democratic structure. The groups are monitored by the New Mexico Environment Department, but the department has limited authority, and mainly enforces water quality issues.

San Juan County  issued a declaration of emergency on behalf of the Morningstar and Harvest Gold water systems, which are owned by the Animas Valley Water company.
A sign for the Animas Valley Land and Water Co. building is seen in Crouch Mesa.

In 2008, McMahon sold his Crouch Mesa development, including the water system, to a group of Chicago-based investors. The buyers created the Animas Valley Land and Water Co., and later moved the water system under a separate company called AV Water.

Shortly after the sale, Childers said he and the ratepayers association contacted the NMED with concerns over how “democratically” the water system was actually being run. The resulting scrutiny prompted the Animas Valley Land and Water Co. in 2011 to apply for public utility status from the PRC.

The Daily Times was unsuccessful in its attempts to contact company owners for this story. However, controlling member Mark Iuppenlatz testified before the PRC that he became aware the NMED had “concerns about whether Morningstar was operating consistently” with statutes governing water user associations. Iuppenlatz stated that the company decided to voluntarily seek utility status due to the “potential that the water systems should have been regulated by the (PRC) all along.”

“We did not intend in any way to avoid the commission's jurisdiction,” he said.

During his testimony, Iuppenlatz also touted upgrades the company would make to the system. He said that under the previous owners, “customer dissatisfaction was high,” but AV Water would improve services and establish better billing and management practices. At the same time, the new owners implemented a 10-percent capital improvement fee on each monthly water bill.

This became a sticking point with customers, however. In a statement to the PRC, the Crouch Mesa Ratepayers Association disagreed that the surcharge “has been spent on actual capital improvement.”

Inspection records show that despite collecting money for repairs, the company continued to experience problems. Since 2008, the NMED has found 31 individual violations at AV Water, including 11 for coliform or E. coli bacteria.

According to Bravo, the situation is typical of private water companies, which she said are notorious for charging high fees and not maintaining their facilities.

"They are beholden to their shareholders, not their customers," she said. "As infrastructure ages, this is becoming a critical issue."

While a public utility status would have provided regulation of the company's water rates, the application with the PRC stalled for several years, with the commission finally voting to issue AV Water a license on Feb. 24, 2016. PRC spokesman Carlos Padilla said in an email that the case was delayed for “a multifaceted set of circumstances,” including “the presence of many layers in the setup of this business.”

The "layers" are a string of parent companies, all registered in the state of Delaware. The companies list an address that has become famous for serving as the legal home of thousands of separate corporations. A 2012 article in the New York Times described the building at 1209 Orange St. in Wilmington, Del., as a tax haven and an opportunity to create shell companies.

In addition to creating confusion for regulators, Bravo said convoluted ownership structures allow private water companies to avoid lawsuits.

“These companies are smart legally," she said. "And they have good lawyers."

Padilla said the PRC has no provisions against businesses being registered outside the state, “as long as they are legal.”

“The PRC will regulate them all the same,” he said.

In light of the ongoing boil advisory, increased oversight looms large for AV Water. Both the NMED and the PRC have launched investigations into the company.

Frustrated customers have also formed a protest group, which has contacted local attorneys to discuss pursuing legal action. Speaking at a public gathering on June 28, group organizer Kalee Chivers Grothe urged members to stay focused in order to find justice.

“Everyone is guilty of dropping this issue in the past,” she said. “But we’re going to stay on top of it this time. I’m in it to win it.”

But despite the threat of future lawsuits, AV Water will continue operating in the near future.

In an effort to end the boil advisory, the company has entered a contract with the city of Farmington to buy bulk water rather than use its aging treatment plant. The company will still control water rates and supply lines. At the June 21 City Council work session where the contract was approved, Mayor Tommy Roberts said members of the public have signaled a desire for the city to take over the water system. However, Roberts said the system is not for sale.

For water activists like Bravo, however, local government provides the best opportunity to restore high-quality services for area residents.

“They have to step up and look at it creatively,” Bravo said. “It’s the responsibility of local government.”

Brett Berntsen covers government for The Daily Times. He can be reached at 505-564-4606. 

Officials with the New Mexico Public Regulation Commission (not pictured), AV Water and New Mexico Environment Department answer questions on Thursday at the Farmington Civic Center. AV water is being investigated by the PRC and NMED.