This investor-owned water utility is diversifying its service offerings and acquiring like-minded utilities in an effort to grow the business.

San Jose Water Company was founded in 1866 and is an investor-owned water utility based in San Jose, California. The company is one of three subsidiaries under SJW Corporation, a holding company founded in 1985 along with the second subsidiary, SJW Land Company. The third subsidiary, SJWTX Water Inc., was formed in 2005 and is a Texas-based corporation that houses Texas regulated utilities.

San Jose Water Company is the primary business unit of SJW Corporation. The large-scale urban-integrated system provides water service to more than 1 million customers. The utility is an urban water system with 225,000 connections in the San Jose metro area serving six municipalities, which makes up roughly 70% of San Jose.

The company distributes water from an integrated supply source, with 50% of its water imported from state and federal water projects, 40% from underground sources, and 10% from local run off. In addition, San Jose Water Company reports less than 6% of unaccounted-for water, which is unique for an urban system of its size and age.

“San Jose Water has an excellent environmental compliance and service record,” said Richard Roth, president and CEO of SJW Corporation, in a presentation at IncreMental Advantage’s Profiting in the Water Industry conference in December 2006. “We have had only one technical violation in 140 years of service.”

The company also owns 7,000 acres of watershed land in the Santa Cruz Mountains, which is used for local surface supplies, and operates two treatment plans in the San Jose area.

Growth strategy
Organic growth is one of four components of the company’s growth strategy. San Jose Water Company grows at a pace of roughly 1,000 customers a year. At the conference, Roth said in the past, 1,000 customers would have equaled 1,000 people or individual homes. Now, because of a reinvigorated focus on the redevelopment of industrial locations, one connection may result in up to 250 residences.

Capital expenditure growth is another component of the company’s strategic plan. San Jose Water Company historically averages an 8% growth rate. Another aspect of the growth strategy involves the acquisition of other mutual water systems. In December 2005, the company acquired California-based Redwood Mutual Water System. The non-profit mutual-benefit corporation is located in the Santa Cruz Mountains and serves 800 connections in that region.

Because of growth limitations in California’s South Bay area, the company decided to look outside of California for other growth opportunities. On May 31, 2006, Canyon Lake Water Service Company, located mid-way between San Antonio and Austin, Texas, was acquired by SJWTX Water Inc. and became part of the San Jose Water Company family. The location of the state-regulated investor-owned water utility on the I-35 corridor made it a prime acquisition.

For a number of years, the I-35 corridor has been tagged as one of the fastest growing areas of what is termed the Texas Hill Country. It links together Texas, Oklahoma, Kansas, Missouri, Iowa, and Minnesota. Since Congress passed the North American Free Trade Agreement (NAFTA) in 1994, I-35, which also connects Canada, the US, and Mexico, has carried a larger portion of trade among NAFTA partners than any other US interstate highway.

“Of course we’re looking for other opportunities like [the acquisition of Canyon Lake Water Service Company], but that did meet our investment criteria—high-growth area, good regulatory environment, good water supplies, and a good business environment,” said Roth during the presentation at IncreMental Advantage’s Profiting in the Water Industry conference in December 2006.

The company’s fourth growth strategy involves diversifying its water service offerings. Roth said the company plans to focus on waters systems adjacent to San Jose Water Company’s water systems; grow its offering of unbundled water systems, such as repairing mains or maintenance activities; and increase fabricating and building special structures, such as those focused on circulating water in tanks.

Roth said 85% of water services in the US today are municipal. As the industry changes and more private water utilities start popping up, it will be up to the American public to determine how fast that sector of the industry grows.