California Supreme Court Raises the Bar for Municipal Takeovers, and Private Utilities Celebrate

A California town spent nearly ten years and millions of dollars trying to seize control of its own water utility, only to have the state Supreme Court tighten the legal noose around municipal takeovers. On August 24, the California Supreme Court ruled 7-0 that courts must independently review whether a public takeover of a private utility is truly necessary, rejecting the usual hands-off posture toward local government decisions.^[1] The ruling transforms eminent domain law for utilities in ways that will ripple across every state where a town or county considers taking back control of electricity, water, or gas.

Here is what the ruling actually does. Apple Valley, in San Bernardino County, fought since 2010 to reclaim its water system after private equity firm Carlyle Infrastructure Partners bought Apple Valley Ranchos Water Company and hiked rates sharply.^[1] The town argued that courts should defer to its declaration of public necessity, a low bar, legally speaking: only a gross abuse of discretion would trigger scrutiny. The California Supreme Court said no. Associate Justice Leondra Kruger wrote that the town's argument meant "the court can disallow the taking only if it concludes that the town has committed a gross abuse of discretion." The court rejected that framing and reserved independent judicial review for itself.^[1] This is not a small procedural shift. It means private utilities now have a legitimate path to block municipal takeovers by convincing a judge that the town's "necessity" claim is weak.

Who wins and who pays? Private utilities and their investors win, immediately. The ruling gives them a legal firewall against the one leverage point municipalities had: the power to declare public necessity and acquire assets through eminent domain with minimal court second-guessing. Private equity firms like Carlyle, which bought Apple Valley's system for profit and extracted value through rate hikes, now face a higher bar for removal. Towns and their residents pay: they lose the one mechanism that did not require negotiating a buyout valuation (always inflated by the utility's "going concern" claims) or winning a costly municipalization referendum. Apple Valley will now return to trial to defend its necessity claim against rigorous judicial scrutiny, a burden that favors the utility's legal budget and delays public control further.^[2]

This ruling arrives at a moment when municipal water, sewer, and electric utilities have been consolidating into the hands of private equity and large holding companies. Aqua Pennsylvania, for example, is now expanding its footprint after a Pennsylvania Supreme Court decision cleared a municipal sewer sale, not by choice, but by a decision that favored the utility's interpretation of state law.^[4] The logic is converging: courts are reading eminent domain statutes to protect private utility ownership, not to empower public control. And the cost to municipalities is real. Boulder, Colorado, spent over a decade and tens of millions on a municipalization campaign for electricity before abandoning the effort on cost and legal grounds. Maine's Pine Tree Power referendum was drowned out by utility-funded opposition spending. Apple Valley's case shows that the legal doors are quietly closing too.

The concrete alternative is not hidden; it is just harder to execute now. Municipalities must move earlier, before private equity buys the system. They must negotiate franchise renewals and expirations with a credible exit threat, and they must move backward from the renewal date, securing board-level or council support, commissioning independent valuations, and building public will before the utility's lawyers line up. Some states allow shorter utility terms and buyout clauses inside franchise agreements; those windows are narrowing. A municipality that waits until rate anger peaks will find itself in Apple Valley's position: spending a decade and millions to lose in court anyway. The path forward is to treat each approaching franchise expiration as leverage and to use it before the courts rewrite the rules further.