Supreme Court Delivers Huge Win For Utilities Facing Municipalization

For several years, we’ve been reporting on and tracking several pending eminent domain matters involving public agencies attempting to take-over and operate public utilities (referred to as “municipalization”). When two different California Courts of Appeal issued conflicting decisions on the standard of review that should be applied in such take-overs, the California Supreme Court finally decided to chime in. On August 24, 2026, the Supreme Court in Town of Apple Valley v. Apple Valley Ranchos Water issued its decision and came down unequivocally in favor of utilities.

While the issue seems somewhat nuanced and framed as legalese – what standard of review should apply when a public agency seeks to condemn and take-over the operations of a public utility – the decision will have widespread consequences for future municipalization efforts. Specifically, the Court was pressed to decide whether public agencies’ condemnations should be reviewed under a gross abuse of discretion standard, or under a preponderance of the evidence standard. Under the first option, public agencies’ decisions on the public use and necessity findings are conclusively established, leaving little to no room for a utility to contest the take-over. Under the second option, a public utility may present evidence to demonstrate the public agency’s take-over is not a more necessary public use and would not satisfy the requirements of necessity and greatest public good / least private injury. 

The Court held: “To evaluate a challenge to the taking of privately owned public utility property, the trial court, sitting as trier of fact, must exercise its independent judgment to determine whether the utility owner challenging the taking has rebutted the relevant presumptions and has thus established by a preponderance of the evidence that the taking is not authorized by the Eminent Domain Law.”

Providing public utilities with an opportunity to contest the public agency’s decision for municipalization creates significant risk and exposure for public agencies, as they will need to thoroughly analyze all the issues, costs, risks, and operational needs before undertaking such a take-over, and be able to demonstrate how they will be able to operate the utility facilities more effectively. If challenged on such a decision, a loss comes with not only paying significant consultant, legal, and expert costs for the public agency, but also paying all such litigation costs incurred by the utility. 

That is exactly what happened at the trial court in Apple Valley, where following a 67-day bench trial, the trial court found that the Town did not have the right to acquire the water system and entered judgment for the utility. After making extensive findings about the utility’s track record in managing the water system and the risks of management by the Town, the court explained that the utility had overcome the rebuttable presumptions and disproven two of the public necessity elements as well as the more necessary public use element, entitling it to a judgment in its favor and reimbursement of attorneys’ fees of over $13 million (which will be unquestionably higher after trips to the Court of Appeal and Supreme Court). 

While the Supreme Court remanded the case back to the trial court for further review on a few technical questions, the decision unequivocally favors utilities and will likely reduce the appetite for future municipalization efforts. Nossaman served as amicus counsel for California Water Association along with several utilities.