by Alan Ferdman
How well do you remember your first year in college? No, not the football games, drunken parties and fun, I was thinking of the Survey 101 classes. Those courses are provided to give new students a broad look at career paths they might decide to pursue. One of the classes you probably encountered, or if you are planning on being a college student you should strongly consider taking, is Business 101.
In this class, you have been, or will be, introduced to business organizational concepts of sole proprietorship, partnerships and various types of corporations. Each form of business structure has its advantages and disadvantages. If you intend to start a business of your own you will need to consider which structure to use. Most importantly, new entrepreneurs also need to have a strong grasp of supply and demand concepts, because no matter how good an idea you may have, if there is no demand for your product you will not be in business very long. Now, if your product is highly sought after, you might consider implementing one of two seemingly counterintuitive strategies.
Sometimes, company executives decide to ask a premium price for products in high demand. They believe higher prices breed a consumer perception of a product’s desirability and high quality. Using this strategy is a way to maximize profit without having to invest additional capital. Others tend to take the opposite approach. If their product is in high demand, they decide to produce more of them, hoping for an increased sales volume, thereby generating more profit.
All that is nice in theory, but no matter how good your product or service is, someone else may also be in a similar business. Hence, if you really want to stay in business and make a profit, a strategy to deal with competition is very important. Realize also, even if your product is original, is currently in high demand and you are initially successful, someone else may see an opportunity to provide a similar product or service and take business away. They may charge a lower price, provide an improved product, or provide better customer service. We see this happening all the time with cell phone companies, cable TV providers, auto manufacturers, and others. Whenever I see a tire store open next to an existing tire store, or a pizza place open next to another restaurant that specializes in pizza, I wonder what they are thinking. Starting a business is hard enough, without having an established major competitor next door.
Lastly, there is the concept of product obsolescence. Think back to the days when VCR rental stores seemed to be on every corner, or when auto manufacturers were thinking about making a CB radio standard equipment in every vehicle. Some products and services simply lose their worth to new technologies, new sales methods, economic drivers or just changes to the public’s perception. A successful business manager needs to be continually monitoring the market for his company’s products. He or she must remain open to the idea of continually improving the company’s offerings and must also be ready to incorporate new products and services when the right opportunity presents itself.
Now that we have looked at an overview of Business 101, there is an area of business which does not consider any of those business concerns. It is the public utilities arena, and they play by their own set of rules. When it comes to how we acquire electricity, natural gas and water, there is only one supplier for each in Santa Clarita. For example, if for some reason, you are not satisfied with the gas company’s product, service or price, there are no competitive suppliers available. The gas company owns the pipes to your house or business. If you want natural gas you will be buying it from them. Sure, you could change the appliances in your home to be all electric, but that is a drastic step to take and not a likely solution for the average customer.
Today, with the apparent end of the California drought in sight, I want to focus on the public utility most on the public’s mind today. That is the service provided by our water companies, which are considering a merger. First, our two major water companies, CLWA and Newhall County Water District, are monopolies and operate with neither the motivation or controls necessary for a normal company to survive. Santa Clarita’s water providers exist with the primary goal of maintaining the water company’s bureaucracy and work force, as opposed to providing maximum value to their customers. How many times have you heard our water companies ask for higher rates based on selling larger amounts of water, needing to fund infrastructure improvements or having to purchase more expensive state water. Then, when the drought became apparent, the water companies asked the public to conserve and when the public complied, they asked for increased rates because selling less water did not give them sufficient revenue to support the existing infrastructure. What is even more frustrating was, at the time they expressed the need for additional funding, we saw full page newspaper ads most every day asking residents to conserve and offering financial incentives for grass removal and irrigation system changes. What I saw was my public utility, using part of the fees I paid, to incentivize the use of less water so they could end up charging me more.
Next came the idea of a valley-wide water company merger. At first the public was told, “No decision has been made, we are just looking at the possibility.” Then came a couple of informational meetings, and suddenly we have Water Board directors announcing their support for a merger, based on the economy of scale. Their planned savings is $1.5 million per year, or $14.5 million over the next 10 years. That is a pretty healthy sum if we were talking about the Ferdman family budget, but it is far less impressive when you become aware it is less than 1 percent of the CLWA yearly budget.
But then comes a new surprise on Saturday, March 11 when the Signal reported that Newhall Water Board President BJ Atkins stated the merger would “save the Santa Clarita Valley $14 million per year, about $40 per household” and there would not be any immediate reductions in staff. Really? Then where is the savings coming from? Is this new savings estimate a misstatement or a new revelation? A public utility’s savings is only real when it is accompanied by reduced product cost, driving a reduction in customer rates. Without a cost reduction, there is no savings and it becomes apparent this whole merger scheme is being played out to promote another unrevealed agenda.
So, while we wait for the complete story to unfold, I continue to get phone calls urging me to tear out my lawn and plant dessert flora. My answer to their request is to raise my “bow finger” and remind them it has been raining a lot. I like my lawn and it appears the drought is over. Our water companies should stop their campaign to make Santa Clarita look like Arizona and stop wasting the money I send them every month.