BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  SB 1364|
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                                 THIRD READING


          Bill No:  SB 1364
          Author:   Huff (R)
          Amended:  5/25/12
          Vote:     21

           
           SENATE ENERGY, UTIL. & COMMUNIC. COMMITTEE  :  13-0, 4/24/12
          AYES:  Padilla, Fuller, Berryhill, Corbett, De León, 
            DeSaulnier, Emmerson, Kehoe, Pavley, Rubio, Simitian, 
            Strickland, Wright

           SENATE APPROPRIATIONS COMMITTEE  :  7-0, 5/24/12
          AYES:  Kehoe, Walters, Alquist, Dutton, Lieu, Price, 
            Steinberg


           SUBJECT  :    Water corporations

           SOURCE  :     City of Claremont
                      City of Placentia


           DIGEST  :    This bill subjects water corporations with more 
          than 2,000 service connections to the same audit powers of 
          the Public Utilities Commission (PUC) as electrical, gas, 
          and telephone corporations, and requires water corporations 
          with more than 2,000 service connections to include more 
          specific information in its notices to ratepayers regarding 
          potential rate increases.  This bill allows the PUC to 
          direct a water corporation with more than 2,000 service 
          connections, or an electrical, gas or telephone 
          corporation, to utilize the services of an independent 
          auditor, who shall be selected and supervised by that 
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          water, electrical, gas, or telephone corporation.

           ANALYSIS  :    Existing law, the PUC has regulatory authority 
          over public utilities, including electrical corporations, 
          gas corporations, telephone corporations, and water 
          corporations, as defined.  The Public Utilities Act 
          authorizes the PUC, each commissioner, and each officer and 
          person employed by the PUC at any time to inspect the 
          accounts, books, papers, and documents of any public 
          utility.  This authorization applies to inspections of the 
          accounts, books, papers, and documents of any business that 
          is a subsidiary or affiliate of, or a corporation that 
          holds a controlling interest in, an electrical, gas, or 
          telephone corporation.

          Existing law authorizes the PUC to fix the rates and 
          charges for every public utility, and requires that those 
          rates and charges be just and reasonable.

          Existing law requires that public utilities notify their 
          customers when it has submitted an application to the PUC 
          for a rate change with certain exceptions.  This provision 
          applies to electrical, gas, heat, telephone, water, or 
          sewer system corporations.  To ensure that a regulated 
          utility is not using ratepayer funds to subsidize parts of 
          a company's business not related to the utility service, 
          existing law requires that every electrical, gas, and 
          telephone corporation annually submit to the PUC a report 
          describing all significant transactions between the 
          corporation and its subsidiaries or affiliates.  The PUC 
          must periodically audit, or ensure that an independent 
          audit has reviewed, all significant transactions of an 
          electrical, gas or telephone corporation.  The PUC may 
          assess penalties for imprudent or unreasonable transactions 
          While existing law does not apply to water corporations, 
          the PUC issued a decision in October 2010 (D. 10-10-019) 
          that subjects water corporations with more than 2,000 
          service connections to these reporting and auditing 
          provisions, at the water corporation's cost. 
           
          This bill requires that rate change notifications issued by 
          water corporations with more than 2,000 service connections 
          must also include the estimate rate impacts on the various 
          customer classes.  The PUC will also be allowed to require 

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          that the water corporation also notify the customers of the 
          PUC's decision on its rate change application.

          This bill subjects water corporations with more than 2,000 
          service connections to the same reporting and auditing 
          requirements currently imposed on electrical, gas, and 
          telephone corporations.

           Background
           
          Water utility service is a monopoly subject to full rate 
          regulation by the PUC.  California has 135 water utilities, 
          generally classified by their number of service 
          connections, including 10 Class A companies with more than 
          10,000 service connections; 6 Class B companies with more 
          than 2,000 service connections, 22 Class C companies having 
          more than 500 service connections, and 83 Class D companies 
          with less than 500 service connections.

           Customer Notice of Rate Increases  .  The standard process 
          for rate approval is a General Rate Case (GRC), which water 
          corporations are required to file every three years.  
          Existing law and PUC rules require utilities to do a bill 
          insert or other mailed notice to customers of any rate 
          change proposal filed with the PUC for approval.  The goal 
          is to make customers aware of potential increases and 
          enable their participation in PUC review of the proposed 
          increase and scrutiny of the utility's expenditures given 
          as justification for the increase.

          Exceptions to the customer notice requirement include rate 
          changes proposed in Advice Letters to implement a rate 
          increase already approved in a GRC.  For example, a GRC may 
          approve various capital projects and authorize the utility 
          to implement the rate increase to cover the costs of the 
          project by filing an Advice Letter after construction is 
          completed.

           Affiliate Transactions  .  Transparency and reporting 
          requirements related to a regulated utility's transactions 
          with its affiliates are to ensure that ratepayers are not 
          subsidizing parts of a company's business not related to 
          the provision of utility service.  Although existing law 
          does not list water corporations among the utilities 

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          subject to these requirements, the PUC's Decision 
          10-10-019, adopted in October 2010, implements 
          substantially the same requirements for Class A and B water 
          corporations.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  Yes

          According to the Senate Appropriations Committee, ongoing 
          costs of $225,000 from the PUC Utilities Reimbursement 
          Account (special fund) beginning in 2013-14 for audit 
          responsibilities.

           SUPPORT  :   (Verified  5/22/12)

          City of Claremont (co-source)
          City of Placentia (co-source)
          City of Cypress
          City of Stanton
          Division of Ratepayer Advocates

           OPPOSITION  :    (Verified  5/22/12)

          PUC
          California Water Association


          RM:do  5/25/12   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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