BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1364| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED SB 1364 Page 2 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 CONTINUED SB 1364 Page 3 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 CONTINUED SB 1364 Page 4 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 **** END **** CONTINUED