Amended in Senate June 18, 2013

Amended in Senate June 5, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 240

Introduced by Assembly Member Rendon

February 5, 2013

An act to add Sections 14304, 14305, begin delete and end delete 14306 begin insert , and 14307 end insert to the Corporations Code, to amend Section 116755 of the Health and Safety Code, and to add Section 10531.5 to the Water Code, relating to mutual water companies.

LEGISLATIVE COUNSEL’S DIGEST

AB 240, as amended, Rendon. Mutual water companies.

Under existing law, a mutual water company is defined as a corporation organized for or engaged in the business of selling, distributing, supplying, or delivering water for irrigation or domestic purposes that provides in its articles or bylaws that the water shall be sold, distributed, supplied, or delivered only to owners of its shares, as specified.

(1) Existing law requires each board member of a mutual water company that operates a public water system to complete a training course regarding the duties of board members of mutual water companies, as specified.

This bill would require a board member to repeat this training course every 6 years.

(2) Existing law permits a mutual water company that is not a public utility to levy assessments upon its shares, unless otherwise provided in its articles or bylaws.

This bill would also permit the board of directors of a mutual water company, if authorized by its articles or bylaws, to record a notice of lien against a shareholder’s property if the shareholder has not timely paid any rate, charge, or assessment arising from, or related to, water services provided by the mutual water company to the shareholder’s property and if the shareholder was given at least 20 days’ notice of the lien.

(3) Existing law, the California Public Records Act, provides that public records are open to inspection at all times during the office hours of the state or local agency that retains those records, and that every person has a right to inspect any public record, except as provided. The Ralph M. Brown Act requires, with specified exceptions, that all meetings of a legislative body of a local agency, as those terms are defined, be open and public and that all persons be permitted to attend and participate.

begin delete This bill would require a mutual water company that operates a public water system to comply with the Ralph M. Brown Act and the California Public Records Act, as specified. The end delete begin insert This bill would enact the Mutual Water Company Open Meeting Act, which would apply to all mutual water companies, and would permit an eligible person to attend a meeting of a mutual water company, as those terms are defined, and to speak during the meeting, except as provided. end insert

begin insert The end insert bill would begin insert also end insert require the board of the mutual water company begin insert that operates a public water system end insert to adopt, in an open meeting, an annual budget on or before the start of each fiscal year. The bill would require the board of a mutual water company that operates a public water system to contract with a certified public accountant or public accountant to make an annual audit of the accounts and records of the mutual water company, and would require the report to be filed, within 12 months of the end of the mutual water company’s fiscal year under examination, as a public record with the mutual water company, and to be sent to the Controller and any person served by the mutual water company that submits a written request to the board, as specified.

begin insert

The bill would also require the board of directors of a mutual water company that operates a public water system to make specified documents available to an eligible person, as defined, upon payment of fees covering the direct costs of duplication, as specified.

end insert

(4) Existing law declares that water is a valuable natural resource in California and should be managed to ensure the availability of sufficient supplies to meet the state’s agricultural, domestic, industrial, and environmental needs. Existing law declares that local agencies can realize efficiencies by coordinating and integrating their assets and seeking mutual solutions to water management issues.

This bill would declare the intent of the Legislature to encourage collaboration among mutual water companies that operate public water systems in the City of Maywood to create a public agency that can consolidate drinking water services for the people and business of that city.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 14304 is added to the Corporations Code,
to read:

14304.  

If a shareholder of a mutual water company has not
timely paid any rate, charge, or assessment arising from, or related
to, water service provided by the mutual water company to the
shareholder’s property, and if authorized by its articles or bylaws,
then after providing at least 20 days’ written notice to the
shareholder, the board of directors of the mutual water company
may authorize the recording of a notice of lien against that
shareholder’s property to secure the collection of the rates, charges,
and assessments owed to the mutual water company by the
shareholder.

SEC. 2.  

Section 14305 is added to the Corporations Code, to
read:

begin delete

14305.  

(a) A mutual water company that operates a public
water system shall comply with the Ralph M. Brown Act (Chapter
9 (commencing with Section 54950) of Part 1 of Division 2 of
Title 5 of the Government Code) and the California Public Records
Act (Chapter 3.5 (commencing with Section 6250) of Division 7
of Title 1 of the Government Code).

(b) The board of a mutual water corporation that operates a
public water system shall contract with a certified public accountant
or public accountant to make an annual audit of the accounts and
records of the mutual water company. The audit shall conform to
generally accepted auditing standards. A report of the audit shall
be filed as a public record with the mutual water company and
shall be sent to the Controller and any person served by the mutual
water company that submits a written request to the board. The
report shall be filed within 12 months of the end of the mutual
water company’s fiscal year under examination.

end delete begin insert

begin insert 14305. end insert   

(a) This section shall be known and may be cited as
the Mutual Water Company Open Meeting Act.

(b) Any eligible person may attend meetings of the board of
directors of a mutual water company, except when the board
adjourns to, or meets solely in, executive session to consider
litigation, matters relating to the formation of contracts with third
parties, member or shareholder discipline, personnel matters, or
to meet with a member or shareholder, upon the member or
shareholder’s request, regarding the member or shareholder’s
payment of assessments, as specified in Section 14303. The board
of directors of the association shall meet in executive session, if
requested by a member or shareholder who may be subject to a
fine, penalty, or other form of discipline, and the member shall be
entitled to attend the executive session. As specified in paragraph
(3) of subdivision (m), an eligible person shall be entitled to attend
a teleconference meeting or the portion of a teleconference meeting
that is open to eligible persons, and that meeting or portion of the
meeting shall be audible to the eligible persons in a location
specified in the notice of the meeting.

(c) Any matter discussed in executive session shall be generally
noted in the minutes of the immediately following meeting that is
open to eligible persons.

(d) The minutes, minutes proposed for adoption that are marked
to indicate draft status, or a summary of the minutes, of any
meeting of the board of directors of a mutual water company, other
than an executive session, shall be available to eligible persons
within 30 days of the meeting. The minutes, proposed minutes, or
summary minutes shall be distributed to any eligible person upon
request and upon reimbursement of the mutual water company’s
costs for making that distribution.

(e) Eligible persons shall be notified in writing, at the time that
the pro forma budget required in Section 14306 is distributed, of
their right to have copies of the minutes of meetings of the board
of directors, and how and where those minutes may be obtained.

(f) Unless the bylaws provide for a longer period of notice,
eligible persons shall be given notice of the time and place of a
meeting as defined in subdivision (m), except for an emergency
meeting or a meeting that will be held solely in executive session,
at least four days prior to the meeting. Except for an emergency
meeting, eligible persons shall be given notice of the time and
place of a meeting that will be held solely in executive session at
least two days prior to the meeting. Notice shall be given by posting
the notice in a prominent, publicly accessible place or places within
the territory served by the mutual water company and by mail to
any eligible person who had requested notification of board
meetings by mail, at the address requested by the eligible person.
Notice may also be given by mail, by delivery of the notice to each
unit served by the mutual water company or, with the consent of
the eligible person, by electronic means. The notice shall contain
the agenda for the meeting.

(g) An emergency meeting of the board may be called by the
chief executive officer of the mutual water company, or by any two
members of the board of directors other than the chief executive
officer, if there are circumstances that could not have been
reasonably foreseen which require immediate attention and
possible action by the board, and which of necessity make it
impracticable to provide notice as required by this section.

(h) The board of directors of the mutual water company shall
permit any eligible person to speak at any meeting of the mutual
water company or the board of directors, except for meetings of
the board held in executive session. A reasonable time limit for
all eligible persons to speak to the board of directors or before a
meeting of the mutual water company shall be established by the
board of directors.

(i) (1) Except as described in paragraphs (2) to (4), inclusive,
the board of directors of the mutual water company may not discuss
or take action on any item at a nonemergency meeting unless the
item was placed on the agenda included in the notice that was
posted and distributed pursuant to subdivision (f). This subdivision
does not prohibit an eligible person who is not a member of the
board from speaking on issues not on the agenda.

(2) Notwithstanding paragraph (1), a member of the board of
directors, mutual water company officers, or a member of the staff
of the mutual water company, may do any of the following:

(A) Briefly respond to statements made or questions posed by
a person speaking at a meeting as described in subdivision (h).

(B) Ask a question for clarification, make a brief announcement,
or make a brief report on his or her own activities, whether in
response to questions posed by an eligible person or based upon
his or her own initiative.

(3) Notwithstanding paragraph (1), the board of directors or a
member of the board of directors, subject to rules or procedures
of the board of directors, may do any of the following:

(A) Provide a reference to, or provide other resources for factual
information to, the mutual water company’s officers or staff.

(B) Request the mutual water company’s officers or staff to
report back to the board of directors at a subsequent meeting
concerning any matter, or take action to direct the mutual water
company’s officers or staff to place a matter of business on a future
agenda.

(C) Direct the mutual water companies officers or staff to
perform administrative tasks that are necessary to carry out this
subdivision.

(4) (A) Notwithstanding paragraph (1), the board of directors
may take action on any item of business not appearing on the
agenda posted and distributed pursuant to subdivision (f) under
any of the following conditions:

(i) Upon a determination made by a majority of the board of
directors present at the meeting that an emergency situation exists.
An emergency situation exists if there are circumstances that could
not have been reasonably foreseen by the board, that require
immediate attention and possible action by the board, and that,
of necessity, make it impracticable to provide notice.

(ii) Upon a determination made by the board by a vote of
two-thirds of the members present at the meeting, or, if less than
two-thirds of total membership of the board is present at the
meeting, by a unanimous vote of the members present, that there
is a need to take immediate action and that the need for action
came to the attention of the board after the agenda was posted
and distributed pursuant to subdivision (f).

(iii) The item appeared on an agenda that was posted and
distributed pursuant to subdivision (f) for a prior meeting of the
board of directors that occurred not more than 30 calendar days
before the date that action is taken on the item and, at the prior
meeting, action on the item was continued to the meeting at which
the action is taken.

(B) Before discussing any item pursuant to this paragraph, the
board of directors shall openly identify the item to the members
in attendance at the meeting.

(j) (1) The board of directors shall not take action on any item
of business outside of a meeting.

(2) (A) Notwithstanding any other provision of law, the board
of directors shall not conduct a meeting via a series of electronic
transmissions, including, but not limited to, electronic mail, except
as specified in subparagraph (B).

(B) Electronic transmissions may be used as a method of
conducting an emergency meeting if all members of the board,
individually or collectively, consent in writing to that action, and
if the written consent or consents are filed with the minutes of the
meeting of the board. These written consents may be transmitted
electronically.

(k) An eligible person may bring a civil action for declaratory
or equitable relief for a violation of this section by a mutual water
company for which he or she is defined as an eligible person,
including, but not limited to, injunctive relief, restitution, or a
combination thereof, within one year of the date the cause of action
accrues.

(l) An eligible person who prevails in a civil action to enforce
his or her rights pursuant to this section shall be entitled to
reasonable attorney’s fees and court costs, and the court may
impose a civil penalty of up to five hundred dollars ($500) for each
violation, except that each identical violation shall be subject to
only one penalty if the violation affects each member of the
association equally. A prevailing mutual water company shall not
recover any costs, unless the court finds the action to be frivolous,
unreasonable, or without foundation.

(m) As used in this section:

(1) “Eligible person” means a person who is any of the
following:

(A) A stockholder or member of the mutual water company.

(B) A person who is an occupant, pursuant to a lease or a rental
agreement, of commercial space or a dwelling unit to which the
mutual water company sells, distributes, supplies, or delivers
drinking water.

(C) An elected official of a city or county who represents people
who receive drinking water directly from the mutual water
company on a retail basis.

(D) Any other person eligible to participate in the mutual water
company’s meetings under provisions of the company’s articles
or bylaws.

(2) “Item of business” means any action within the authority
of the board, except those actions that the board has validly
delegated to any other person or persons, officer of the mutual
water company, or committee of the board comprising less than
a majority of the directors.

(3) “Meeting” means either of the following:

(A) A congregation of a majority of the members of the board
at the same time and place to hear, discuss, or deliberate upon
any item of business that is within the authority of the board.

(B) A teleconference in which a majority of the members of the
board, in different locations, are connected by electronic means,
through audio or video or both. A teleconference meeting shall be
conducted in a manner that protects the rights of members of the
association and otherwise complies with the requirements of this
title. Except for a meeting that will be held solely in executive
session, the notice of the teleconference meeting shall identify at
least one physical location so that members of the association may
attend and at least one member of the board of directors or a
person designated by the board shall be present at that location.
Participation by board members in a teleconference meeting
constitutes presence at that meeting as long as all board members
participating in the meeting are able to hear one another and
members of the association speaking on matters before the board.

(4) “Mutual water company” means a mutual water company,
as defined in Section 14300, that operates a public water system,
as defined in Section 14300.5.

end insert

SEC. 3.  

Section 14306 is added to the Corporations Code, to
read:

14306.  

begin insert (a) end insert begin insert   end insert The board of a mutual water company that operates
a public water system shall adopt, in an open meeting, an annual
budget on or before the start of each fiscal year of the mutual water
company.

begin insert

(b) The board of a mutual water corporation that operates a
public water system shall contract with a certified public
accountant or public accountant to make an annual audit of the
accounts and records of the mutual water company. The audit
shall conform to generally accepted auditing standards. A report
of the audit shall be filed with the mutual water company and shall
be sent to the Controller and any person served by the mutual
water company that submits a written request to the board. The
report shall be filed within 12 months of the end of the mutual
water company’s fiscal year under examination.

end insert

begin insert

begin insert SEC. 4. end insert   

Section 14307 is added to the Corporations Code, to
read:

begin insert 14307. end insert   

(a) Unless its governing documents impose more
stringent standards, a mutual water company that operates a public
water system shall make the following records promptly available
upon request to an eligible person upon payment of fees covering
direct costs of duplication:

(1) Agendas and minutes of board meetings.

(2) A copy of an annual budget adopted pursuant to subdivision
(a) of Section 14306.

(3) A copy of an audit report prepared pursuant to subdivision
(b) of Section 14306.

(4) A copy of any records reporting the results of a water quality
test.

(5) A copy of an annual report.

(b) For the purposes of this section, “eligible person” means
a person who is any of the following:

(1) A stockholder or member of the mutual water company.

(2) A person who is an occupant, pursuant to a lease or a rental
agreement, of commercial space or a dwelling unit to which the
mutual water company sells, distributes, supplies, or delivers
drinking water.

(3) An elected official of a city or county who represents people
who receive drinking water directly from the mutual water
company on a retail basis.

(4) Any other person eligible to obtain copies of the records
listed in subdivision (a) under provisions of the mutual water
company’s articles or bylaws.

end insert

begin delete SEC. 4. end delete
begin insert SEC. 5. end insert   

Section 116755 of the Health and Safety Code is
amended to read:

116755.  

(a) Each board member of a mutual water company
that operates a public water system, as defined in Section 116275,
shall, within six months of taking office, or by December 31, 2012,
if that member was serving on the board on December 31, 2011,
complete a two-hour course offered by a qualified trainer regarding
the duties of board members of mutual water companies, including,
but not limited to, the duty of a corporate director to avoid
contractual conflicts of interest and fiduciary duties, the duties of
public water systems to provide clean drinking water that complies
with the federal Safe Drinking Water Act (42 U.S.C. Sec. 300f et
seq.) and this chapter, and long-term management of a public water
system. A board member of a mutual water company shall repeat
this training every six years. For the purposes of this subdivision,
a trainer may be qualified in any of the following ways:

(1) Membership in the California State Bar.

(2) Accreditation by the International Association of Continuing
Education and Training (IACET) ANSI/IACET 1-2007.

(3) Sponsorship by either the Rural Community Assistance
Corporation or the California Rural Water Association.

(b) A mutual water company formed pursuant to Part 7
(commencing with Section 14300) of Division 3 of Title 1 of the
Corporations Code shall be liable for the payment of any fines,
penalties, costs, expenses, and other amounts that may be imposed
upon the mutual water company pursuant to this chapter. The
mutual water company may levy an assessment, pursuant to Section
14303 of the Corporations Code, to pay these fines, penalties,
costs, expenses, and other amounts so imposed. If the amount of
outstanding fines, penalties, costs, expenses and other amounts
imposed pursuant to this chapter exceed 5 percent of the annual
budget of the mutual water company, then the mutual water
company shall levy an assessment, pursuant to Section 14303 of
the Corporations Code, to pay those fines, penalties, costs,
expenses, and other amounts so imposed.

begin delete SEC. 5. end delete
begin insert SEC. 6. end insert   

Section 10531.5 is added to the Water Code, to read:

10531.5.  

It is the intent of the Legislature to encourage
collaboration among mutual water companies that operate public
water systems in the City of Maywood to create a public agency
that can consolidate drinking water services for the people and
businesses of that city.