Amended in Senate August 13, 2013

Amended in Senate July 1, 2013

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, 14306, and 14307 to the Corporations Code, to amend Section 116755 of the Health and Safety Code, to add Section 10531.5 to the Water Code, and to amend Item 4265-111-6051 of Section 2.00 of the Budget Act of 2011, relating to mutual water companies, and making an appropriation therefor.

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.

This bill would enact the Mutual Water Company Open Meeting Act, which would apply to begin delete all end delete 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.

The bill would also require the board of the mutual water company that operates a public water system 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 begin delete make end delete begin insert conduct end insert an annual begin delete audit of the accounts and end delete begin insert review of the financial end insert records begin insert and reports end insert of the mutual water company begin delete , 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 end delete , as specified.

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.

(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.

The Budget Act of 2011 appropriated $7,500,000 from the Safe Drinking Water, Water Quality and Supply, Flood Control, River and Coastal Protection Fund of 2006 to the Department of Public Health for the provision of grants to public agencies, as specified, to improve drinking water infrastructure in communities served by mutual water companies in the Cities of Maywood and Santa Ana.

This bill would limit the use of this appropriation to providing grants to the Water Replenishment District of Southern California for water quality improvement projects for the benefit of the City of Maywood, subject to specified conditions.

Vote: majority. Appropriation: yes. Fiscal committee: yes. 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:

14305.  

(a)  begin insert (1) end insert begin insert   end insert This section shall be known and may be cited
as the Mutual Water Company Open Meeting Act.

begin insert

(2) This section shall only apply to a mutual water company
that operates a public water system.

end insert

(b) Any eligible person begin insert , upon 24 hours advance written notice, end insert
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,
begin insert conducted on or after January 1, 2014, end insert 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 begin delete distributed end delete begin insert provided end insert to any eligible person upon request
and upon reimbursement of the mutual water company’s costs for
begin delete making that distribution end delete begin insert providing the minutes end insert .

(e)  begin delete Eligible persons shall be notified in writing, at the time that
the end delete begin insert The end insert pro forma budget required in Section 14306 begin delete 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 end delete
begin insert shall be available to eligible persons within 30 days of the meeting
at which the budget was adopted. The budget shall be provided to
any eligible person upon request and upon reimbursement of the
mutual water company’s costs end insert .

(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.
begin insert Eligible persons requesting notice by mail shall pay the costs of
reproduction and mailing of the notice in advance. end insert 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 begin delete the end delete begin insert a end insert 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 begin delete companies end delete begin insert company’s end insert 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)  begin delete The end delete begin insert Notwithstanding any other law, the end insert 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)  begin insert (1) end insert begin insert   end insert 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 begin delete , including, but not limited to, injunctive relief, restitution,
or a combination thereof, within one year of the date the cause of
action accrues end delete begin insert for a judicial determination that an action taken by
the board is null and void under this section end insert .

begin insert

(2) Prior to the commencement of an action pursuant to
paragraph (1), the eligible person shall make a demand on the
board to cure or correct the action alleged to be taken in violation
of this section. The demand shall be in writing, and submitted
within 90 days from the date the action was taken. The demand
shall state the challenged action of the board and the nature of
the alleged violation.

end insert begin insert

(3) Within 30 days of receipt of the demand, the board shall
cure or correct the challenged action and inform the demanding
party in writing of its actions to cure or correct, or inform the
demanding party in writing of its decision not to cure or correct
the challenged action.

end insert begin insert

(4) Within 15 days of receipt of the written notice of the board’s
decision to cure or correct or not to cure or correct, or within 15
days of the expiration of the 30-day period to cure or correct,
whichever is earlier, the demanding party shall commence the
action pursuant to paragraph (1). If the demanding party fails to
commence the action pursuant to paragraph (1), that party shall
be barred from commencing the action thereafter.

end insert begin insert

(l) A board action that is alleged to have been taken in violation
of this section shall not be determined to be void if the action taken
was in substantial compliance with this section.

end insert begin insert

(m) The fact that the board of directors of a mutual water
company takes subsequent action to cure or correct an action
taken pursuant to this section shall not be construed as, or
admissible as evidence of, a violation of this section.

end insert begin delete

(l)

end delete

begin insert (n) end insert  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 begin delete , 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 end delete . A prevailing mutual water company shall not
recover any costs, unless the court finds the action to be frivolous,
unreasonable, or without foundation.

begin delete

(m)

end delete

begin insert (o) end insert  As used in this section:

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

(A) A begin delete stockholder end delete begin insert shareholder end insert 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.

SEC. 3.  

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

14306.  

(a) 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.

(b) The board of a mutual water begin delete corporation end delete begin insert company end insert that
operates a public water system shall contract with a certified public
accountant or public accountant to begin delete 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 delete begin insert conduct an annual
review of the financial records and reports of the mutual water
company. The review shall be subject to generally accepted
accounting standards. end insert

begin insert

(c) Eligible persons may request a copy of the report, and shall
reimburse the mutual water company for the costs of providing
the report.

end insert begin insert

(d) For purposes of this section, the term “eligible persons”
has the same meaning as that term is defined in subdivision (o) of
Section 14305.

end insert

SEC. 4.  

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

14307.  

(a)  begin insert (1) end insert begin insert   end insert 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 begin insert written end insert request to an eligible person upon payment of fees
covering direct costs of duplication:

begin delete

(1)

end delete

begin insert (A) end insert  Agendas and minutes of board meetings begin insert conducted on or
after January 1, 2014 end insert .

begin delete

(2)

end delete

begin insert (B) end insert  A copy of an annual budget adopted pursuant to subdivision
(a) of Section 14306.

begin delete

(3)

end delete

begin insert (C) end insert  A copy of an begin delete audit end delete begin insert accounting end insert report prepared pursuant to
subdivision (b) of Section 14306.

begin delete

(4)

end delete

begin insert (D) end insert  A copy of any records reporting the results of a water quality
test.

begin delete

(5)

end delete

begin insert (E) end insert  A copy of an annual report begin insert that has been distributed to the
mutual water company’s shareholder or members end insert .

begin insert

(2) Any request for records pursuant to this subdivision shall
be limited to the three calendar years preceding the written request
for the records.

end insert

(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.

SEC. 5.  

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 begin insert that operates
a public water system end insert 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 begin insert , that operates a public water system, end insert 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.

SEC. 6.  

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.

SEC. 7.  

Item 4265-111-6051 of Section 2.00 of the Budget
Act of 2011 is amended to read:

 

4265-111-6051--For local assistance, Department of Public Health, payable from the Safe Drinking Water, Water Quality and Supply, Flood Control, River and Coastal Protection Fund of 2006

7,500,000

Provisions:

1.

The funds appropriated in this item shall be to provide grants to public agencies, as provided in Section 75022 of the Public Resources Code, to improve drinking water infrastructure in communities served by mutual water companies in the City of Maywood. Grants may be made to the Water Replenishment District of Southern California for water quality improvement projects to benefit the residents of the City of Maywood, subject to the following conditions: (a) the district manages the design and implementation or construction of the project; (b) the district begin delete retains ownership of the project and end delete oversees its operation; begin delete and end delete (c) begin insert a public agency remains the owner of the project after construction; and (d) end insert the mutual water company that incorporates the project into its system complies with Section 14305 of the Corporations Code. begin insert Notwithstanding any other law, the funds appropriated in this item shall be available for expenditure until January 1, 2018. end insert Any funds that are not awarded begin delete within three years after the effective date of the act adding this item end delete begin insert on or before January 1, 2018, end insert shall revert back to the Safe Drinking Water, Water Quality and Supply, Flood Control, River and Coastal Protection Fund of 2006.