BILL ANALYSIS Ó
AB 240
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 240 (Rendon)
As Amended August 13, 2013
Majority vote
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|ASSEMBLY: |76-0 |(April 29, |SENATE: |22-13|(September 3, |
| | |2013) | | |2013) |
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|COMMITTEE VOTE: |6-2 |(September 11, |RECOMMENDATION: |concur |
|(L. GOV.) | |2013) | | |
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Original Committee Reference: L. GOV.
SUMMARY : Increases transparency requirements for those mutual
water companies that operate a public water system, as defined, by
enacting the Mutual Water Company Open Meeting Act, and allows
mutual water companies to impose liens to collect unpaid charges.
The Senate amendments :
1)Define the following terms:
a) "Eligible person" to mean a person who is any of the
following:
i) A shareholder or member of the mutual water company;
ii) 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;
iii) 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; and,
iv) Any other person eligible to participate in the mutual
water company's meetings under provisions of the company's
articles or bylaws.
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b) "Item of business" to mean 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.
c) "Meeting" to mean either of the following:
i) 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; or,
ii) 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, as
specified.
d) "Mutual water company" to mean a mutual water company that
operates a public water system, as defined.
2)Enact the Mutual Water Company Open Meeting Act, which would only
apply to a mutual water company that operates a public water
system, as follows:
a) Allow any eligible person, upon 24 hours advance written
notice, to 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, as specified. Provide that a 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. Allow an
eligible person, as specified, 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;
b) Require any matter discussed in executive session to be
generally noted in the minutes of the immediately following
meeting that is open to eligible persons;
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c) Require 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, conducted on or after January 1, 2014, other than an
executive session, to be eligible within 30 days of the
meeting. Require the minutes, proposed minutes, or summary
minutes to be provided to any eligible person upon request and
upon reimbursement of the mutual water company's costs for
providing the minutes;
d) Require the pro forma budget, as required, to be available
to eligible persons within 30 days of the meeting at which the
budget was adopted, and require the budget to be provided to
any eligible person upon request and upon reimbursement of the
mutual water company's costs;
e) Require eligible persons to be given notice of the time and
place of a meeting, as specified, unless the bylaws provide
for a longer period of notice, and provide for posting and
noticing requirements;
f) Allows for an emergency meeting of the board to be called
by the chief executive officer (CEO) of the mutual water
company, or by any two members of the board of directors other
than the CEO, as specified;
g) Require the board of directors to 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, and specify that a reasonable time limit
for all eligible persons to speak shall be established by the
board of directors;
h) Prohibit the board of directors of the mutual water company
from discussing or taking action of any item at a nonemergency
meeting unless the item was placed on the agency included in
the notice that was posted and distributed, as specified,
except in the following circumstances:
i) 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:
(1) Briefly respond to statements made or questions
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posed by a person speaking at a meeting, as specified;
or,
(2) 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.
ii) 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:
(1) Provide a reference to, or provide other
resources for factual information to, the mutual water
company's officers of staff;
(2) 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
play a matter of business on business on a future agenda;
and,
(3) Direct the mutual water company's officers or
staff to perform administrative tasks, as specified.
iii) The board of directors may take action on any item of
business not appearing on the agenda posted and distributed,
as specified, under any of the following conditions:
(1) Upon a determination made by a majority of the
board of directors present at the meeting that an
emergency situation exists, as specified;
(2) 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 agency was posted and
distributed;
(3) The item appeared on an agency that was posted
and distributed for a prior meeting of the board of
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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.
iv) Require the board of directors to openly identify the
item to the members in attendance at the meeting, pursuant
to iii), above.
i) Prohibit the board of directors from taking action on any
item of business outside of a meeting.
j) Prohibit the board of directors from conducting a meeting
via a series of electronic transmissions, including, but not
limited to, electronic mail, except as specified.
aa) Allow electronic transmissions to 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.
bb) Allows an eligible person to bring a civil action for
declaratory or equitable relief for a violation by a mutual
water company for which he or she is defined as an eligible
person for a judicial determination that an action taken by
the board is null and void, as specified.
cc) Require, prior to the commencement of an action pursuant to
l), above, the eligible person to make a demand of the board
to cure or correct the action alleged to be taken in
violation. Require the demand to be in writing, and submitted
within 90 days from the date the action was taken, and require
the demand to state the challenged action of the board and the
nature of the alleged violation.
dd) Require, within 30 days of receipt of the demand, the board
to 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.
ee) Specify that a board action that is alleged to have been
taken in violation of these provisions shall not be determined
to be void if the action taken was in substantial compliance
with the provisions. Specify that the fact that the board of
directors of a mutual water company takes subsequent action to
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cure or correct an action shall not be construed as, or
admissible as evidence of, a violation of this section.
3)Require the board of a 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 of the mutual
water company, and 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 conduct an annual
review of the financial records and reports of the mutual water
company (to be subject to generally accepted accounting
standards).
4)Allow eligible persons to request a copy of the report, and
require reimbursement of the mutual water company for the costs
of providing the report by the eligible person.
5)Require a mutual water company that operates a public water
system to make the following records promptly available upon
written request to an eligible person upon payment of fees
covering direct costs of duplication, unless its governing
documents impose more stringent standards:
a) Agendas and minutes of board meetings conducted on or after
January 1, 2014;
b) A copy of an adopted annual budget;
c) A copy of a prepared accounting report;
d) A copy of any records reporting the results of a water
quality test; and,
e) A copy of an annual report that has been distributed to the
mutual water company's shareholder or members.
6)Limit any request for records pursuant to the bill's provisions
to three calendar years preceding the written request for the
records.
7)Amend an item in the Budget Act of 2011 related to funding for
local assistance from the Department of Public Health, payable
from the Safe Drinking Water, Water Quality and Supply, Flood
Control, River and Coastal Protection Fund of 2006 (Prop. 84), to
specify that the funds appropriated from this item shall be to
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provide grants to public agencies 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 oversees its operation;
c) A public agency remains the owner of the project after
construction; and,
d) The mutual water company that incorporates the project into
its system complies with the section contained in this bill
known as the Mutual Water Company Open Meeting Act.
8)Provide, notwithstanding any other law, the funds appropriated in
the budget item specified in 5) above, shall be available for
expenditure until January 1, 2018, and provide that any funds not
awarded on or before January 1, 2018, shall revert back to the
Prop. 84 fund.
EXISTING LAW :
1)Specifies that any corporation organized for or engaged in the
business of selling, distributing, supplying, or delivering water
for irrigation purposes or for domestic use must be known as a
mutual water company.
2)Defines a "public water system" to mean a system for the
provision of water for human consumption through pipes or other
constructed conveyances that has 15 or more service connections
or regularly serves at least 25 individuals daily at least 60
days out of the year. A public water system includes the
following:
a) Any collection, treatment, storage, and distribution
facilities under control of the operator of the system that
are used primarily in connection with the system;
b) Any collection or pretreatment storage facilities not under
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the control of the operator that are used primarily in
connection with the system; and,
c) Any water system that treats water on behalf of one or more
public water systems for the purpose of rendering it safe for
human consumption.
3)Requires each mutual water company operating as a public water
system to, no later than December 31, 2012, submit to the
Secretary of State and the local agency formation commission
(LAFCO) a map depicting the boundaries of the property that the
corporation serves.
4)Requires a mutual water company that operates a public water
system, if the LAFCO or a county department requests information,
to, within 45 days of the request, provide all reasonably
available, nonconfidential information and explain, in writing,
why any requested information is not reasonably available.
5)Requires a mutual water company that operates a public water
system to maintain a financial reserve fund to be used for
repairs and replacements to its water productions, transmission
and distribution facilities at a level sufficient for continuous
operation of facilities in compliance with the federal Safe
Drinking Water Act.
6)Authorizes the LAFCO to approve with or without amendment,
wholly, partially, or conditionally or disapprove the annexation
of territory served by a mutual water company operate a public
water system, to a city or special district.
7)Authorizes the LAFCO, in conducting a service review, to include
a review of whether the agencies under review, including any
public water system, are in compliance with California Safe
Drinking Water Act (SDWA).
8)Authorizes the LAFCO to request information, as part of a service
review, from identified public or private entities that provide
wholesale or retail supply of drinking water, including mutual
water companies and private utilities.
9)Requires each board member of a mutual water company operated as
a public water system to, within six months of taking office,
complete a four-hour course, as specified.
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10)Authorizes fines pursuant to the SDWA to be imposed on directors
of a mutual water company if the mutual water company has
received notice of a violation as specified.
AS PASSED BY THE ASSEMBLY , this bill:
1)Permitted 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, if the shareholder was given at least
20 days' notice of the lien.
2)Required board members to repeat, every six years, a training
course required in existing law regarding the duties of board
members of mutual water companies.
3)Stated 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.
FISCAL EFFECT : According to the Senate Budget Committee, this bill
allocates $7.5 million in Prop. 84 bond funds contained in the
2011-12 Budget Act and changes the circumstances for how the funds
may be spent, subject to specified conditions.
COMMENTS :
1)Most mutual water companies are organized pursuant to the General
Corporation Law or the Nonprofit Mutual Benefit Corporation Law.
Shareholders in a mutual water company hold a right to purchase
water from the company. Stock in a company is usually linked to
the ownership of a parcel served by the company and transfers
with the land when the parcel is sold to successive owners. This
type of corporate structure allows landowners to establish,
essentially, a customer-owned water provider to serve their
properties. State law exempts a mutual water company from state
regulation if it is organized to deliver water to its
stockholders and members, with specified exceptions.
Governance of a mutual water company is generally limited to
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shareholders, or members, of the company. While the details of
any particular company's governing structure are determined by
its articles and bylaws, most mutual water companies allow only
shareholders and members to vote on organizational matters and
serve on the company's governing board.
2)In response to concerns that that some mutual water companies
lacked capital to pay for needed water quality improvements and
the managerial capacity to operate successful public water
systems, the Legislature passed AB 54 (Solorio), Chapter 512,
Statutes 2011. That bill established training requirements for
mutual water districts' board members, made mutual water
companies liable for specified fines and penalties for violating
the California Safe Drinking Water Act, and expanded LAFCOs'
authority to review matters related to mutual water companies.
Despite these recent changes to state law, some public officials
and environmental justice advocates express frustration that some
mutual water companies remain unaccountable to water users who
are not shareholders or members.
3)This bill makes several changes to the ways some mutual water
companies operate. The bill only applies to those companies that
operate a "public water system" with the goal of bringing those
companies more in line with how other types of public agencies
that provide drinking water are treated in statute.
First, the bill enacts the "Mutual Water Company Open Meeting
Act" to apply only to mutual water companies that operate a
public water system. This Act would allow an "eligible person"
to attend certain meetings held by the mutual water company, and
to receive notice of certain meetings being held. For purposes
of the bill's provisions, an "eligible person" is defined as a
person who is any of the following:
a) A shareholder 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 the
people who receive drinking water directly from the mutual
water company on a retail basis; or,
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d) Any other person eligible to participate in the mutual
water company's meetings under provisions of the company's
articles or bylaws.
This bill also requires the board of a mutual water company that
operates a public water system to adopt, in an open meeting, an
annual budget, and requires the board to contract with a
certified public accountant or public accountant to conduct an
annual review of the financial records and reports of the mutual
water company, subject to generally accepted accounting
standards. Also to increase transparency, the bill requires a
mutual water company that operates a public water system to make
the following records available upon written request by an
"eligible person", who would also be responsible for paying the
costs of duplication of those records:
a) Agendas and minutes of board meetings conducted on or after
January 1, 2014;
b) A copy of an annual budget (adopted pursuant to the bill's
provisions);
c) A copy of an accounting report (prepared pursuant to the
bill's provisions);
d) A copy of any records reporting the results of a water
quality test; and,
e) A copy of an annual report that has been distributed to the
mutual water company's shareholders or members.
This bill uses this same definition of "eligible person" in all
the sections of the bill requiring open meetings, noticing
requirements, and obtaining documents, thereby limiting who can
attend board meetings and obtain documents to only those persons
that have a direct interest in the operations of the mutual water
company. The bill does not allow any member of the public to
attend meetings or request documents and instead focuses only on
those "eligible persons" pursuant to the bill's definition
specified above.
The bill also allows mutual water companies to hold closed
sessions, thereby creating a number of exceptions in which the
company does not have to allow an "eligible person" to attend -
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these include when the board is meeting 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 payment of
assessments. Meeting minutes available to an "eligible person"
would not include those times that the board was in an executive
session. The bill additionally contains procedures for a board
of directors to conduct a meeting in spite of noticing
requirements in a situation where an emergency exists, as the
bill defines.
4)The 2011-12 State Budget appropriated $7.5 million in state bond
funds for improving water quality in the cities of Maywood and
Santa Ana, conditioned on a public agency assuming responsibility
for operation of the water systems from the mutual water
companies. The City of Santa Ana has completed its improvements,
expending approximately $1.5 million and leaving approximately $6
million for Maywood to improve its water quality.
This bill changes that budget item appropriation to instead
specify that funds appropriated from this item shall be to
provide grants to public agencies 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, in certain circumstances, are met.
5)According to the author, "Some mutual water companies operate
'public water systems,' but as private corporations can refuse to
share information and decisions with the people who drink their
water." The author's intent with this bill is to make mutual
water companies that operate public water systems more consistent
with the public agencies that serve most of California. The
author notes that the bill "does not provide any State oversight
or regulation of mutual water companies?Instead the bill relies
on some fundamental transparency requirements, to allow those who
drink and bathe in the company's water to learn some basics about
the financial situation of the company that charges, either
directly or indirectly, for drinking water. It is up to the
shareholders, the board of directors and those who drink and
bathe in the company's water to resolve any problem with the
company's delivery of water."
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The author also notes that "AB 240 applies only to companies that
operate a 'public water system,' to level the playing field with
public agencies and public utilities. Both public utilities and
mutual water companies hold a monopoly on delivering drinking
water to those who live on land in their service area. Neither
homeowners nor renters have any choice which company delivers
their drinking water. These mutual water companies deliver a
public natural resource to the public in a monopoly protected by
state law."
Lastly, the author notes that the bill applies only to those
companies that have a permit from the state or local department
of public health to deliver drinking water and does not apply to
mutual water companies that provide agricultural water to their
shareholders or sell water wholesale to public water systems.
The definitions in the bill use the term "retail" to distinguish
from mutual water companies that sell water wholesale, although
mutual water companies do not "sell" water retail to anyone
except their shareholders or their shareholder's tenants.
6)Supporters argue that this bill will make water companies more
transparent and would give users access to board meeting
information and make available certain specified documents. A
coalition of the California Rural Legal Assistance Foundation,
Natural Resources Defense Council, Community Water Center, Clean
Water Action, the Environmental Justice Coalition for Water, and
the Leadership Council for Justice and Accountability support the
bill and note that "it would end the segregated system that
excludes low-income tenants from accessing information about
their water companies; creating meaningful public participation,
as well as opportunities for community members to actively
participate and engage at all levels of decision-making with
their water governance."
7)Many mutual water companies are opposed to the bill, noting that
they are already subject to provisions under the California
Corporate Code, the California Health Department, County health
departments, regional water quality control boards, and state and
federal employment laws. These companies argue that they already
work cooperatively with local cities on a variety of issues which
include timing of infrastructure repairs, water conservation,
applying for state and federal clean water funding and water
supply assessments. Additionally, the mutual water companies
note that this bill "will have the effect of confusing already
well-established channels for addressing water supply and water
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quality" in their service areas.
8)Support arguments: Supporters argue that this bill makes several
changes to the law of mutual water companies, to make those that
operate "public water systems" more public. By opening the
practices of mutual water companies up to those who drink their
water, this bill brings increased oversight to their operations.
Additionally, this bill takes important steps to improve water
quality in the City of Maywood.
Opposition arguments: Mutual water companies throughout
California argue that they are already in full compliance with
the Corporations Code and other laws governing water quality,
employment practices, public notifications and public works, and
that the bill will result in increased operating costs that will
be passed on to customers in the form of increased water rates.
Analysis Prepared by : Debbie Michel / L. GOV. / (916) 319-3958
FN: 0002809