BILL ANALYSIS Ó
AB 240
Page 1
Date of Hearing: September 11, 2013
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
AB 240 (Rendon) - As Amended: August 13, 2013
SUBJECT : Mutual water companies.
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.
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
AB 240
Page 2
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;
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
AB 240
Page 3
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 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
AB 240
Page 4
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
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
AB 240
Page 5
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
AB 240
Page 6
company takes subsequent action to 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
AB 240
Page 7
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, 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
AB 240
Page 8
under 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
AB 240
Page 9
office, complete a four-hour course, as specified.
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.
AB 240
Page 10
Governance of a mutual water company is generally limited to
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;
AB 240
Page 11
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,
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.
AB 240
Page 12
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
- 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
AB 240
Page 13
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."
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
AB 240
Page 14
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 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.
AB 240
Page 15
REGISTERED SUPPORT / OPPOSITION :
Support
Adam Greenfield Photography
California Rural Legal Assistance Foundation
Camara de Comercia de Maywood
City of Maywood
Clean Water Action
Community Water Center
Emelio's Carpet
Environmental Justice Coalition for Water
First Baptist Church of Maywood
Gateway Water Management Authority (if amended)
Gish Auto Repair
Glass, Molders, Pottery, Plastics, & Allied Workers
International Union (GMP), Local 137
Guerrero Service Center
HB Tax Service
Iglesia Betania
J & S Auto
Jose R. Torres DDS
K and D Store
La Favorita Party Supplies
La Popular Ins.
La Voz Del Immigrante
Leadership Council for Leadership and Accountability
Los Angeles Ink
Magic Matt
Merendero Tropical
Mil Flores Design
Mr. Income Tax
AB 240
Page 16
Natural Resources Defense Council
Neat Auto Detail & Supply, Inc.
Noa-Noa Taqueria
Padres Unidos de Maywood
Saida's Design
Salon Quintana
Servicios Pro Uno
Stephanie K. Flowers & P.S.
The House Lounge
Union de Vecinos
Unitarian Universalist Legislative Ministry, California
Video Express #1
Xpress Fleet Wash
Individual letters (5)
Opposition
Amarillo Mutual Water Company
Bellflower-Somerset Mutual Water Company
Butano Canyon Mutual Water Company
California Association of Mutual Water Companies
California Domestic Water Company
California Metals Coalition
Cathedral Wood Mutual Water Company
Central Basin Water Association
Cherry Valley Water Company
City of Covina
Covina Irrigating Company
Del Rio Mutual Water Company
El Capitan Mutual Water Company
Jago Bay Mutual Water Company and Home Owners' Association
Jarvis Mutual Water Company
Lake Elizabeth Mutual Water Company
Lawndale Mutual Water Company
Lincoln Avenue Water Company
Loma Mar Mutual Water & Improvement Company
Maywood Mutual Water Companies #1, #2, and #3
Montebello Land & Water Company
Oildale Mutual Water Company
Ponderosa Basin Mutual Water Company
Rancho Santa Teresa Mutual Water Company
Riverside Highland Water Company
AB 240
Page 17
Rubio Canon Land & Water Association
San Andreas Mutual Water Company
Southeast Water Coalition (unless amended)
Valencia Heights Water Company
Valley Water Company
Whitehawk Ranch Mutual Water Company
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958