BILL ANALYSIS Ó
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| SENATE COMMITTEE ON NATURAL RESOURCES AND WATER |
| Senator Fran Pavley, Chair |
| 2013-2014 Regular Session |
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BILL NO: AB 2443 HEARING DATE: June 24, 2014
AUTHOR: Rendon URGENCY: No
VERSION: February 21, 2014 CONSULTANT: Dennis O'Connor
DUAL REFERRAL: No FISCAL: No
SUBJECT: Duplication of service: mutual water companies
BACKGROUND AND EXISTING LAW
1.Mutual water companies can be organized under a number of
provisions of the Corporation Code. 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. A mutual water
company's governing structure is determined by its articles
and bylaws; generally, they allow only shareholders and
members to vote on organizational matters and serve on the
company's governing board. Mutual water companies are not
regulated by the California Public Utilities Commission (PUC).
2.The Service Duplication Law, enacted in 1965, requires the
payment of compensation to privately owned public water
utilities by a political subdivision, such as a county water
district, that provides duplicate water service in the same
service area as the private water utility. Mutual water
companies are included in the definition of a "private
utility" meaning that the same requirement of compensation is
required if a political subdivision provides duplicate water
service in a mutual water company's service area. These
provisions exempt from the service duplication law the use of
reclaimed water at a landfill in Los Angeles County.
3.Under the Cortese-Knox-Hertzberg Local Government
Reorganization Act Of 2000, Local Area Formation Commissions
(LAFCos) regulate the boundary changes and changes in
authorized powers for affected local agencies..
4.In 2011, the legislature passed and the governor signed AB 54
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(Solorio). Among other things, that bill required each mutual
water company that operates a public water system to, submit
by December 31, 2012, a map depicting the approximate
boundaries of the property that the municipal water company
serves to the LAFCO within the county in which the mutual
water company operates. The bill also prohibited a mutual
water company from expanding its boundaries without approval
from the appropriate LAFCO.
5.The California Constitution prohibits the waste and
unreasonable use of water. Existing law further declares that
the use of potable domestic water for nonpotable uses is a
waste and unreasonable use of water if recycled water of
sufficient quality is available at a reasonable price to the
water user.
6.Under the Water Recycling Act of 1991, retail water suppliers
are required to identify potential uses for recycled water
within their service areas, potential customers for recycled
water service within their service areas, and, within a
reasonable time, potential sources of recycled water. The Act
provides the conditions under which a retail water supplier
must provide recycled water to their customers. The Act also
provides mechanisms to resolve conflicts where a retail
customer wants to receive recycled water and the public water
agency or investor owned utility (IOU) regulated by the PUC
declines to allow that service. The Act does not address the
situation where a mutual water company declines to allow
recycled water service.
PROPOSED LAW
This bill would exempt a political subdivision, such as a water
district, that constructs facilities to provide or extend
recycled water services to the territory of the mutual water
company from the service duplication law, thereby eliminating
the required payment of compensation to mutual water companies
by a political subdivision that provides duplicate water service
in the same service area.
ARGUMENTS IN SUPPORT
According to the author, "In order to promote broader use of
recycled water, AB 2443 withdraws the State's protection of
mutual water company monopolies, but only as to recycled water.
Mutual water companies are not authorized to produce recycled
water and can only sell it by purchase from a public agency. AB
2443 protects the rights of landowners to purchase recycled
water from any public agency that is willing to extend its
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"purple pipe" to the landowner's property. It also prevents a
mutual water company from forcing a landowner to use clean and
safe drinking water for non-potable purposes, such as irrigation
of football fields."
ARGUMENTS IN OPPOSITION
According to the California Association of Mutual Water
Companies, "AB 2443 will not encourage the use of recycled water
in areas served by mutual water companies. AB 2443 will
effectively prevent many mutual water companies from retailing
recycled water to their customers, as wholesale public agencies
seeking to retail water bypass the mutual water company in order
to serve the customers directly, in contravention of existing
law. In some cases, mutual water companies currently selling
recycled water may be prevented from doing so in the future
under AB 2443. This is because AB 2443 allows wholesale public
water agencies to duplicate service of recycled water with their
own connections in areas already served by mutual water
companies. AB 2443 creates disadvantages that can financially
ruin mutual water companies with stranded costs of past
investments in safe drinking water improvements and recycled
water."
COMMENTS
Are Potable and Recycled Water The Same or Different Services?
Recycled water, of the appropriate quality, can and does
substitute for potable water for irrigation and other uses. On
the other hand, recycled water is not potable, so it cannot
substitute for drinking water for consumption and other
purposes. Additionally, potable and recycled water systems must
use separate distribution and treatment systems. If drinking
and recycled water are viewed as the same service, then some
consideration of duplication of services would seem appropriate.
If they are completely different services, then this bill
raises no policy issues.
What's the Problem? The author's staff asserts that this bill
is about whether the mutual water company would allow their
customers and shareholders to buy the recycled water. While
they note there has been an issue in Yucaipa, where the school
district wants to buy recycled water and the local mutual water
company declined, the author's staff also notes that situation
isn't the motivation for the bill. Mutual water company
advocates counter by identifying a number of instances where a
mutual water company has reached an agreement to provide
recycled water service, including Bellflower-Somerset Mutual
Water Company, Valencia Heights Water Company, and Oildale
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Mutual Water Company.
Swings The Pendulum Too Far? There is no clear mechanism under
current law to compel a mutual water company to allow the
provision of recycled water to its customers, when the recycled
water is of appropriate quality and a reasonable price. This
bill would require mutual water companies to allow the sale of
recycled water within its district by a recycled water provider
whether or not the water is of appropriate quality or that
service makes economic sense to either the mutual water company
or its customers. If potable and recycled water are the same or
similar services, neither current law nor this bill appears to
appropriately address the underlying issue. Namely, under what
circumstances are and are not mutual water companies required to
allow recycled water service?
Not A Problem For Public Agencies And IOUs. Current law
provides two ways to ensure that public agencies and IOUs
appropriately accept recycled water service: LAFCos, and the
Recycled Water Act of 1991.
LAFCos, as noted above, have authority over changes in
boundaries and local agencies' authorities, subject to state
law. Accordingly, a wastewater treatment agency that wanted
to provide recycled water within a public agency's service
area would need to apply to the local LAFCo for approval.
The Recycled Water Act of 1991, as noted above provides a
statutory process for resolving conflicts regarding recycled
water services, including establishing the conditions under
which a public agency or IOU must allow recycled water service
and a mediation process to resolve disputes.
Venue vs. Process. Besides maintaining the status quo or simply
removing duplication of service protection, as proposed by this
bill, there are two other options for resolving under what
conditions mutual water companies are and are not required to
allow recycled water service:
1) Process: Establish in the Water Recycling Act the conditions
under which a mutual water company must allow the provision of
recycled water and those conditions where it need not.
2)Venue: Subject the decision to supply recycled water to mutual
water companies or their customers to LAFCo review.
The committee may wish to amend the bill as outlined in either
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1) or 2) above.
SUPPORT
City of Calimesa
Sierra Club California
Yucaipa Valley Water District
Yucaipa-Calimesa Joint Unified School District
OPPOSITION
Amarillo Mutual Water Company
Atascadero Mutual Water Company
Averydale Mutual Water Company
Bellflower-Somerset Mutual Water Company
California Association of Mutual Water Companies
California Domestic Water Company
Cartago Mutual Water Company
Central Basin Water Association
Cherry Valley Water Company
Covina Irrigation Company
El Dorado Mutual Water Co.
La Cumbre Mutual Water Company
Lincoln Avenue Water Company
Maywood Mutual Water Company # 3
Montebello Land and Water Company
Oildale Mutual Water Company
Pine Valley Mutual Water Company
Ponderosa Basin Mutual Water Company
Riverside Highland Water Company
Rubio Canyon Land and Water Association
San Gabriel Valley Water Association
Shadow Acres Mutual Water Company
South Mesa Water Company
South Midway City Mutual Water Co.
Sundale Mutual Water Company
Sunny Slope Water Company
Sunnyside Farms Mutual Water Company
Valencia Heights Water Company
Valley Water Company
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Western Heights Water Company
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