BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 489 - Fuller Hearing Date:
April 16, 2013 S
As Amended: April 2, 2013 FISCAL B
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DESCRIPTION
Current law authorizes the California Public Utilities
Commission (CPUC) to regulate public utilities, including water
corporations, and to require a water corporation to provide
adequate and reliable water service to its customers at just and
reasonable rates.
Current law authorizes the CPUC to petition a local superior
court to appoint a receiver to assume possession and operate a
water corporation system if the CPUC determines, after notice
and hearing, that the water corporation is unable or unwilling
to adequately serve its ratepayers, has been actually or
effectively abandoned by its owners, or is unresponsive to CPUC
rules or orders.
Current law authorizes a superior court to appoint a receiver
for a water corporation upon petition of the CPUC and to require
the receiver to post a bond and comply with the orders of the
court and protection of all property rights involved; and
requires the court to provide for the disposition of the water
facilities and system in like manner as any other receivership
proceeding in this state.
This bill authorizes the CPUC, as an alternative to petitioning
a superior court to appoint a receiver, to enter into an
agreement with another water corporation or qualified entity to
serve as an interim operator of the water system, provides that
this interim operator shall have the powers of a receiver, and
authorizes the CPUC to approve the sale of the water corporation
to a new owner without any court involvement.
Current law , Section 1759 of the Public Utilities Code, provides
that jurisdiction to review, reverse, correct, or annul any CPUC
order or decision is with the state court appeal and California
Supreme Court, with no interim review by any state superior
court.
This bill adds to the current law authorizing the CPUC to
petition a superior court to appoint a receiver a declaration
that, pursuant to Section 1759, this court has no authority to
modify any CPUC determination of the ability of an owner or
operator to continue to operate a water or sewer system and
provide safe and reliable service.
BACKGROUND
CPUC Regulates Privately Owned Water Utilities - About 120
investor-owned water corporation utilities subject to CPUC
jurisdiction provide roughly 20 percent of the residential water
used in California. The CPUC classifies these water utilities
by their number of service connections, including 10 Class A
companies with more than 10,000 service connections; 6 Class B
companies with more than 2,000 service connections, 22 Class C
companies having more than 500 service connections, and 83 Class
D companies with less than 500 service connections. The CPUC
sets rates for these water utilities and requires that they
provide adequate and reliable water that meets all applicable
state and federal water quality standards.
Each of these water corporations subject to CPUC jurisdiction,
although heavily regulated and obligated to serve any customer
in its service territory, is privately owned. In contrast,
about 80 percent of the state receives water service through a
public water utility owned and operated by a city, county, water
agency, or other governmental unit, each with its own regulatory
body.
Constitutional Protection of Private Property - The U.S.
Constitution, through the Fifth and Fourteenth Amendments,
provides that no person shall be deprived of property without
due process, generally held to be notice and hearing at a
minimum.
CPUC Authority to Seek New Owner - If the CPUC determines that a
water utility is abandoned by its owner or becomes insolvent or
is otherwise unresponsive to CPUC rules and orders, the CPUC is
authorized by statute to seek the appointment of a receiver to
take over the operation of the water company and sell its assets
to a potential buyer. The petition for receivership must be
filed in superior court in the county in which the utility is
located. Over the past 12 years, the CPUC has petitioned a
superior court to appoint a receiver for seven different small
sewer and water companies, all of which are small Class D water
company utilities having 500 or fewer service connections. The
disposition of each petition is as follows:
Company Court Where Petition
Filed Outcome
Mineral City Water Co. Tehama Countyresolved w/o
receiver
Ponderosa Sky Ranch Water Co. Tehama Countyreceiver appointed
Conlin-Strawberry Water Co. Tuolumne
Countyresolved w/o receiver
Golden Hills Sanitation Co. Kern Countyreceiver
appointed
Arrowhead Manor Water Co. San Bernardino
County receiver appointed
Yermo Water Co. San Bernardino
Countyreceiver appointed
Live Oaks Springs Water Co. San Diego
Countypending
Receiverships Protect Property Interests - The appointment of a
receiver is a way to protect assets and property interests
pending the outcome of litigation or other legal dispute.
California Code of Civil Procedure Section 564 authorizes court
appointment of a receiver in a variety of actions, including
upon petition of the CPUC for a water or sewer corporation that
the CPUC has determined is unable or unwilling to provide
adequately service, has abandoned service, or is unresponsive to
CPUC rules or orders.
California Rule of Court 3.1179 states that, "The receiver is an
agent of the court, not of any party to the litigation, and as
such: (1) is neutral; (2) acts for the benefit of all who may
have an interest in the receivership property; and (3) holds
assets for the court, not the plaintiff nor the defendant."
Unless the parties file a written consent, a receiver may not be
a party, an attorney of a party, a person interested in the
action, or a person related to any judge of the court by
consanguinity or affinity within the third degree (Code of Civil
Procedure Section 566).
Legal experts generally observe that appointment of a
receivership is a drastic remedy in that it amounts to wresting
control of property from the owner's hands. Thus, "ordinarily if
there is any other remedy, less severe in its results, which
will adequately protect the rights of the parties, the court
should not take property out of the hands of its owners."
Alhambra-Shumway Mines Inc. v. Alhambra Gold Mine Corp., 116
Cal.App.2d 869 (1953). "California rigidly adheres to the
principle that the power to appoint a receiver is a delicate one
which is to be exercised sparingly and with caution." Morand v.
Superior Court, 38 Cal.App.3d 347 (1974).
Powers of a Receiver - A receiver's powers are those specified
in any applicable statute and orders of the appointing court.
The receiver acts under the court's control and continuous
supervision. Section 568 of the Code of Civil Procedure provides
the following: "The receiver has, under the control of the
Court, power to bring and defend actions in his own name, as
receiver; to take and keep possession of the property, to
receive rents, collect debts, to compound for and compromise the
same, to make transfers, and generally to do such acts
respecting the property as the Court may authorize."
The Public Utilities Code Section 855 provides more specifically
that a receiver may be appointed for a water or sewer
corporation "to assume possession of its property and to operate
its system upon such terms and conditions as the court shall
prescribe" and authorizes the court to require the receiver to
post a bond and comply with the orders of the court and
protection of all property rights involved; and requires the
court to provide for the disposition of the water facilities and
system in like manner as any other receivership proceeding in
this state.
Court Review of CPUC Decisions - The California Constitution
establishes the CPUC to regulate public utilities "subject to
control of the Legislature" and grants the Legislature plenary
power to, among other things, establish the manner and scope of
court review of commission action. The Legislature, through
Section 1759 of the Public Utilities Code, provides that
jurisdiction to review, reverse, correct, or annul any CPUC
order or decision is with the state court of appeal and
California Supreme Court, with no interim review by any state
superior court.
COMMENTS
1. Author's Purpose . According to the author, "this bill
would make it easier for the CPUC to remove recalcitrant,
incompetent, and absentee owners of water utilities who
have refused to cooperate with the CPUC's regulatory
oversight. Instead of a cumbersome two-step process to
have a receiver appointed to take over operations of these
companies, the revised statute would allow the CPUC itself
to find and appoint an interim operator who would have the
powers of a receiver. The CPUC would be in a position to
directly monitor the activities of the interim operator and
the operator would not have to seek the Superior Court's
approval (in addition to the CPUC's) to make major
decisions about the management of the water utility."
2. Safe and Adequate Water Service . The goal of this bill
to remove a "recalcitrant, incompetent, and absentee" owner
of a water utility as quickly as possible is generally
consistent with the CPUC's obligation to ensure that water
utilities provide customers adequate and safe water
service. The seven cases in the past decade where the CPUC
petitioned a court to appoint a receiver included instances
of utility owners using untreated creek water with
excessive levels of lead after a tank began leaking,
customers left with no water during a week of 100 degree
days, and threat of intent to cease all sewer service in
two weeks. In each case, the CPUC made a determination
that the current owner was unwilling or unable to comply
with CPUC requirements to provide safe and adequate water.
3. "Drastic Remedy" of Receivership Takes Time . The CPUC's
primary reason for wanting to eliminate the requirement to
go to court to appoint a receiver and find a new owner for
a water utility is that the court process takes too much
time and is too expensive. The CPUC claims the requirement
to go to court is burdensome because it requires CPUC
attorneys based in San Francisco to travel to distant local
courts, file detailed notice and other trial court
litigation documents with which they are not familiar, and
educate local judges about CPUC regulation. The CPUC also
claims that docket congestion and state budget cuts to the
court system have exacerbated the delay in getting action
on receivership petitions.
In addition, the CPUC claims that a water corporation
owner's due process rights are adequately protected because
the owner can participate and be represented in the CPUC
investigation and hearing on whether that owner is
providing adequate water service. Any additional due
process afforded by a court proceeding is duplicative of
CPUC protections, the CPUC claims.
It is significant, however, that the ultimate remedy the
CPUC seeks to unilaterally impose - without court
involvement if this bill is enacted - is to deprive a water
corporation owner of private property. This is a more
drastic remedy than an agency imposing fines or penalties
for violating its rules. Moreover, even if the CPUC's
proceedings afford some due process to the water
corporation, other parties who may have a property interest
in the water corporation assets have an opportunity to
protect them in the local court where the utility is
located and public notice of the receiver petition is made.
Indeed, the CPUC gives examples in its recent receiver
cases where other parties asserted property interests
through the local court - a community property interest of
a former spouse and an easement interest.
4. Expedited Court Action is Possible . According to the
CPUC, in March 2012, it was successful in getting a Kern
County court to appoint a receiver to take over the Golden
Hills Sanitation Company within only 29 days after filing
an application for expedited action. In that case, the
utility notified customers that it intended to cease
providing sewer service in two weeks, which would have made
customer' homes inhabitable. This case demonstrates that
expedited action is possible without removing the
long-standing requirement of going to court to deprive a
utility of private property in order to protect all
affected property interests. Thus, the author and
committee may wish to consider amending the bill to strike
the provision authorizing the CPUC's alternative procedure
that gives an interim operator powers of a receiver and
instead require the CPUC, as part of filing a petition to
appoint a receiver, to take all reasonable steps to seek
expedited court action on appointment of a receiver when
necessary to protect utility customers from inadequate
service that poses an imminent threat to public health and
safety.
5. Appellate Review Provision Not Applicable . The CPUC
states that superior court action on a CPUC receivership
petition is purely ministerial and administrative because
Section 1759 of the Public Utilities Code deprives a
superior court from making any change to the CPUC's
decision that the owner is unfit to provide utility
service. However, Section 1759 relates to appellate
jurisdiction, specifies generally that court review of CPUC
decisions is with the court of appeal and California
Supreme Court (rather than trial courts first), and says
nothing about the superior court receivership process
authorized in separate statutes. Moreover, the CPUC could
not identify any court ruling citing Section 1759 as a
limitation on a court's authority to act on a CPUC petition
to appoint a receiver. Thus, the author and committee may
wish to consider amending the bill to strike the following
language in subdivision (a) of Section 855:
The court shall presume that any finding,
conclusion, or determination in a final
decision or order of the commission pursuant to
this section is true and correct. Pursuant to
subdivision (a) of Section 1759, the superior
court does not have authority to modify any
action or determination by the commission as to
the ability of the owner or operator to
continue to operate the water or sewer system
and provide safe and reliable service.
6. Double Referral . Should this bill be approved by the
committee, it will be re-referred to the Senate Committee
on Judiciary for its consideration.
POSITIONS
Sponsor:
California Public Utilities Commission
Support:
California Water Association
Division of Ratepayer Advocates
The Greenlining Institute
The Utility Reform Network
Oppose:
None on file
Jacqueline Kinney
SB 489 Analysis
Hearing Date: April 16, 2013