BILL ANALYSIS Ķ
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 656 |Hearing |6/17/15 |
| | |Date: | |
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|Author: |Cristina Garcia |Tax Levy: |No |
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|Version: |5/4/15 |Fiscal: |Yes |
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|Consultant|Weinberger |
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JOINT POWERS AGREEMENTS AND MUTUAL WATER COMPANIES
Allows a mutual water company and a public agency to form a
joint powers authority to provide risk-pooling and insurance for
the JPA's members.
Background and Existing Law
Public water systems that deliver domestic water generally fall
into three categories:
Local agencies (cities and special districts). Local
agency formation commissions (LAFCOs) control the cities
and special districts' boundaries and local officials are
responsible to their voters for their water rates.
Investor owned public utilities. The California Public
Utilities Commission (PUC) controls the companies' service
areas and their water rates.
Mutual water companies. These private entities, formed
under statutes governing corporations, respond to their
shareholders, usually the landowners who receive water
service. Neither LAFCOs nor the PUC regulate mutual water
companies.
The State Department of Public Health and some county health
departments monitor the quality of drinking water delivered to
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most households, regardless of what type of public water system
delivers the water.
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.
The Joint Exercise of Powers Act allows two or more public
agencies to enter an agreement to jointly exercise any power
held in common by the parties to the agreement. Each public
agency must independently possess the authority to perform the
activity that is to be performed jointly pursuant to a joint
powers agreement. Sometimes an agreement creates a new,
separate government called a joint powers authority (JPA).
Among the common powers that public agencies can exercise
jointly through a JPA is the power to insure against specified
liabilities. State law allows two or more local public
entities, by a joint powers agreement, to provide insurance
authorized by specified statutes.
As a general rule, only public entities may form a JPA.
However, despite the fact that a mutual water company is not a
public entity but rather is a private corporation or
association, state law allows a mutual water company to enter
into a joint powers agreement with any public agency for the
purpose of jointly exercising any power common to the
contracting parties (AB 2014, Cortese, 1994).
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, 2011). That
bill established training requirements for mutual water
companies' board members, made mutual water companies liable for
specified fines and penalties for violating the California Safe
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Drinking Water Act, and expanded LAFCOs' authority to review
matters related to mutual water companies.
Despite these recent changes to state law, some mutual water
companies continue to struggle with funding shortages, lack of
access to technological expertise, and other operational and
managerial challenges. Although state and local policymakers
recognize the problems associated with some water systems
operated by mutual water companies, some companies either can't
or won't seek public funding and assistance to help improve
their systems. In response, some mutual water company
stakeholders want to find ways to make better use of the
resources that are currently available to mutual water
companies. They want the Legislature to allow mutual water
companies to become members of a JPA for the purpose of
providing insurance to the JPA's members. Some of the savings
that are realized through the JPA's risk pooling and reinsurance
transactions could then be used to provide capital for water
system improvements and pay for services to build capacity at
struggling mutual water companies.
Proposed Law
Assembly Bill 656 allows a mutual water company and a public
agency to:
Form a JPA for risk-pooling and providing technical
support, continuing education, safety engineering, and
operational and managerial advisory assistance to JPA
members for the purpose of reducing risk liabilities.
Form a JPA to provide insurance by methods specified in
state law.
Be coinsured under a master policy and to prorate the
total premium among JPA members.
State Revenue Impact
No estimate.
Comments
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1. Purpose of the bill . The majority of mutual water companies
in California are small, with many serving fewer than 3,000
connections. Many mutual water companies serve economically
disadvantaged areas and do not have access to low cost insurance
and other services, such as those available to special districts
under the Association of California Water Agencies' Joint Powers
Insurance Authority, or other joint powers agency insurance
programs. Instead, mutual water companies must purchase higher
cost insurance in the open market, and many are not provided the
opportunity to easily obtain other services that could assist
them in building operational and managerial capacity. Because
the pooling of self-insured claims or losses among entities
participating in a JPA is not subject to regulation under the
Insurance Code and is not subject to premium taxes, the JPA can
set lower premiums and offer broader coverage than would be
available through the private marketplace. By allowing mutual
water companies to realize some of these savings through
membership in a mutual water company insurance JPA, AB 656 would
make residual funding available to help mutual water companies
strengthen accounting, operational, and technical capacity to
better prepare them to improve their delivery of safe drinking
water, as well as apply for state grants and loans.
2. Public agency member . Although current law already allows
mutual water companies to enter into joint powers agreements to
exercise powers they hold in common with public entities, they
cannot rely on this existing statutory authority because they
lack the independent power to offer insurance coverage. As a
result, AB 656 must specifically allow them to join with a
public agency to create a JPA that can pool risk and provide
insurance. To clarify the purpose of this provision, the
Committee may wish to consider amending AB 656 to:
Specify that the insurance JPA can consist of one or
more public agencies and one or more mutual water
companies.
Require that all public agencies and mutual water
companies participating in the JPA must possess common
powers relating to providing retail water services.
Specify that any public agency's participation in the
JPA is for the purpose of allowing mutual water companies
to access risk-pooling and insurance through a JPA and
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should not expose a public agency additional risk,
liability, or fiscal obligations as a result of its
participation in the JPA.
3. Use of residual funds . AB 656's proponents suggest that one
purpose of granting mutual water companies access to insurance
coverage through a JPA is to use some of the residual savings to
fund much-needed water system improvements and improve
technical, operational, and managerial capacity. However, the
bill does not specifically address this use of funds by the JPA.
Without any specific statutory guidance, it is unclear whether
a JPA formed to provide insurance to mutual water companies
will, in fact, retain any residual savings or use the retained
funds for the intended purposes. The Committee may wish to
consider amending AB 656 to specify that the special JPA
authorized by the bill must use residual funds generated from
savings on mutual water companies' insurance coverage only for
the purpose of funding specific types of infrastructure
improvements or services that benefit mutual water agencies.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Appropriations Committee: 14-1
Assembly Floor: 68-1
Support and
Opposition (6/11/15)
Support : California Association of Mutual Water Companies;
Amarillo Mutual Water Company; Atascadero Mutual Water Company;
Bellflower-Somerset Mutual Water Company; Big Rock Mutual Water
Company; Bleich Flat Mutual Water Company; California Domestic
Water Company; California State Firefighters' Association;
Canyon Crest Mutual Benefit Water Company; Covina Irrigating
Company; DiBuduo & DeFendis Insurance Brokers, LLC; 5th Avenue
Insurance Services; Flanigan-Leavitt Insurance Agency; Fluetsch
& Busby Insurance; Glenhaven Mutual Water Company; Green Acres
Mutual Water Company; Green Valley Mutual Water Company; Inland
Counties Insurance Services; Insurance Solutions from A to Z;
InterWest Insurance Services; Lakeview Mutual Water Company;
Lincoln Avenue Water Company; Llano Mutual Water Company;
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Maywood Mutual Water Company #1; Maywood Mutual Water Company
#2; Midway City Mutual; Montebello Land & Water Company; Oildale
Mutual Water Company; Murphy Slough Association; Raineri Mutual
Water Company; Rancho Pauma Mutual Water Company; Reed Ditch
Company; Rocky Comfort Mutual Water Company; Rowland Water
District; Rubio Caņon Land and Water Association; San Antonio
Water Company; San Gabriel Valley Water Association; Shaver Lake
Point #2 Mutual Water Company; South Mesa Water Company;
Strawberry Tract Mutual Water Company; Sundale Mutual Water
Company; SunnySlope Water; The Farm Mutual Water Company; Tucker
Acres Water Company; Valencia Heights Water Company; Valley Ag
Water Coalition; Valley Water Company; Vinsa Insurance
Associates; Walnut Valley Water District; Windflower Point
Mutual Water Company; Wutchumna Water Company..
Opposition : Unknown.
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