BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 656| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 656 Author: Cristina Garcia (D), et al. Amended: 6/22/15 in Senate Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/17/15 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 68-1, 5/22/15 - See last page for vote SUBJECT: Joint powers agreements: mutual water companies SOURCE: Author DIGEST: This bill allows a mutual water company and a public agency to form a joint powers authority (JPA) to provide risk-pooling and insurance for the JPA's members. ANALYSIS: Existing law: 1)Allows, pursuant to the Joint Exercise of Powers Act, 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. AB 656 Page 2 2)Includes the power to insure against specified liabilities among the common powers that public agencies can exercise jointly through a JPA. 3)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, Chapter 250, Statutes of 1994). This bill: 1)Allows a mutual water company and a public agency to: a) Form a JPA for risk-pooling provided that the agreement must ensure that no participating public agency becomes responsible for the underlying debts or liabilities of the joint powers agency, and must indemnify any participating public agency against those debts and liabilities. b) Form a JPA to provide insurance by methods specified in state law. c) Be coinsured under a master policy and to prorate the total premium among JPA members. 2)Requires that a JPA established pursuant to this bill's provisions must solely utilize any revenues it generates through the insurance provided to its members for its necessary operating expenses, and to provide technical support, continuing education, safety engineering, operational and managerial advisory assistance to its members for the purpose of reducing risk liabilities and furthering the technical managerial and financial capacity of those members. Background 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. AB 656 Page 3 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 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. 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 of 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 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 AB 656 Page 4 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. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No SUPPORT: (Verified7/7/15) 5th Avenue Insurance Services Amarillo Mutual Water Company Atascadero Mutual Water Company Bellflower-Somerset Mutual Water Company Big Rock Mutual Water Company Bleich Flat Mutual Water Company California Association of Mutual Water Companies California Domestic Water Company California State Firefighters' Association Canyon Crest Mutual Benefit Water Company Covina Irrigating Company DiBuduo & DeFendis Insurance Brokers, LLC 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 Maywood Mutual Water Company #1 AB 656 Page 5 Maywood Mutual Water Company #2 Midway City Mutual Montebello Land & Water Company Murphy Slough Association Oildale Mutual Water Company Raineri Mutual Water Company Rancho Pauma Mutual Water Company Reed Ditch Company Rocky Comfort Mutual Water Company Rowland Water District Rubio Cańon 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: (Verified7/7/15) None received ASSEMBLY FLOOR: 68-1, 5/22/15 AYES: Achadjian, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, Perea, Quirk, AB 656 Page 6 Rendon, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Wilk, Williams, Wood, Atkins NOES: Harper NO VOTE RECORDED: Alejo, Brough, Cooper, Beth Gaines, Gallagher, O'Donnell, Olsen, Patterson, Ridley-Thomas, Waldron, Weber Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119 7/7/15 17:16:13 **** END ****