BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        AB 656|
          |Office of Senate Floor Analyses   |                              |
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                                   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.  








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          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.







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           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  







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          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







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                                                                    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


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