BILL ANALYSIS Ķ SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |AB 1077 |Hearing |6/17/15 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Holden |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |5/18/15 |Fiscal: |No | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Favorini-Csorba | |: | | ----------------------------------------------------------------- MUTUAL WATER COMPANIES: OPEN MEETINGS Amends the Mutual Water Company Open Meetings Act to allow mutual water companies to use teleconferencing as a means to allow eligible persons to access board meetings. Background and Existing Law Public water systems that deliver domestic water generally fall into three categories: local agencies (such as cities and special districts), investor-owned public utilities, and mutual water companies-corporations that exist for the purpose of providing water to their shareholders, which are usually landowners that receive water service. Nearly all Californians get their domestic water from local agencies (about 80 percent) or investor-owned public utilities (16 percent). However, about 1.3 million Californians (3 percent) receive their water from one of about 1,200 mutual water companies in the state. These companies can range in size from as small as 15 connections (households)--often in rural areas-to thousands of connections in urban areas. 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 AB 1077 (Holden) 5/18/15 Page 2 of ? 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 what is essentially a customer-owned water provider to serve their properties. Governance of a mutual water company is generally limited to shareholders, or members, of the company. While the details of any particular company's governing structure are determined by its articles and bylaws, most mutual water companies allow only shareholders and members to vote on organizational matters and serve on the company's governing board. The State Department of Public Health and some county health departments regulate the quality of drinking water delivered by all public water systems. However, other aspects of public water systems' operations-including their boundaries and rates-are regulated differently depending on the type of water system, as follows: Local Agency Formation Commissions (LAFCOs) control the cities and special districts' boundaries and local officials are responsible to their voters for their water rates. The California Public Utilities Commission (PUC) controls investor-owned utilities' service areas and their water rates. Shareholders control the actions of mutual water companies. Neither LAFCOs nor the PUC regulate mutual water companies. Furthermore, local agencies are subject to stringent requirements to hold open, public meetings when making decisions. The Ralph M. Brown Act, first enacted by the Legislature in 1953, is the set of state laws which guarantees the public's right to attend and participate in local legislative bodies' meetings. The Brown Act establishes procedures to ensure public access to information maintained by local agencies and that the decisions made by public agencies are done in an open and transparent fashion to retain public control over those agencies. AB 1077 (Holden) 5/18/15 Page 3 of ? As private corporations, mutual water companies are not subject to the Brown Act. Instead, state law gives mutual water companies broad authority to specify in their articles and bylaws how their meetings are conducted, and who may attend. But because, some mutual water companies operate public water systems that provide water to consumers who are not shareholders, the Legislature passed AB 240 (Rendon, 2013) to increase transparency requirements. AB 240 established the Mutual Water Company Open Meeting Act (the Act), which imposes requirements on the meetings of the board of directors of mutual water companies that operate a public water system. Among other requirements, the Act: Defines "eligible person" to mean any of the following: o A shareholder or member of the mutual water company; o A commercial or residential renter to which the company provides drinking water; o An elected official of a city or county who represents people who receive drinking water directly from the company; o Any other person deemed eligible by the company's articles or bylaws. Allows an eligible person, upon 24 hours advance written notice, to attend meetings in person; Requires an eligible person-without giving 24 hours' notice to the board-to be able to attend a meeting that is held via teleconference, and requires the notice for the meeting to specify where an eligible person may hear the teleconference meeting; Requires eligible persons to be notified at least four days prior to a meeting; Requires the Board to permit any eligible person to speak at any meeting, within reasonable time limits; Provides, with limited exceptions, that a mutual water company Board may not discuss or take action on any item at AB 1077 (Holden) 5/18/15 Page 4 of ? a meeting unless the item was placed on the agenda included in the meeting notice that was posted and distributed pursuant to the Act; The Act includes two exceptions to the open meeting requirements above. First, the Act allows the board of a mutual water company to meet in a closed "executive session" to consider certain specified matters, including litigation, discipline of a member, contracting with third parties, or personnel matters. Eligible people are not entitled to attend executive sessions unless otherwise allow by the articles or bylaws of the mutual water company. These closed sessions may occur at a meeting of the board that is otherwise open to eligible people or at a meeting that is solely in executive session. Only two days' notice is required for meetings solely in executive session. Any matter discussed in executive session must be generally noted in the minutes of the immediately following meeting that is open to eligible persons. Second, the Act further allows the Board to hold an emergency meeting without being required to give notice if there are circumstances that could not have been reasonably foreseen and that require immediate action. AB 240 expanded the ability of Californians who are served by mutual water companies to attend board meetings. However, due to their small size and often-remote location, many mutual water companies struggle to accommodate all interested parties. Thus, despite these recent changes to state law, some residents served by mutual water companies-but who are not shareholders or members-are concerned that they are not being provided adequate access to the meetings of mutual water companies' boards. Proposed Law Assembly Bill 1077 revises portions of the Mutual Water Company Open Meetings Act to improve the access of eligible people to mutual water company board meetings in several ways. First, AB 1077 specifically requires a mutual water company's board to allow an eligible person to attend a meeting in person if the person has given at least 24 hours' notice of their intent to personally attend the meeting. Second, AB 1077 allows the board to use teleconferencing for the benefit of any eligible person who has been denied access to a AB 1077 (Holden) 5/18/15 Page 5 of ? meeting because either: (1) the eligible person did not give at least 24 hours' notice of their intent to attend in person, or (2) the number of eligible persons who have given notice to attend in person exceeds the capacity of the meeting room that was listed in the meeting notice. The bill defines teleconferencing to include any electronic means that allows an eligible person to hear and interact with the board, such as a cell phone with a speakerphone or audio or video conferencing over the internet. If the board uses teleconferencing, it must provide the meeting materials to the eligible person either electronically or physically before the meeting begins. AB 1077 also provides that a board cannot prohibit a person from attending the meeting either in person or by technology. Third, AB 1077 makes several changes to the provisions allowing for executive sessions. Specifically, it: Prohibits a board from meeting solely in an executive session and makes conforming changes to other provisions; Specifies that a board may prohibit an eligible person from attending an executive session where matters relating to the potential acquisition, of real property or water rights will be discussed (in addition to the circumstances allowed under current law); Specifies that, when a board meets in executive session to consider litigation, the litigation must be pending or potential; Requires the board to meet in executive session if requested by a member subject to discipline, and allows the member to attend such a session. State Revenue Impact No estimate. Comments 1. Purpose of the bill. AB 1077 safeguards the ability of Californians served by mutual water companies to provide input on decisions that affect their water service. AB 1077 modestly expands on the requirements established by the Mutual Water Company Open Meetings Act by enabling mutual water companies to use teleconferencing, to ensure that eligible people are able to attend meetings of the board. By making the use of AB 1077 (Holden) 5/18/15 Page 6 of ? teleconferencing permissive rather than prescriptive, AB 1077 strikes a balance between ensuring that people served by mutual water companies have access to meetings without imposing burdensome requirements on small mutual water companies that don't have large meeting rooms or large budgets to procure additional space. In addition, the teleconferencing provision is flexible enough to allow for measures as simple as a speakerphone, to provide access to meetings that people would otherwise be excluded from those meetings. These changes further the intent of the Mutual Water Company Open Meetings Act, to promote better engagement between shareholders, customers, and board members. 2. Increased Burden on Private Companies . Opponents of the bill argue that AB 1077 imposes a number of burdensome requirements on mutual water companies that other private companies do not have to meet. For example, the teleconferencing provisions of AB 1077 potentially allow people who are not eligible to remotely attend private board meetings. In addition, it could require great expense to provide technology that provides for interaction with customers, which goes beyond the interaction that even public agencies are required to provide. Finally, AB 1077 sets up mutual water companies, to violate the requirement to provide meeting materials to eligible persons that attend the meeting via teleconference by only giving the companies 24 hours to send out the materials. 3. It isn't easy being Brown . The Brown Act includes many requirements intended to provide for open, responsive service provision by local government that have been accumulated over decades of experience. For example, the Brown Act requires local agencies' legislative bodies to report the votes of individual officials for closed meetings and meetings conducted by teleconference. These provisions enable the public to be aware of how individual boards members vote when the vote is not taken in the public's presence. While the requirements of AB 240 opened the meetings of mutual water companies to "eligible persons," its requirements are far more limited than the requirements of the Brown Act. Given that water service is a fundamental necessity and that customers of other types of public water systems have broad access to meetings and other avenues to affect the governance of their water provider (such as the ability to formally protest and forestall rate increases), the Committee may wish to consider amendments that AB 1077 (Holden) 5/18/15 Page 7 of ? go further than the changes AB 1077. Such amendments could include either: Inserting cross references to the Brown Act that ensure that all of the requirements that apply to local agencies also apply to mutual water companies that operate a public water system, or; Inserting the Brown Act requirements applicable to teleconferencing into the Mutual Water Company Open Meetings Act. 4. Let's be clear . Some provisions of AB 1077 are ambiguous. Specifically, it is not clear what the meaning of allowing teleconferencing to be used "for the benefit of" eligible persons that otherwise could be barred from attending meetings. In addition, the prohibition on preventing an eligible person attending "by technology in compliance with this paragraph" is also unclear. The Committee may wish to consider the following clarifying amendments in order to make clear that teleconferencing should only be used to improve, the ability of eligible persons to attend a meeting, and that all eligible people must be allowed to attend meetings either in person or by teleconference. On page 3, line 27, strike out "for the benefit of any eligible person" and insert "to provide any eligible person access to the meeting that otherwise would be" On page 4, lines 4 and 5, strike out "technology in compliance with this paragraph" and insert "teleconference except as provided by section 14305(b) (2)". Assembly Actions Assembly Local Government Committee: 9-0 Assembly Floor: 75-5 Support and Opposition (6/11/15) Support : Sierra Club California. Opposition : Rubio Caņon Land and Water Association. AB 1077 (Holden) 5/18/15 Page 8 of ? -- END --