BILL ANALYSIS                                                                                                                                                                                                    Ķ



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
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          |Bill No:  |AB 1077                          |Hearing    |6/17/15  |
          |          |                                 |Date:      |         |
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          |Author:   |Holden                           |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |5/18/15                          |Fiscal:    |No       |
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          |Consultant|Favorini-Csorba                                       |
          |:         |                                                      |
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                         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  







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          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.  









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          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  








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               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  








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          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  








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          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  








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          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.










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