BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: SB 1112 Hearing Date: 4/19/2016
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|Author: |Cannella |
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|Version: |2/17/2016 As Introduced |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Nidia Bautista |
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SUBJECT: Utilities: water and sewer systems corporations:
transactions
DIGEST: This bill would allow the California Public Utilities
Commission (CPUC) discretion to retroactively approve, or
conditionally approve, specified transactions, valued at five
million dollars ($5,000,000) or less, by small water or sewer
corporations, as specified, when the utility fails to obtain
prior approval.
ANALYSIS:
Existing law:
1)Establishes that private corporations and persons that own,
operate, control or manage furnishing of water to or for the
public are public utilities subject to control by the
Legislature. Authorizes the CPUC to fix rates, establish
rules, examine records, and establish a uniform system of
accounts for all public utilities subject to its jurisdiction.
(California Constitution Article XII)
2)Establishes "public utility" includes every water corporation
and sewer system corporation where the service is performed
for, or the commodity delivered to, the public or any portion
thereof.
3)Prohibits a public utility (except for certain railroads) from
selling, leasing, assigning, mortgaging, or otherwise
disposing of, or encumbering the whole or any part of its
plant, system, or other property necessary or useful in the
SB 1112 (Cannella) Page 2 of ?
performance of its duties to the public, or any franchise or
permit or any right thereunder, or by any means whatsoever,
directly or indirectly, merge or consolidate its plant,
system, or other property, or franchises or permits or any
part thereof, with any other public utility, without first
having either secured an order from the CPUC authorizing it to
do so for qualified transactions valued above $5,000,000, or
for qualified transactions valued at $5,000,000 or less, filed
an advice letter and obtained approval from the CPUC
authorizing it to do so. (Public Utilities Code §851)
4)Requires the CPUC to determine the types of transactions
valued at $5,000,000 or less that qualify for advice letter
handling. (Public Utilities Code §851)
5)Authorizes the sale, lease, encumbrance, or other disposition
by any public utility of property that is not necessary or
useful in the performance of its duties to the public.
(Public Utilities Code §851)
6)Provides that water utilities, with service connections of
10,000 or less, are not prohibited from any assignment,
acquisition, or change of control without advance
authorization from the CPUC under circumstances when a
decedent to a member of the decedent's family in the manner
provided in Section 240 of the Probate Code or by a will,
trust, or other instrument. (Public Utilities Code §853(c))
7)Prohibits a person or corporation from merging, acquiring, or
controlling either directly or indirectly any public utility
organized and doing business in this state without first
securing authorization to do so from the CPUC. Requires that
any merger, acquisition, or control without that prior
authorization is void and of no effect. (Public Utilities
Code §854)
8)Establishes that any corporation or association that is
organized for the purposes of delivering water to its
stockholders and members at cost, including use of works for
conserving, treating, and reclaiming water, and that delivers
water to no one except its stockholders or members, or to the
state or any agency or department thereof, to any city,
county, school district, or other public district, or any
federal agency that provides fire protection or operates park
facilities, or to any other mutual water company, at cost, is
SB 1112 (Cannella) Page 3 of ?
not a public utility. Provides that a mutual water company
may perform specified activities without becoming a public
utility and becoming subject to the jurisdiction, control or
regulation of the CPUC. (Public Utilities Code §2705)
This bill:
1)Requires water or sewer system corporations with less than
2,000 service connections to obtain prior approval from the
CPUC before entering into a transaction related to property
subject to Public Utilities Codes §§851 and 854 and valued at
$5,000,000 or less.
2)Provides that if a water or sewer system corporation fails to
obtain prior approval, the transaction is voidable by the CPUC
unless the CPUC takes the following action:
a. Retroactively approves the transaction upon a
determination that the transaction is in the best
interests of both the corporation and its ratepayers.
b. Conditionally approves the transaction, subject to
specified conditions that would ensure the transaction is
in the best interest of the corporation and its
ratepayers.
3)Authorizes the CPUC to delegate the authority to make the
determinations in this bill to the director of the division
that investigates water and sewer system service quality
issues and analyzes and processes utility rate change
requests.
Background
CPUC-regulated water and sewer utilities. After decades of
consolidations, mergers, and acquisitions by municipalities,
special districts, and mutual water companies, the CPUC now has
jurisdiction over 12 sewer and 108 water companies that provide
water service to about 16 percent of California's residents with
annual water and wastewater revenues totaling $1.4 billion.
Approximately 95 percent of those residents are served by nine
large water utilities each serving more than 10,000 connections.
However, the majority of the CPUC-regulated water utilities
(94) have service connections of 2,000 or less, and with 70 of
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those having service connections of 500 or less.
Total Water Companies:
108
Class A Companies: 9
(Ã 10,000 Service Connections)
Class B Companies: 5
(Ã 2,000 Service Connections)
Class C Companies: 24
(Ã 500 Service Connections)
Class D Companies: 70
(Â 500 Service Connections)
Total Sewer Companies: _
?? 12
Why is this bill needed? According to the CPUC, there have been
instances when small water corporations sell their utilities
unaware that they must first get approval from the CPUC for any
transactions involving the "property necessary and useful in the
performance of its duties to the public," as required by Public
Utilities Code §851 and also restated in CPUC Rule 3.6 and
further defined in General Order 173. In those instances, the
CPUC has only one option - to void the sale - as required by
Section 854 and re-affirmed in Henderson v. Oroville-Wyandotte
Irrigation District (1913) 213 Cal 514, 529-530.
The CPUC provides some examples of small water corporations who
sold their company without the necessary prior approval from the
CPUC, including: January Water Company in Tulare County, Black
Butte in Glenn County, and Sonoma Springs Water Company and
Wendell Water Company both in Sonoma County. In these
situations, the CPUC must track down the original owner and
explain that the sale is now void. However, locating the
original owner may be very difficult, as the owner may have
died, may be out of state, or not able to cooperate. Although
there are fewer water corporations than in the recent past, many
of the owners of these corporations are aging and due to death
or illness the sale of these utilities are likely to grow
exponentially. The CPUC expects the challenges will be
particularly acute in the Central Valley were the majority of
the Class C and Class D CPUC-regulated water utilities are
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located. Although the CPUC attempts to educate owners of these
utilities of their many responsibilities, including those
related to the sale of property, through the certificate of
public necessity and convenience (CPCN) and subsequent rate case
application processes, many sales may still occur without CPUC
prior approval, particularly when the operator dies and a family
member inherits the utility and is not aware of the
responsibilities and requirements.
This bill would provide the CPUC some discretion to make a
post-sale approval, or conditional approval, determination for
transactions involving small water and sewer utilities, those
with 2,000 service connections or less, for specified
transactions valued at $5,000,000 or less. This seems
reasonable considering ownership of these utilities is more
likely to change hands with owners not knowing they need the
prior approval. This bill would provide the CPUC some
flexibility to not have to void those transactions that are
determined to be in the best interests of the ratepayers and the
corporation. Additionally, this bill provides that the CPUC
Director of the Division of Water and Audits can make this
determination without necessary approval from the Executive
Director.
Emergency transactions. There may be instances that necessitate
an emergency transaction, such as a large water transfer to
another utility lacking water. Under emergency situations, the
CPUC has authority, provided by Government Code §11125.5 and
reflected in Rule 14.6 of the CPUC's Rules of Practice and
Procedures, to reduce or waive the period for public review and
comment on a proposed decision, draft resolution, and their
alternates. Examples of the CPUC exercising this authority
include: a recently approved request of Cal Water's request to
supply trucked water to homeowners with private wells that have
gone dry in the East Porterville area of Tulare County; and the
provision of emergency water to residents near Cal Water's Chico
District. This bill will not affect the ability to handle
emergency transactions.
Technical amendment. In order to provide clarity regarding
maintaining the existing requirements for CPUC prior approval of
all utility transactions regardless of the value of the
transaction, the author and committee may wish to amend this
bill to move the language regarding the value of the transaction
from (a)(1) to the overarching statement of the statute:
SB 1112 (Cannella) Page 6 of ?
Notwithstanding Sections 851 and 854, for For a water
or sewer system corporation with less than 2,000
service connections, the following shall apply to
transactions valued at five million dollars
($5,000,000) or less, notwithstanding Sections 851 and
854 :
(a) (1) A water or sewer system corporation shall
receive the commission's approval before entering into
a transaction that would otherwise be subject to
Section 851 or 854 and that is valued at five million
dollars ($5,000,000) or less.
(2) If a water or sewer system corporation fails to
receive the commission's approval pursuant to
paragraph (1) the transaction is voidable by the
commission until the commission does either of the
following:
(A) Retroactively approves the transaction upon a
determination that the transaction is in the best
interests of both the corporation and its ratepayers.
(B) Conditionally approves the transaction, subject to
the fulfillment of specified conditions that would
ensure that the transaction is in the best interests
of both the corporation and its ratepayers.
(b) The commission may delegate the authority to make
the determinations described in subdivision (a) to the
director of the division that investigates water and
sewer system service quality issues and analyzes and
processes utility rate change requests.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
SUPPORT:
California Public Utilities Commission (Sponsor)
California Water Association
OPPOSITION:
None received
ARGUMENTS IN SUPPORT: According to the CPUC, currently, there
are a number of small water and sewer companies who lack the
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regulatory expertise to comply with Section 851, or even to know
that it exists. This bill would give the CPUC the flexibility
and discretion to void such transactions or to approve them
retroactively, imposing such conditions as the CPUC deems
appropriate to protect ratepayers. This bill would also allow
the CPUC to delegate the authority to make that determination to
the director of the Division of Water Agencies.
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