BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1112|
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UNFINISHED BUSINESS
Bill No: SB 1112
Author: Cannella (R)
Amended: 8/11/16
Vote: 27 - Urgency
SENATE ENERGY, U. & C. COMMITTEE: 11-0, 4/19/16
AYES: Hueso, Morrell, Cannella, Gaines, Hertzberg, Hill, Lara,
Leyva, McGuire, Pavley, Wolk
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SENATE FLOOR: 39-0, 5/26/16
AYES: Allen, Anderson, Bates, Beall, Berryhill, Block,
Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall,
Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson,
Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning,
Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone,
Vidak, Wieckowski, Wolk
NO VOTE RECORDED: Runner
ASSEMBLY FLOOR: 78-0, 8/18/16 (Consent) - See last page for
vote
SUBJECT: Utilities: water and sewer systems corporations:
transactions
SOURCE: California Public Utilities Commission
DIGEST: This bill allows the California Public Utilities
Commission (CPUC) discretion to retroactively approve, or
conditionally approve, specified transactions related to
property valued at $5 million or less of small water or sewer
corporations, as specified, when the utility fails to obtain
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prior approval.
Assembly Amendments extend this bill's provisions applied to
small water corporations to include entities merging with or
acquiring control of a water or sewer system corporation; and
add an urgency clause to this bill.
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 that "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. (Public Utilities Code § 216)
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
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 million, or
for qualified transactions valued at $5 million 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
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valued at $5 million 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
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 or entities merging with or
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acquiring control of the water or sewer corporations 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 million or less.
2)Provides that if a water or sewer system corporation or entity
merging with or acquiring control of the water or sewer
corporations 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, with 70 of those
having service connections of 500 or less.
Total Water Companies: 108
Class A Companies: 9
(Ă 10,000 Service Connections)
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Class B Companies: 5
(Ă 2,000 Service Connections)
Class C Companies: 24
(Ă 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.
Some case studies. 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 where the majority of
the Class C and Class D CPUC-regulated water utilities are
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 application process
for a certificate of public necessity and convenience (CPCN) and
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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.
What this bill does. This bill provides 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 million 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 provides 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 delegates authority to the CPUC Director
of the Division of Water and Audits to make these determinations
without 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 California Water
Service's (Cal Water) request to supply trucked water to
homeowners with private wells that have gone dry in the East
Porterville area of Tulare County. Another example is the
provision of emergency water to residents near Cal Water's Chico
District. This bill will not affect the ability to handle
emergency transactions.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Assembly Appropriations Committee, the CPUC
indicates minor cost savings associated with not having to void
future accidental asset sales. This will reduce CPUC attorney
workload associated with locating the last legal owner of record
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and sorting out property rights.
SUPPORT: (Verified8/18/16)
California Public Utilities Commission (source)
California Water Association
OPPOSITION: (Verified8/18/16)
None received
ARGUMENTS IN SUPPORT: According to the CPUC, currently,
there are a number of small water and sewer companies who lack
the regulatory expertise to comply with Section 851, or even to
know that it exists. This bill gives 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 also allows the
CPUC to delegate the authority to make that determination to the
director of the Division of Water Agencies.
ASSEMBLY FLOOR: 78-0, 8/18/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth
Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,
Holden, Irwin, Jones, Jones-Sawyer, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Roger Hernández, Kim
Prepared by:Nidia Bautista / E., U., & C. / (916) 651-4107
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8/19/16 19:37:28
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