BILL ANALYSIS Ó SB 1456 Page 1 Date of Hearing: June 28, 2016 ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS Luis Alejo, Chair SB 1456 (Galgiani) - As Amended April 27, 2016 SENATE VOTE: 38-0 SUBJECT: Safe Drinking Water State Revolving Fund Law of 1997: public water systems: financing SUMMARY: Expands the eligibility for grants and principal loan forgiveness to water corporations regulated by the California Public Utilities Commission (CPUC) for projects funded under the Safe Drinking Water State Revolving Fund (SDWSRF). Specifically, this bill: 1)Expands the eligibility for projects under the SDWSRF by allowing water corporations regulated by the CPUC to be eligible for grants and principal loan forgiveness. 2)Requires the State Water Resources Control Board (State Water Board) to determine what portion of the full costs the public water system is capable of repaying and authorizes funding in the form of a loan or other repayable financing. Requires the State Water Board to authorize a grant or principal forgiveness only to the extent the State Water Board finds the public water system is unable to repay the full costs of the SB 1456 Page 2 financing. 3)Limits principal forgiveness to capital improvements serving severely disadvantaged communities with fewer than 200 service connections, where the public water system is a water corporation regulated by the CPUC. Requires the State Water Board to consider the realized rate of return for the public water system as criteria for determining the public water system's ability to repay the costs of the financing. 4)Provides that a public water system, other than those regulated by the CPUC, serving a severely disadvantaged community with fewer than 200 service connections is deemed to have no ability to repay any financing for a project serving a severely disadvantaged community. 5)Requires the CPUC, at the request of the State Water Board, to submit comments, to the State Water Board, concerning the ability of public water systems, regulated by the CPUC, to finance the project from other sources and to repay the financing. EXISTING LAW: 1)Establishes the California Safe Drinking Water Act (SDWA) and requires the State Water Board to maintain a drinking water program. (Health & Safety Code (HSC) § 116270, et seq.) 2)Defines a "public water system" as a system for the provision of water for human consumption through pipes or other constructed conveyances that has 15 or more service connections or regularly serves at least 25 individuals daily at least 60 days out of the year. (HSC § 116275) SB 1456 Page 3 3)Establishes the SDWSRF to provide financial assistance for community water systems to achieve compliance with the SWDA. (HSC §116760 et seq.) 4)Defines a "severely disadvantaged community" as a community with a median household income of less than 60 percent of the statewide average. (HSC § 116760.20) 5)Allows costs incurred by a community and not-for-profit noncommunity public water system for planning and preliminary engineering studies, project design, and construction to be funded from the SDWSRF by loans or other repayable financing. Further allows public water systems that are owned by public agencies or private not-for-profit water companies to be eligible for grants, principal forgiveness, or a combination of grants and loans or other financial assistance under the SDWSRF. (HSC § 116761.20 (a)) 6)Requires the State Water Board to determine what portion of the full costs the public agency or private not-for-profit water company is capable of repaying and authorizes funding in the form of a loan or other repayable financing. Requires the State Water Board to authorize a grant or principal forgiveness only to the extent the State Water Board finds the public agency or not-for-profit water company is unable to repay the full costs of the financing. (HSC § 116761.20 (b)(1)) 7)Provides that where a public agency or private not-for-profit water company serving a severely disadvantaged community with fewer than 200 service connections owns a small community water system or nontransient noncommunity water system, the public agency or private not-for-profit serving the severely disadvantaged community is deemed to have no ability to repay any financing for a project serving the severely disadvantaged SB 1456 Page 4 community. (HSC § 116761.20 (b)(2)) 8)Defines a "water corporation" to include every corporation or person owning, controlling, operating, or managing any water system for compensation within this State. (Public Utilities Code (PUC) § 241) 9)Defines a "public utility" to include every common carrier, toll bridge corporation, pipeline corporation, gas corporation, electrical corporation, telephone corporation, telegraph corporation, water corporation, sewer system corporation, and heat corporation, where the service is performed for, or the commodity is delivered to, the public. (PUC § 216 (a)) 10)Provides that when any public utility performs a service for, or delivers a commodity to, the public for which any compensation or payment is received, it is subject to the jurisdiction, control, and regulation of the CPUC. (PUC § 216(b)) FISCAL EFFECT: According to the Senate Appropriations Committee, if this bill is enacted, there could be cost pressures on the SDWSRF resulting from eligibility for loan forgiveness for an increased number of water systems. SB 1456 Page 5 COMMENTS: Need for the bill: According to the author, "Water utilities regulated by the CPUC are eligible for water-related state and federal funding programs, like the Prop.1 Water Bond, as long as the funding is used for projects to benefit their customers. This is due to the fact that customers of regulated utilities pay for the funding of programs through taxes just like every other taxpayer in the state. The CPUC has rules governing the water utilities' receipt and use of state and federal funds, which, among other things, ensure the customers directly benefit from the receipt and use of these funds. CPUC-regulated water utilities are eligible for loans from the SDWSRF. This program, under the State Water Board, assists water systems in financing the cost of drinking water infrastructure projects needed to achieve or maintain compliance with SDWA requirements. CPUC-regulated water utilities are not eligible for loan forgiveness under this statute. There are water service territories of CPUC-regulated water utilities in distressed communities where their customers would benefit from loan forgiveness by the State Water Board. The State Water Board is allowed to authorize a grant or principal forgiveness under the SDWSRF in cases where the State Water Board finds a public agency or private not-for-profit water company is unable to repay the full costs of the financing. Again, CPUC-regulated water utilities are not eligible for loan forgiveness under state law. SB 1456 expands the eligibility for loan forgiveness for capital improvements to all water systems serving severely disadvantaged communities with fewer than 200 service SB 1456 Page 6 connections." Safe Drinking Water Act: The federal Safe Drinking Water Act (SDWA) was enacted in 1974 to protect public health by regulating drinking water. California has enacted its own safe drinking water act to implement the federal law and establish state standards. The United States Environmental Protection Agency (US EPA) enforces the federal SDWA at the national level. Most states, including California, have been granted "primacy" by the US EPA, giving them the authority to implement and enforce the federal SDWA at the state level. In accordance with the federal SDWA, the US EPA provides funds to states for their drinking water loan programs, conducts an annual oversight review of each state's SDWSRF program, and issues an annual program evaluation report. Safe Drinking Water State Revolving Fund (SDWSRF): The SDWSRF provides low-interest loans, zero-interest loans, debt refinancing, principal forgiveness, and grants to public water systems for infrastructure improvements to correct system deficiencies and improve drinking water quality. Eligible projects include the planning, design, and construction of drinking water projects such as water treatment systems, distribution systems, and consolidations of two or more water systems. Eligible applicants for SDWSRF monies include publicly owned community water systems (counties, cities, and districts), privately owned community water systems (for-profit water utilities, nonprofit mutual water companies), and nonprofit or publicly owned noncommunity water systems (public school districts). The State Water Board maintains a list, posted on its website, to identify potentially eligible future projects. A project must be on this list to be considered for financing. However, placement on the list does not guarantee a project will be SB 1456 Page 7 funded. Priority is given to projects that address the most serious risk to human health; are necessary to ensure compliance with the requirements of the federal SDWA; and, assist systems most financially in need on a per household basis. The SDWSRF is funded by annual grants from the US EPA and a federally required 20 percent match from the state. The federal and state funds are used to provide financial assistance for eligible projects. The proceeds from these loans are then paid back, with interest, into the SDWSRF in later years, providing funding for new loans in the future. Water companies regulated by the CPUC: The California Public Utilities Commission (CPUC) is responsible for ensuring that California's investor-owned water utilities deliver clean, safe, and reliable water to their customers at reasonable rates. There are 108 investor-owned water utilities under the CPUC's jurisdiction providing water service to about 16 percent of California's residents. Approximately 95 percent of that total is served by 9 large water utilities each serving more than 10,000 connections. Under current law, only public agencies or not-for-profit water companies are eligible for grants or principal loan forgiveness through the SDWSRF. This bill would expand that eligibility by allowing water companies that are regulated by the CPUC to be eligible for loan forgiveness and grants for capital improvements. The customers of these water companies pay taxes, along with the customers of all other public water systems, which provide funding for these loan programs. Given that, the author argues that it does make sense to allow these CPUC regulated water companies to be eligible for the grant and loan forgiveness element of the SDWSRF. It is important to note however, that the SDWSRF uses the repayment of loans as source of funding for future projects, so anytime there is a grant or loan forgiveness it could reduce the amount of funds available SB 1456 Page 8 to the SDWSRF in the future. REGISTERED SUPPORT / OPPOSITION: Support California Water Association Opposition None on file. Analysis Prepared by:Josh Tooker / E.S. & T.M. / (916) 319-3965