BILL ANALYSIS                                                                                                                                                                                                    1





       SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS 
                         STEVE PEACE, CHAIRMAN 

                                                               S
SB 1025 - Peace                    Hearing Date:  March 28, 1995B

    AS PROPOSED TO BE AMENDED IN COMMITTEE                         
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                               DESCRIPTION


    This bill, as proposed to be amended by the author, allows  
Californiaos investor-owned water utilities to use the proceeds from  
the sale of onon-used and usefulo property to upgrade its  
infrastructure, plant, facilities and properties for a period of five  
years, after which all proceeds are returned to ratepayers.

                               BACKGROUND

    There are approximately 250 investor-owned, Public Utilities  
Commission (Commission ) regulated water utilities providing service  
throughout California.  These water companies provide service to  
approximately 20% of the stateos population.  Because of their small  
size relative to traditional investor owned utilities, obtaining  
financing for infrastructure improvements has been historically  
difficult. Often the improvements are mandated by state and federal  
laws regarding water purity and health concerns.

    The capital outlay demands on water companies have escalated in  
recent years.  State and federal safe drinking water laws require  
increased water treatment (requiring improvements to existing  
treatment facilities). As these facilities are upgraded with the  
advent of new technologies and in compliance with legislative  
mandates, outdated facilities are removed from service.  As a result,   
utility property which was once oused and usefulo becomes obsolete.   
Obsolete facilities are no longer allowed to be used in the  
determination of a utilityos rate of return on investment, yet the  
allocation between the shareholders and the ratepayers for the  
proceeds from a sale of these properties has not yet be definitively  
determined.












    The Public Utilities Commission (PUC), which is charged with the  
regulation of the water companies, has issued several decisions in the  
area of ogain on saleo (the disposition of the proceeds) from a sale  
of non used and useful property.  In some instances, the PUC has  
allowed a water company to allow the gains to revert to shareholders.   
In other instances, the Commission has required the company to flow  
all of part of the gains to ratepayers often in the form of lower  
rates.  This bill attempts to create a uniform standard that would  
accrue all gains on the sale of property back to the owners for the  
specified use of improvements in infrastructure and then after a  
period of five years, accrual to shareholders and owners of the  
company.  
 



                               COMMENTS


This legislation establishes a standard for the allocation of gains on  
  sale for water companies: return of funds to the infrastructure,  
  plant, facilities and properties of the water company for a period  
  of five years.  Subsequently all proceeds are returned to  
  ratepayers.

The PUC has generally allocated gain from the sale of utility property  
  on a case-by-case basis.  The Commission believes this bill would  
  remove Commission flexibility to decide allocation of proceeds from  
  gain on sale in individual cases.  

The authoros amendments remove Section 790.

                                POSITIONS

*These positions were submitted prior to the authoros amendments 

Support:
California Water Association
California Water Service Company

 Oppose:
California Public Utilities Commission












Roderick A. Campbell
SB 1025 Analysis
Hearing Date:  March 28, 1995