BILL ANALYSIS
SENATE RULES COMMITTEE
Office of Senate Floor Analyses
1020 N Street, Suite 524
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THIRD READING
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Bill No: SB 1025
Author: Peace (D)
Amended: 4/5/95
Vote: 21
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SENATE ENERGY, U. & C. COMMITTEE: 5-0, 3/28/95
AYES: Alquist, Hughes, Kelley, Mountjoy, Peace
NOT VOTING: Hayden, Leonard, Rosenthal, Russell
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
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SUBJECT: Public utilities: water corporations
SOURCE: Author
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DIGEST: This bill 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.
ANALYSIS: There are approximately 250 investor-owned,
Public Utilities Commission (PUC) 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.
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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and in compliance with legislative mandates, outdated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 been definitively determined.
The 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 PUC has
required the company to flow all or 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 ten years, the proceeds will be
allocated to ratepayers.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT: (Verified 4/26/95)
California Water Association
California Water Service Company
Dominguez Services Corporation
San Gabriel Valley Water Association
OPPOSITION: (Verified 4/26/95)
California Public Utilities Commission
Department of Finance
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ARGUMENTS IN SUPPORT: Proponents argue the intent of the
bill is to create a uniform standard for all water
utilities, resulting in predictability in business
practices and regulatory policies. They note the
escalating capital outlay demands on water companies.
ARGUMENTS IN OPPOSITION: The PUC has generally allocated
gain from the sale of utility property on a case-by-case
basis. The commission believes that this bill would remove
flexibility from the commission to decide allocation of
gain on sale in individual cases.
NC:sl 4/26/95 Senate Floor Analyses
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