BILL ANALYSIS
SB 1025
Date of Hearing: June 12, 1995
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Mickey Conroy, Chair
SB 1025 (Peace) - As Amended: April 5, 1995
SUBJECT
Public utilities: water corporations.
DIGEST
Existing law allows the California Public Utilities Commission to
regulate utilities, including water corporations.
This bill requires a water corporation, when it sells any real
property that was at any time, but now is no longer, necessary or
useful in the performance of the water corporation's duties to the
public, to invest any net proceeds from the sale in water system
infrastructure, plant facilities, and properties that are
necessary or useful in the performance of its duties to the
public.
FISCAL EFFECT
According to the Department of Finance, the CPUC anticipates a
minor and absorbable fiscal impact on its operations to consider
these reinvestments in the general rate cases. CPUC also
anticipates that there probably would be no net effect on
ratepayers.
COMMENTS
1) There are approximately 250 investor-owned, CPUC regulated,
water utilities providing service throughout California.
These water companies provide service to approximately 20% of
the state's population. Because of their small size relative
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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.
2) The capital outlay demands on water companies have escalated
in recent years. State and federal safe drinking water laws
mandate increased water treatment, which often requires
improvement in water treatment facilities. As these facilities
are upgraded in compliance with legislative mandates and with
the advent of new technologies, outdated facilities are
removed from service. As a result, utility property which was
once used and useful becomes obsolete. Obsolete facilities
are no longer allowed to be
used in the determination of a utility's rate of return on
investment, yet the determination of the allocation between the
shareholders and the ratepayers for the proceeds from a sale of
these properties has not yet been definitively determined.
3) The CPUC, which is charged with the regulation of water
companies, has issued several decisions in the area of
gain-on-sale (the disposition of the proceeds) from a sale of
non-used and useful property. In some instances, the CPUC has
permitted a water company to allow the gains to revert to
shareholders. In other instances, the CPUC has required the
water company to flow all or part of the gains to ratepayers,
often in the form of lower rates.
4) This bill establishes a standard for the allocation of gains
on the sale of real property for water companies: return of
the funds to infrastructure, plant, facilities, and properties
of the water company for a period of ten years. Subsequently,
all proceeds not invested within the designated ten year
period are returned solely to the ratepayers.
5) The CPUC has generally allocated gain from the sale of utility
property on a case-by-case basis. the CPUC believes this bill
would remove their flexibility to decide the allocation of
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proceeds from gain on sale in individual cases.
SUPPORT
California Water Association (sponsor)
Fontana Water Company
San Gabriel Valley Water Company
Southern California Water Company
OPPOSITION
California Public Utilities Commission
Department of Finance
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