BILL ANALYSIS                                                                                                                                                                                                    



SENATE RULES COMMITTEE
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Bill No:  SB 1025
Author:   Peace (D)
Amended:  7/6/95
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 

 SENATE FLOOR:   34-0, 5/4/95
AYES:   Alquist, Ayala, Beverly, Boatwright, Calderon,  
  Campbell, Costa, Craven, Dills, Haynes, Hughes, Hurtt,  
  Johnston, Kelley, Killea, Kopp, Leonard, Leslie, Lewis,  
  Lockyer, Maddy, Marks, Mello, Monteith, Mountjoy,  
  O'Connell, Peace, Petris, Rogers, Russell, Solis,  
  Thompson, Watson, Wright
NOT VOTING:  Greene, Hayden, Johannessen, Polanco,  
  Rosenthal

 ASSEMBLY FLOOR:   70-0, 7/17/95 (Passed on Consent)
                                                              
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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, and the interest  
thereon, from the sale of onon-used and usefulo property to  
                                                     
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                                                     SB  
1025
                                                             
Page 2

upgrade its infrastructure, plant, facilities and  
properties.

 Assembly Amendments (1)  Add provisions to require the  
water corporations to return to the ratepayers not only net  
proceeds not invested, but also  interest earned and not  
invested.  (2)  Change from 10 years to eight years the  
period during which proceeds can be used for capital  
investment before being returned to ratepayers.

 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.

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.
                                                     
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                                                     SB  
1025
                                                             
Page 3


This bill attempts to create a uniform standard that would  
accrue all gains, including interest, on the sale of  
property back to the owners for the specified use of  
improvements in infrastructure and then after a period of  
eight years, the proceeds, including accrued interest, will  
be allocated to ratepayers.

 FISCAL EFFECT:   Appropriation:  No   Fiscal Com.:  Yes    
Local:  Yes

The Department of Finance estimates minor and absorbable  
costs to the Utilities Reimbursement Account for the PUC to  
consider reinvestments for infrastructure improvements.

Unknown, probably minor, costs to local government for  
enforcement; crimes and infractions disclaimer.

The PUC anticipates no net effect on ratepayers.

 SUPPORT:   (Verified  7/17/95)

California Water Association
California Water Service Company
Dominguez Services Corporation
San Gabriel Valley Water Association
California-American Water Company

 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.

NC:sl  7/17/95  Senate Floor Analyses
               SUPPORT/OPPOSITION:  SEE ABOVE
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