BILL NUMBER: SB 1268	CHAPTERED
	BILL TEXT

	CHAPTER   675
	FILED WITH SECRETARY OF STATE   OCTOBER 6, 1997
	APPROVED BY GOVERNOR   OCTOBER 3, 1997
	PASSED THE SENATE   SEPTEMBER 12, 1997
	PASSED THE ASSEMBLY   SEPTEMBER 11, 1997
	AMENDED IN ASSEMBLY   SEPTEMBER 8, 1997
	AMENDED IN ASSEMBLY   AUGUST 25, 1997
	AMENDED IN SENATE   APRIL 7, 1997

INTRODUCED BY  Senator Kelley
   (Principal coauthor:  Assembly Member Martinez)
   (Coauthor:  Assembly Member Papan)

                        FEBRUARY 28, 1997

   An act to amend Section 10061 of, and to add Chapter 2.5
(commencing with Section 2718) to Division 2 of, the Public Utilities
Code, relating to water corporations.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 1268, Kelley.  Water corporations:  public water system:
acquisition.
   Existing law provides that water corporations, as defined, are
public utilities subject to regulation by the Public Utilities
Commission, including the commission's approval of rates charged by
water corporations.  In regulating these rates, the commission is
authorized to consider the value of the public utility.
   This bill would require the Public Utilities Commission to, for
ratesetting and all other purposes within the commission's
jurisdiction, use the standard of fair market value when establishing
the rate base value for the distribution system of a public water
system, as defined, acquired by a water corporation.  If the fair
market value exceeds reproduction cost, determined in accordance with
existing law, the commission would be permitted to include the
difference in the rate base for ratesetting purposes if it finds that
the additional amounts are fair and reasonable.  This bill would set
forth specified criteria that the commission must consider in making
the determination as to whether this amount is fair and reasonable.
The bill also would make its provisions applicable to the
acquisition of a sewer system by a sewer system corporation.
   Existing law sets forth procedures by which a municipal
corporation may lease, sell, or transfer a public utility owned and
operated by it for furnishing water service.
   This bill would require the municipal corporation, public agency,
or public utility water corporation proposing to acquire a municipal
corporation public utility for furnishing water service to disclose
to the customers of the public water system to be acquired, a written
statement of the price, terms, charges, savings, and added costs of
the proposed acquisition.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Chapter 2.5 (commencing with Section 2718) is added to
Division 2 of the Public Utilities Code, to read:

      CHAPTER 2.5.  PUBLIC WATER SYSTEM INVESTMENT AND CONSOLIDATION
ACT OF 1997

   2718.  This chapter shall be known and may be cited as the Public
Water System Investment and Consolidation Act of 1997.
   2719.  The Legislature finds and declares all of the following:
   (a) Public water systems are faced with the need to replace or
upgrade the public water system infrastructure to meet increasingly
stringent state and federal safe drinking water laws and regulations
governing fire flow standards for public fire protection.
   (b) Increasing amounts of capital are required to finance the
necessary investment in public water system infrastructure.
   (c) Scale economies are achievable in the operation of public
water systems.
   (d) Providing water corporations with an incentive to achieve
these scale economies will provide benefits to ratepayers.
   2720. (a) The commission shall use the standard of fair market
value when establishing the rate base value for the distribution
system of a public water system acquired by a water corporation.
This standard shall be used for ratesetting.
   (1) For purposes of this section, "public water system" shall have
the same meaning as set forth in Section 116275 of the Health and
Safety Code.
   (2) For purposes of this section, "fair market value" shall have
the same meaning as set forth in Section 1263.320 of the Code of
Civil Procedure.
   (b) If the fair market value exceeds reproduction cost, as
determined in accordance with Section 820 of the Evidence Code, the
commission may include the difference in the rate base for
ratesetting purposes if it finds that the additional amounts are fair
and reasonable.  In determining whether the additional amounts are
fair and reasonable the commission shall consider whether the
acquisition of the public water system will improve water system
reliability, whether the ability of the water system to comply with
health and safety regulations is improved, whether the water
corporation by acquiring the public water system can achieve
efficiencies and economies of scale that would not otherwise be
available, and whether the effect on existing customers of the water
corporation and the acquired public water system is fair and
reasonable.
   (c) The provisions of subdivisions (a) and (b) shall also be
applicable to the acquisition of a sewer system by any sewer system
corporation or water corporation.
   (d) Consistent with the provisions of this section, the commission
shall retain all powers and responsibilities granted pursuant to
Sections 851 and 852.
  SEC. 2.  Section 10061 of the Public Utilities Code is amended to
read:
   10061.  (a) Notwithstanding Article 1 (commencing with Section
10001) and this article, a municipal corporation, by following the
provisions of this section, may lease, sell or transfer all or part
of a public utility owned and operated by it for furnishing water
service.  As used in this section, "municipal corporation," means a
city or a city and county.
   (b) Any municipal corporation owning and operating a public
utility for furnishing water service, a part of which or all of which
public utility is operated and used for furnishing water service
outside the boundaries of the municipal corporation, may lease, sell
or transfer, for just compensation all or any part of the portion of
the public utility located outside the boundaries of the municipal
corporation to any other municipal corporation, public agency or
public utility water corporation upon the terms and conditions agreed
upon by the selling municipal corporation if, by resolution adopted
by a majority of its legislative body, it has determined that the
public utility, or portion thereof, is not necessary for supplying
water to its own inhabitants and if the acquiring entity by
resolution adopted by a majority of the members of its legislative
body or board of directors has concurred in the lease, sale, or
transfer and the terms and conditions thereof and if the acquiring
entity will be bound to render water service to the persons formerly
served through the system being sold on terms and conditions which
are just and reasonable and which do not unreasonably discriminate
against the customers of the acquired entity.
   (c) Any municipal corporation owning and operating a public
utility for furnishing water service may sell or transfer, for just
compensation, all or any part of the public utility located inside
its municipal boundaries to any other municipal corporation, public
agency, or public utility water corporation upon the terms and
conditions agreed upon by the selling municipal corporation, if the
sale or transfer is approved as follows:
   (1) The municipal corporation, by resolution adopted by a majority
of its legislative body, has determined that the public utility, or
portion thereof, is not necessary for supplying water to its own
inhabitants, or that its inhabitants will be provided with equal or
better service by the acquiring entity on terms that are just and
reasonable and do not discriminate against the customers of the
acquired entity; and orders the issue submitted to the qualified
voters of the municipality at a special or general election held for
that purpose.
   (2) The acquiring entity by resolution adopted by a majority of
its legislative body or board of directors has concurred in the sale
or transfer and in the terms and conditions thereof.
   (3) The sale or transfer is approved by a majority of all voters
voting on the issue in the election held for that purpose.
   (4) The municipal corporation, public agency, or public utility
water corporation proposing to acquire a municipal corporation public
utility for furnishing water service shall disclose to the customers
of the public water system to be acquired, not less than 30 days
prior to the date of election for formal approval of the acquisition,
a written statement which includes all of the following:
   (A) A summary of the price and terms of the proposed acquisition.

   (B) A comparison of the applicable water charges before and after
the proposed acquisition.
   (C) The estimated savings to be achieved or additional costs
expected to result, or both, from the proposed acquisition.
   (d) Subject to subdivision (e), a municipal corporation may lease
a public utility furnishing water service by a resolution adopted by
a majority of its legislative body and without lease term or other
restrictions stated in any other provision of law.
   (e) A municipal corporation acting pursuant to subdivision (c)
shall specify the manner of soliciting and filing, and the method of
evaluating, proposals for the acquisition of the public utility.
Upon receipt and staff evaluation of a proposal or proposals the
municipal corporation, if it determines that the proposal or
proposals are responsive, shall schedule a public hearing, and notice
thereof shall be published in accordance with Section 6066 of the
Government Code.  At the hearing, the municipal corporation shall
examine proposals received and staff recommendations, and without
lease term or other restrictions, may lease, sell, or transfer, for
just compensation, the public utility to the entity that the
municipal corporation finds best qualified to continue to provide
equal or better service to the customers of the system.  If the
resolution proposes a sale, the resolution shall place the question
on the ballot at the next regularly scheduled election or at a
special election called for that purpose.  The municipal corporation
may, in its sole discretion, reject all proposals.
   (f) Any agreement entered into before September 17, 1965, between
municipal corporations for the lease, sale or transfer of all or any
part of a public utility owned and operated by one of the municipal
corporations and furnishing water service to the inhabitants of the
municipal corporation to which the lease, sale or transfer is made is
hereby validated.