BILL ANALYSIS �
AB 54
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2011-2012 Regular Session
BILL NO: AB 54
AUTHOR: Solorio
AMENDED: June 22, 2011
FISCAL: Yes HEARING DATE: June 27, 2011
URGENCY: No CONSULTANT:
Rachel Machi Wagoner
SUBJECT : DRINKING WATER
SUMMARY :
Existing Law :
1) Requires a corporation organized for or engaged in the
business of selling, distributing, supplying, or delivering
water for domestic use (i.e., mutual water company) to
specify in its articles or bylaws, its provision of water
only to owners of its shares and that these shares must be
appurtenant to specified lands.
2) Provides that a mutual water company is not a public
utility for purposes of regulation by the Public Utilities
Commission.
3) Requires a mutual water company formed after January 1,
1998, in connection with the sale or lease of lots within a
subdivision to meet specified standards including supply
and distribution system design standards and water service
standards. A mutual water company formed prior to January
1, 1998, may elect to meet all of these requirements.
4) Under the Cortese-Knox-Hertzberg Local Government
Reorganization Act of 2000, requires local agency formation
commissions (LAFCOs) to conduct a service review of the
municipal services provided in the county or other
appropriate area designated by LAFCO.
5) Under the California Safe Drinking Water Act, authorizes
the Department of Public Health (DPH) to implement the
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California SDWA in accordance with requirements of the
federal SDWA and establishes penalties for violations of
the SDWA, as specified.
6) Under the Safe Drinking Water State Revolving Fund Law of
1997 (SDWSRF):
a) Requires DPH to establish criteria for projects to be
eligible for consideration for funding, as
specified.
b) Authorizes DPH to enter into contracts with
applicants for grants or loans in accordance with the
SDWSRF.
This bill :
1) Makes legislative findings about drinking water quality.
2) Establishes new requirements for organizing and operating
mutual water companies to:
a) Specify that any corporation organized for or engaged
in the business of selling, distributing, supplying, or
delivering water for irrigation purposes or for domestic
use must be known as a mutual water company.
a) Require each mutual water company operating as a
public water system to, no later than December 31, 2012,
submit to the Secretary of State and the LAFCO a map
depicting the boundaries of the property that the
corporation serves.
b) Require a mutual water company, if the LAFCO or a
county department requests information, to, within 45
days of the request, provide all reasonably available,
nonconfidential information and explain, in writing, why
any requested information is not reasonably available.
c) Require all construction on public water systems
operated by a mutual water company to be designed and
constructed to comply with the applicable California
Waterworks standards.
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d) Require a mutual water company that operates a public
water system to maintain a financial reserve fund to be
used for specified activities.
e) Authorize the LAFCO to approve or disapprove the
annexation of territory served by a mutual water company
into the jurisdiction of a city, a public utility, or a
special district that operates a public water system.
f) Authorize the LAFCO, in conducting a service review,
to include a review of whether the agencies under review,
including any public water system, are in compliance with
SDWA.
g) Authorize the LAFCO to request information, as part of
a service review, from identified public or private
entities that provide wholesale or retail supply of
drinking water, including mutual water companies and
private utilities.
h) Require each board member of a mutual water company
operated as a public water system to, within six months
of taking office, complete a four-hour course, as
specified.
i) Authorize fines pursuant to the SDWA to be imposed
on directors of a mutual water company if the mutual
water company has received notice of a violation as
specified.
3) Authorizes a public water system that is a lead applicant
for a project that may be funded by the Safe Drinking Water
State Revolving Fund (SDWSRF) to apply to the California
Department of Public Health (DPH) for a letter of no
prejudice for the project or a component of the project,
and:
a) Authorizes DPH to approve the letter of no prejudice for
one or more projects or project components that DPH has
determined to be eligible for federal or state funding
pursuant to established funding priorities and has issued
an invitation to apply for funding from the SDWRF.
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b) Requires the letter of no prejudice to reference the
project or component thereof and the maximum amount of
bond funding that may be allocated for that project or
project component.
c) Requires expenditures for the costs, up to the amount set
forth in the letter of no prejudice, of a project or
project component for which a letter of no prejudice has
been issued to be eligible for reimbursement from the
SDWRF if specified criteria are met.
d) Authorizes DPH and the public water system to enter into
an agreement or agreements governing reimbursement of
expended costs.
e) Defines "letter of no prejudice" as an agreement between
a public water system and DPH that makes the public water
system eligible for future reimbursement, as specified.
COMMENTS :
1) Purpose of Bill . According to the author, "As California
has grown and communities have merged into metropolitan
areas, some drinking water systems have not been able to
keep pace. Infrastructure, built long ago, has
deteriorated. Many water sources have become contaminated.
The economic base of some communities has declined or
stagnated, leading to less investment in water
infrastructure for basic maintenance and modernization."
The state provides funding to public water systems to
improve drinking water quality through the Safe Drinking
Water Revolving Fund, but demand far exceeds the available
funding. According to the United States Environmental
Protection Agency's Drinking Water Infrastructure Needs
Survey and Assessment, which was performed in 2007, the
California Department of Public Health estimates that the
20-year drinking water infrastructure need for California
is $39 billion. Funding for such projects, however, for
1997-2008, totaled only $1.2 billion.
Smaller public water systems, particularly those operated
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by "mutual water companies," often lack the funding to
improve their systems and eliminate contamination. They
rely on state funding and cooperation by larger,
neighboring water systems to improve their systems, but
sometimes suffer years of contaminated water.
AB 54 would facilitate state and local funding for clean
water projects and level the playing field between public
water agencies and mutual water companies. It authorizes
"letters of no prejudice" which would allow local agencies,
with their own resources to get started on resolving water
quality problems before the State finalizes a loan or grant
from the Safe Drinking Water State Revolving Fund. AB 54
also allows mutual water companies to be considered by
"local agency formation commissions" and requires mutual
water companies operating public water systems to follow
some of the same rules as public agencies.
2) Mutual Water Companies . Mutual water companies are a
water-specific form of a non-profit, mutual-benefit
corporation authorized under the Corporations Code, to
deliver water only to their shareholders (with limited
exceptions). Mutual water companies are not allowed to
make a profit and rely on shareholder "assessments" to pay
the costs of operations.
The origin of mutual water companies dates back to the 19th
century, in an age before city, state, and federal
governments financed and constructed large water projects.
Mutual water companies allowed farmers to pool their
resources to acquire "appropriative" water rights and build
ditches to divert water away from the stream for irrigation
on lands that were not riparian to California's rivers. In
the 20th century, mutual water companies emerged as a tool
for residential developers, who bought out former
agricultural mutual water companies, or created their own
mutual water company, by simply sinking a well, chartering
a corporation, and giving a share of stock to every
homebuyer. In 1997, the Legislature passed a statute that
sanctioned this developer use of a mutual water company by
meeting certain minimal standards. (Corporations Code
�14311). Mutual water companies can be found in every
region of California, in both urban and rural communities.
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Mutual water companies receive only limited public
oversight. If they deliver drinking water to household
taps, then they are "public water systems" and the
Department of Public Health oversees the quality of the
water they deliver. When a developer creates a mutual
water company to serve a subdivision, the Department of
Corporations confirms, only at its creation, that the
mutual water company has met the minimum qualifications.
But mutual water companies are not subject to public
elections or public utility regulation by the Public
Utilities Commission. Only shareholders have a right to
vote for the board of directors, and property ownership is
usually a prerequisite. The board may impose assessments
on shareholders to pay all costs of the mutual water
company, but there is no public oversight of the board's
decisions as to whether to pay the costs or set aside a
reserve to maintain the system. Only shareholders have
that authority, whether or not they know about their share
ownership.
In some urban communities, apartment dwellers depend
entirely on a mutual water company - over which they have
no influence - to deliver clean, drinkable water. They
suffer poor water quality when landlord shareholders refuse
to pay the costs of fixing the water system. In other
communities, such as a Santa Ana neighborhood in the
author's district, the mutual water company's entire system
may fail, denying customers drinking water for weeks and
requiring a public agency to step in and take over. In
that case, few homeowners were aware that they owned a
share in the mutual water company. Not all mutual water
companies are so poorly managed, but even the large,
well-run mutual water companies do not have much public
oversight.
3) Safe Drinking Water State Revolving Fund (SDWSRF) funding :
Water systems that are seeking SDWSRF funding sometimes
choose to, or are required to, begin their improvement
projects prior to entering into funding agreements with
CDPH for the SDWSRF funds. There are a variety of reasons
that a water system may begin a project prior to receiving
a funding agreement, including an urgency to solve the
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problem as soon as possible; limitations in the
construction season (e.g., some projects can only be
constructed during drier months of the year); and the need
to expend other available funding within a specific time
period.
According to DPH, the SDWSRF includes provisions that allow
an applicant to receive a reimbursement for funds expended
prior to the issuance of the funding agreement.
Reimbursement for such expenditures is subject to specific
requirements that are explained to the public water system
in advance of an expenditure. DPH makes an official
determination on the eligibility of each project expense in
accordance with established criteria pursuant to State and
Federal requirements. As part of the SDWSRF funding
process, CDPH staff review projects and applications for
completeness. CDPH does not reimburse for eligible project
costs until a funding agreement is in place. This bill
would allow mutual water companies, whose application for
SDWRF monies are in process but not approved, to begin
their projects when other funding is available without
prejudice to receiving the grant upon approval.
4) Double Referral to Senate Governance & Finance Committee .
If this measure is approved by this committee, the do pass
motion must include the action to re-refer the bill to the
Senate Governance & Finance Committee.
SOURCE : Assemblymember Solorio
SUPPORT : Association of California Water Agencies
California Association of Local Agency
Formation
Commissions
California Special Districts Association
Food & Water Watch
Orange County Local Agency Formation Commission
San Mateo Local Agency Formation Commission
Tuolumne Utilities District
OPPOSITION : None on file
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