BILL ANALYSIS �
AB 1434
Page A
Date of Hearing: April 21, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 1434 (Yamada) - As Amended: April 9, 2014
SUBJECT : Water corporations: low-income relief programs.
SUMMARY : This bill would require the Department of Community
Services & Development (CSD) to develop a plan for a Low-Income
Water Rate Assistance Program, report to the Legislature on the
feasibility and structure of the program by January 1, 2016, and
establish the program, as specified, by January 1, 2017.
Specifically, this bill :
1)Requires CSD, in collaboration with the State Board of
Equalization, to develop a plan by January 1, 2016 regarding
the feasibility, structure, funding, and implementation of a
Low-Income Water Rate Assistance Program, which includes all
of the following elements:
a) A description of the method for collecting funds to
support and implement the program.
b) A description of the mechanism for providing funding
assistance under the program through either direct
credits to enrollees in the program or reimbursements to
water service providers.
c) A description of the method to be used to determine
the amount of funds that may need to be collected from
water ratepayers to fund the program.
1)Requires CSD to report to the Legislature by January 1, 2016
on its findings related to the program, including any
recommendations for legislative action that may need to be
taken to ensure the successful implementation of the program.
2)Requires CSD to establish the Low-Income Water Rate Assistance
Program by January 1, 2017, which shall:
a) Require investor- and publicly-owned water service
providers to offer a discount or subsidy to eligible
low-income residential water ratepayers who enroll in the
program.
AB 1434
Page B
b) Authorize CSD to collect documentation from
ratepayers demonstrating program eligibility (income
equal to or less than 200% of the federal poverty level
guidelines).
c) Provide that, per billing cycle, a water rate
discount or subsidy is offered not exceeding 20% of the
ratepayer's total bill or $60 per month, whichever is
less.
d) Allow ratepayers to receive assistance in the form
of a discount or credit based on water usage and the
total amount of the ratepayer's most recent water bill.
e) Create the Low-Income Water Rate Assistance Fund in
the State Treasury, and designates monies deposited in
this fund for the purposes of this program.
EXISTING LAW
1) Establishes the Department of Community Services and
Development and charges it with improving the quality of
life for low-income Californians. (Government Code 12085)
2) Establishes the California Alternate Rates for Energy
(CARE) Program to assist low-income electric and gas
customers with annual household incomes that are no greater
than 200 percent of the federal poverty guideline levels.
(Public Utilities Code 739.1)
3) Allows the California Public Utilities Commission (PUC)
to consider and implement programs to provide water rate
relief for low-income ratepayers. (Public Utilities Code
739.8)
4) Allows any public agency providing public utility
service to impose a fee, including a rate, charge, or
surcharge, for any product, commodity, or service provided
to a public agency, and that such a fee for public utility
service, other than electricity or gas, shall not exceed
the reasonable cost of providing the public utility
service. (Government Code 54999.7)
5) Provides that special taxes shall not include any fee
AB 1434
Page C
which does not exceed the reasonable cost of providing the
service or regulatory activity for which the fee is
charged. (Government Code 50076)
6) Provides that a fee encompasses any levy other than an
ad valorem tax, a special tax, or an assessment, imposed by
an agency upon a parcel or upon a person as an incident of
property ownership, including a user fee or charge for a
property related service. (California Constitution, Article
XIIIC)
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's statement: "The passage of AB 685 (Eng) in 2012
established state policy for the right for every human being
to safe, clean, affordable water. As part of this obligation,
the CPUC is required to consider low-income rate relief
programs. However, they are currently not required by statute
to implement these programs. In addition, they have no
authority over utilities that qualify as public agencies, the
vast majority of water service providers in the state. While
a number of bills in recent years have addressed issues of
access, cleanliness, and safety, affordability remains a
significant problem for many ratepayers.
Without a mandate to operate such programs, the majority of
water service providers have chosen not to provide assistance,
leaving at least three quarters of Californians without any
assistance for water affordability. Even in areas covered by
a program, the lack of a standardized benefit structure
results in many discounts so small as to be insignificant.
The US Environmental Protection Agency has estimated that
hundreds of billions of dollars will be needed to invest in
upgrading the nation's crumbling and outdated water
infrastructure throughout the next decade. A large portion of
the financial responsibility to pay for these upgrades will
rest with the consumer in the form of increased water rates.
These increases will be especially burdensome in water utility
territories with small pools of ratepayers, forcing many
seniors and low-income Californians to make difficult choices
among water, rent, food and other necessities.
AB 1434
Page D
AB 1434 would help reduce the burden on this disadvantaged
population by directing the California Department of Community
Services and Development in conjunction with the Board of
equalization to develop a statewide Low-Income Water Rate
Assistance Program by January 1, 2016 to be implemented
January 1, 2017. This program would provide all low-income
California residential ratepayers with critical assistance
with their water bills."
2)Large water rate increases in Lucerne. A major driver of this
bill is the struggle between the Lake County community of
Lucerne and the investor-owned water utility (IOU) Cal Water.
In July 2012, Cal Water filed a request with the California
Public Utilities Commission (PUC) for a water rate increase of
77% over three years to ratepayers in Lucerne, one of Lake
County's most disadvantaged communities. The average
resident's water bill, according to local news accounts, would
have doubled from $62.85 to $124.22 per month - this occurring
in an area with a median household income of ~$25,000 (versus
California's median income of ~$61,000).
A pending settlement between PUC and Cal Water would not
drastically increase water rates in Lucerne. However, over
recent years, Lucerne has been subject to large rate
increases. In 2005, Cal Water sought a 247% rate increase,
receiving PUC approval for a 120% rate increase. In 2009, Cal
Water requested an increase of 54.9%, and received approval
for an increase of 41.8%. Large rate increases are not limited
to Lucerne - many similar increases are described below.
3)Investor-owned versus publicly-owned water utilities. The PUC
is charged with ensuring California's 115 investor-owned water
utilities and 14 investor-owned wastewater utilities provide
safe and reliable water to customers at reasonable rates.<1>
Water utilities regulated by the PUC deliver water service to
about 16% (~6 million) of the state's population.
The remaining water customers in California are served by
publicly-owned utilities (cities, water districts, and mutual
water companies), which are self-regulated and not under PUC
jurisdiction.
-------------------------
<1> California Public Utilities Commission. 2012 Annual Report.
http://www.cpuc.ca.gov/NR/rdonlyres/E47E6D16-C37F-446B-B606-92437
8794A14/0/CPUC2012AnnualReport.pdf
AB 1434
Page E
4)Proposition 218. California voters approved Proposition 218 in
November 1996, adding Articles XIIIC and D to the California
Constitution. This resulted in the state of California
considering water and wastewater services as property-related
fees and as such, subject to state constitutional and
statutory requirements. <2> As such, publicly-owned water
utilities (POUs) must restrict water rates to the cost of
service - in sharp contrast to the IOUs, who are able to
generate a return on their investment.
Until the 2006 California Supreme Court decision in
Bighorn-Desert View Water Agency v. Verjil, water charges were
not considered property-related services. After this decision,
any increase in water rates must now be considered
property-related, and must comply with the requirements of
Proposition 218. The requirements include: (1) revenues
derived from the fee or charge cannot exceed the funds
required to provide the property related service; (2) revenues
derived from the fee or charge cannot be used for any other
purpose other than for which the fee or charge was imposed
for; and (3) a property-related fee or charge cannot exceed
the proportional cost of service attributable to the
parcel.<3>
Prior to Bighorn-Desert v. Verjil, the cost of POU water rate
low-income programs were funded from ratepayer revenues; local
governments typically financed lower rates by charging higher
rates to other property-owners. The court ruling established a
precedent that ratepayer funds cannot be used as the revenue
source for these assistance programs.<4> In order to continue
these programs in the future, therefore, the local government
would need to offset the cost of the program with other
revenues, such as general tax revenues.<5>
-------------------------
<2> California Constitution, Article XIIID, Section 6.
<3> San Diego Public Utilities Dept. Water Fund. 2013. Cost of
Service Study.
http://www.sandiego.gov/water/pdf/rates/jan20142015costofservices
tudy.pdf
<4> San Francisco Public Utilities Commission.
http://www.sfwater.org/modules/showdocument.aspx?documentid=5137
<5> California Legislative Analyst's Office. Understanding
Proposition 218.
http://www.lao.ca.gov/1996/120196_prop_218/understanding_prop218_
1296.html
AB 1434
Page F
Additional complications with a state-wide low-income water
rate program arise related to Propositions 13 and 26.
Proposition 13, as established by voters in 1979, provides
that "special taxes shall not include any fee which does not
exceed the reasonable cost of providing the service or
regulatory activity for which the fee is charged." In 2010,
voters approved Proposition 26, which establishes that the
"?local government bears the burden of proving by a
preponderance of the evidence that a levy, charge, or other
exaction is not a tax, that the amount is no more than
necessary to cover the reasonable costs of the governmental
activity, and that the manner in which those costs are
allocated to a payor bear a fair or reasonable relationship to
the payor's burdens on, or benefits received from, the
governmental activity."
Therefore, Proposition 218 seems to be an insurmountable
hurdle in providing a state-wide low-income water rate
assistance program - if funding is to come from
non-participating ratepayers. The cost of service mandates
related to Propositions 13, 26, and 218 would make it
supremely difficult for POUs to participate in such a program
with such a funding mechanism.
5)Rate change requests by water IOUs and POUs. Rate changes,
generally increases, can be requested by the 10 large Class A
water IOUs (those with >10,000 connections) through General
Rate Cases (GRC). Every three years the IOUs must file a GRC
with the PUC.<6> The GRC includes detailed cost estimates,
expenses, capital expenditures, and forecasted water sales. It
is subsequently determined whether a rate increase is
justified to ratepayers. The process is typically completed
within 14-20 months. In lieu of a GRC, the PUC allows smaller
IOUs (Classes B/C/D) inflation-based rate increases via advice
letters.
In recent years, IOUs have requested rate increases ranging
from 7-45% over three year spans (Table 1). The PUC has
granted increases of 10%-24%. Average water bills range from
$42-$82, and with the increases, bills are rising or have
risen to $46-$95 (a $4-$13 increase). These increases,
especially if continued in the foreseeable future, may be
unaffordable to low-income ratepayers without discounts or
--------------------------
<6> California Water Association. How Water Rates Are Set.
http://www.calwaterassn.com/2011/rates/how-water-rates-are-set/
AB 1434
Page G
subsidies.
Table 1: Examples of recent rate increase requests by IOUs<7>
----------------------------------------------------
|Company|Rate |Result of GRC (% |Average water |
| |increase |rate increase |bill plus |
| |request |granted by CPUC) |increase |
|-------+----------+-----------------+---------------|
|Apple |20% for |14.7% for 2012 |$42-82 + |
|Valley |2012 | |$4-13/month |
|Ranchos|2.35% for | |increase |
| |2013 | | |
| |3.32% for | | |
| |2014 | | |
|-------+----------+-----------------+---------------|
|Califor|19.4% for |Interim rates |$47-60 + |
|nia |2014 |granted for 2014 |$13-20/month |
|Water |3.0% for |(2013 rates plus |increase by |
| |2015 |inflation) |end of 3 years |
| |2.9% for |GRC settlement |(if approved) |
| |2016 |pending | |
|-------+----------+-----------------+---------------|
|Golden |21.4% for |15.0% for 2013 |$45 + $5/month |
|State |2013 |2.6% for 2014 |increase |
| |2.7% for |2.0% for 2015 | |
| |2014 | | |
| |3.2% for | | |
| |2015 | | |
|-------+----------+-----------------+---------------|
|Great |14.28% |7.73% for 2013 |Unknown |
|Oaks |for 2013 |0.7% for 2014 | |
| |-3.09% |1.42% for 2015 | |
| |for 2014 | | |
| |-2.85% | | |
| |for 2015 | | |
|-------+----------+-----------------+---------------|
|Park |26.16% |21.01% for 2013 |$57 + |
| |for 2013 | |$10/month |
| |3.77% for | |increase |
---------------------------
<7> Apple Valley Ranchos 2012-2014 GRC, California Water Service
2014-2016 GRC, Golden State Water Company 2013-2015 GRC,Park
Water Company 2013-2015 GRC, San Jose Water Company 2013-2015
GRC, Suburban Water Systems 2012-2014 GRC, Valencia Water
Company 2014-2016 GRC. http://www.cpuc.ca.gov/puc/
AB 1434
Page H
| |2014 | | |
| |5.53% for | | |
| |2015 | | |
|-------+----------+-----------------+---------------|
|San |21.51% |Interim rates |$61 + |
|Jose |for 2013 |granted for 2013 |$26/month |
| |4.87% for |(2012 rates plus |increase (if |
| |2014 |inflation) |approved) |
| |12.59% | | |
| |for 2015 | | |
|-------+----------+-----------------+---------------|
|Suburba|35.85% |24.3% for 2012 |$48 + |
|n |for 2012 |Rehearing of GRC |$10-12/month |
| |4.18% for |in process |increase |
| |2013 | | |
| |2.61% for | | |
| |2014 | | |
|-------+----------+-----------------+---------------|
|Valenci|15.97% |Filed for |$58 + $7/month |
|a |for 2014 |interim rates |increase (if |
| |2.93% for | |approved) |
| |2015 | | |
| |4.23% for | | |
| |2016 | | |
----------------------------------------------------
The dollar amount increase is based on average
(10-30 ccf) monthly usage for a 5/8 x 3/4-inch or
3/4-inch meter. "Average" monthly usage may not
reflect typical water bills, as vacation or empty
homes can skew the average.
With the rising cost of providing water service, many POUs have
also completed or proposed rate increases. Recent increases,
shown in Table 2, are in the range of 5-12% per year, and are
projected to follow a similar trajectory in the coming years.
Table 2: Examples of recent or proposed rate increases by
AB 1434
Page I
POUs<8>
-----------------------------------------------------
|Entity |Rate increase |Average water |
| |request |bill plus |
| | |increase |
|---------------+--------------------+----------------|
|LA Department |0.47% for July |$43 + |
|of Water and |2012-June 2013 |$2.50/month |
|Power |4.46% effective |increase |
| |July 2013 | |
|---------------+--------------------+----------------|
|San Diego |7.25% for 2014 |$64 + $6/month |
|Water |7.50% for 2015 |increase |
|---------------+--------------------+----------------|
|San Francisco |12.0% for 2015 |$76 + |
|Water |12.0% for 2016 |$7-10/month/year|
| |10.0% for 2017 | |
| |7.0% for 2018 | |
|---------------+--------------------+----------------|
|San Jose |8.0% for 2013 |$50 + $4/month |
|Municipal | |increase |
|Water | | |
-----------------------------------------------------
The dollar amount increase is based on average
(10-30 ccf) monthly usage. Additional POU rate
increases are similar, including those in Glendale,
Palo Alto, Redwood City, Sacramento, Sierra Madre,
South Pasadena, and more.
6) Water rates: affordability versus income. The US
Environmental Protection Agency (EPA) and the California
Department of Public Health use a "water affordability
--------------------------
<8> Los Angeles Dept. of Water and Power.
http://www.ladwpnews.com/external/content/document/1475/1358199/1
/13-14_Rates_Presentation_Final-4-3-2012.pdf7
San Diego Water.
http://www.sandiego.gov/water/pdf/rates/jan20142015factsheet.pdf
San Francisco Water.
http://sfwater.org/modules/showdocument.aspx?documentid=5031 and
http://www.sfwater.org/index.aspx?page=168
San Jose Municipal Water.
http://sanjoseca.gov/DocumentCenter/View/17707
AB 1434
Page J
threshold"<9> to factor in variable costs of living across
California. For example, at a threshold of 1.5%, a
household at the California median income of $61,000 would
not be expected to pay over $915 per year for water
($76.25/month). Households with water bills exceeding this
threshold are considered to be paying a cost that is
unaffordable and a "high burden". In the case of Lucerne,
it is estimated that an affordable monthly bill would be
$32.50 or less. In reality, the average bill is $85 - about
2.5 times the affordable amount.
The Legislature has enacted statutes to provide the PUC with
oversight authority of the California Alternate Rates for
Energy (CARE), which require electrical and gas IOUs regulated
by the PUC to provide low-income assistance programs. These
same criteria are utilized by water companies to determine
eligibility for low-income programs. CARE eligibility is based
on incomes less than 200% of the Federal Poverty Level.
7)Existing low-income water rate assistance programs. Of the
IOUs, only the large Class A water utilities are authorized by
the PUC to offer Low-Income Rate Assistance (LIRA) programs.
If a ratepayer meets low-income eligibility criteria, a
discount is provided. These discounts are funded by
non-participating ratepayers.
As of October 2012, an estimated 221,940 residential water
customers participated in the IOU assistance programs -
approximately 3.7% of the population served by IOUs. Discounts
available to qualifying low-income customers vary widely,
ranging from percentage-based to flat dollar discounts on the
ratepayer's bill (Table 3). These varying discounts are
provided and allowed for by the PUC due to unique
circumstances in each area. Surcharges levied upon
non-participating customers (i.e., those not eligible for rate
--------------------------
<9> Pacific Institute. Water rates: water affordability.
http://www.pacinst.org/wp-content/uploads/2013/01/water-rates-aff
ordability.pdf
AB 1434
Page K
relief programs) are not standardized, ranging from flat
surcharges of $0.04-$6.07 per month to usage-based surcharges
of $0.014-$0.156 per ccf (100 cubic feet).
Table 3: Low-income water rate assistance programs offered by
IOUs
-----------------------------------------------------
| | | |
|Water |Assistance program |Surcharge to |
|utility |discount |non-participatin|
| | |g customers |
|----------+-------------------------+----------------|
| | | |
|Apple |$6.69 on total bill |$0.61/month |
|Valley | | |
|Ranchos | | |
|----------+-------------------------+----------------|
| | | |
|California|$7-$25.50 on monthly |None currently |
| American |bill (varies by | |
| |district) | |
|----------+-------------------------+----------------|
| | |Metered: |
|California|50% on monthly service |$0.0626/ccf |
| Water |charge ($3-$10) |Flat rate: |
| | |$2.07-$2.38 |
|----------+-------------------------+----------------|
| | | |
|Golden |$3-$17 on monthly bill |Metered: |
|State |(varies by district) |$0.054-0.156/ccf|
| | | Flat rate: |
| | |$1.96 |
|----------+-------------------------+----------------|
| | | |
|Great |50% on bi-monthly |None currently |
|Oaks |service charge ($9-$14) | |
|----------+-------------------------+----------------|
| | | |
|Park |$6.65 on total bill |$6.07/month |
|----------+-------------------------+----------------|
| | | |
|San |50% on monthly service |None currently |
|Gabriel |charge (~$5-$8) | |
|Valley | | |
AB 1434
Page L
|----------+-------------------------+----------------|
| | | |
|San Jose |15% on total bill (~$9) |$1.15/month |
|----------+-------------------------+----------------|
| | | |
|Suburban |$6.50 on total bill |$0.014/ccf |
|----------+-------------------------+----------------|
| | | |
|Valencia |50% on monthly service |$0.04/month |
| |charge (~$4-$6) | |
-----------------------------------------------------
As described in the section above, POUs are prohibited from
charging more than the cost of service. As a result, these
entities currently cannot increase rates to fund low-income
programs for their customers. Some of these entities solicit
donations to support such programs. For example, San Francisco
Water collects private donations for its Community Assistance
Program, which provides a water/sewer bill discount and a
conservation evaluation.
Table 4: Low-income water rate assistance programs offered by
POUs
-----------------------------------------------------
| | | |
|Water |Assistance program |Surcharge to |
|utility |discount |non-participatin|
| | |g customers |
|----------+-------------------------+----------------|
| | | |
|San |15% on water, 35% on |none |
|Francisco |sewer | |
|Water | | |
|----------+-------------------------+----------------|
| | | |
|LA |max $20/bill |unknown |
|Department| | |
| of Water | | |
|and Power | | |
-----------------------------------------------------
8)Stakeholder involvement. Current bill language does not
provide for the involvement of relevant stakeholders, such as
the PUC and water IOUs and POUs, in the development of the
feasibility plan.
AB 1434
Page M
The author may wish to consider an amendment that allows for
the participation of relevant stakeholders in the development
of the feasibility plan.
9)Feasibility plan versus implementation. This bill provides for
a study of the feasibility of a Low-Income Water Rate
Assistance Program and requires that CSD subsequently
implement the program. It may be imprudent to allow for the
implementation of the program without knowing whether the
program will be feasible, especially considering the hurdles
it may face in regard to the provisions enacted by Proposition
218.
The author may wish to consider an amendment providing that
implementation of the Low-Income Water Rate Assistance Program
is dependent upon identification and appropriation of a
funding source.
10)Support and opposition. AFSCME supports this bill, claiming
that it would provide low-income families with access to
affordable water, and that subsidies and discounts would help
Californians fulfill their most basic needs without having to
worry about a large financial burden. The PUC Office of
Ratepayer Advocates also supports this bill, arguing that
those most in need will be eligible for discounted clean and
reliable water service and that the costs associated with the
program will be shared by all California water users. The
California Municipal Utilities Associated (CMUA) has strong
concerns with current bill language. They state they do not
oppose the concept of the bill, but they worry that the
proposed funding source of the program appears to violate the
California Constitution under the provisions of Proposition
218. CMUA is concerned that if implemented, the program could
expose water providers to legal challenge.
11)Suggested amendments.
SECTION 1. Section 12092 is added to the Government Code, to
read:
12092. (a) This section shall be known, and may be cited, as
the Low-Income Water Rate Assistance Act.
(b) No later than January 1, 2016, the department, in
collaboration with the board and relevant stakeholders, shall
develop a plan for the funding and implementation of the
AB 1434
Page N
Low-Income Water Rate Assistance Program, which shall include
all of the following elements:
(1) A description of the method for collecting funds to
support and implement the program.
(2) A description of the mechanism for providing funding
assistance under the program through either direct credits to
enrollees in the program or reimbursements to water service
providers.
(3) A description of the method to be used to determine the
amount of funds that may need to be collected from water
ratepayers to fund the program. This section does not
authorize the imposition of a state charge to fund the
program.
(c) (1) No later than January 1, 2017, the department shall
establish the program, provided that a funding source can be
identified and appropriated, which shall require water service
providers in the state to provide discounts or subsidies for
eligible low-income residential water ratepayers who enroll in
the program.
(2) The department may require documentation, including tax
documents, pay stubs, wage statements, or other documents
providing proof of income, of an enrollee's eligibility for
the program.
(d) The program required to be developed pursuant to this
section shall ensure all of the following:
(1) A water discount or subsidy not exceeding 20 percent of an
enrollee's total water bill, or sixty dollars ($60) per month,
whichever is less, shall be made available per billing period
to an eligible enrollee in the program for residential water
service provided by a water service provider.
(2) A water ratepayer who is enrolled in the program may
receive assistance in the form of a discount or credit based
on water usage and the total amount of the enrollee's most
recent water bill.
(e) The Low-Income Water Rate Assistance Fund is hereby
created in the State Treasury. Moneys deposited in the fund
may be expended by the department, upon appropriation by the
Legislature, for the purposes of the program.
(f) No later than January 1, 2016, the department shall report
to the Legislature on its findings regarding the feasibility
and desired structure of the program to be implemented
pursuant to this section, including any recommendations for
additional legislative action that may need to be taken to
ensure the successful implementation of the program.
(g) For purposes of this section, the following terms shall
AB 1434
Page O
have the following meanings:
(1) "Board" means the State Board of Equalization.
(2) "Department" means the Department of Community Services
and Development.
(3) "Fund" means the Low-Income Water Rate Assistance Fund.
(4) "Low-income" means a household with income that is equal
to or no greater than 200 percent of the federal poverty
guideline level. For one-person households, program
eligibility shall be based on two-person household guideline
levels.
(5) "Program" means the Low-Income Water Rate Assistance
Program.
(6) "Water service provider" means a water corporation, public
utility district, or other entity that provides water service
to residential water customers in the state.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
(AFSCME)
Office of Ratepayer Advocates (ORA)
Opposition
None on file.
Analysis Prepared by : Brandon Gaytan / U. & C. / (916)
319-2083