The California Legislature has once again adopted new requirements for mutual water companies, this time in Assembly Bill 240, which was signed by Governor Brown on October 8, 2013 and will become effective January 1, 2014.
Mutual Water Company Open Meeting Act
Most significantly, AB 240 establishes a new Mutual Water Company Open Meeting Act, to be codified in Corporations Code §§ 14305-14307. The Act applies to mutual water companies many of the requirements for open meetings and records that were previously applicable to homeowner associations under the Davis-Stirling Act. It applies only to mutual water companies that operate a public water system serving 15 or more customer connections.
Under the Act, a mutual water company board of directors must provide notice of a meeting to the members at least four days in advance, including the agenda. Any eligible person may attend a board meeting, including a teleconference meeting, upon providing 24 hours advance written notice. For this purpose, an “eligible person” means a member of the company, an occupant of a property served by the company, or an elected official of a city or county that represents persons that receive water service from the company. At a meeting, the board may not take action on any matter not on the agenda and must allow any eligible person to speak, although the board may adopt a reasonable time limit.
There are provisions allowing for emergency meetings with limited or no notice to the members, under certain circumstances. In addition, meetings may be closed for executive sessions related to litigation, formation of contracts with third parties, member discipline, personnel matters or to meet with a member regarding payment of assessments. Any matter discussed in an executive session must be noted in the minutes of the open meeting. Within 30 days of a meeting, the minutes or draft minutes must be made available to an eligible person who requests a copy and pays the company for its expenses to provide the minutes.
The board of a mutual must adopt an annual budget prior to the start of each fiscal year. The board must contract with a certified public accountant or public accountant to conduct an annual review of the financial records and reports of the company, subject to generally accepted accounting standards. Eligible persons may request a copy of the budget and financial report.
If an eligible person believes a mutual water company has violated the Act, they may file a demand with the company to cure the defect within 90 days of the alleged violation. The company must respond within 30 days, and if the eligible person does not accept the board’s response, within 15 days they may file a complaint in superior court seeking a determination that the board’s action is null and void. An eligible person who prevails in a civil action will be entitled to recover attorney fees, but a prevailing mutual water company is not entitled to costs, unless the action is found to have been frivolous, unreasonable or without foundation.
The Act will impose new costs on mutual water companies and increase the likelihood of litigation by members. In order to prepare companies for these new requirements, Brownstein will describe the Act and AB 240 in detail as part of the board member training described below.
New Powers Regarding Assessments, Rates and Charges
Collection of rates, charges and assessments from members can be challenging for a mutual water company. For small water systems, the financial impact of having a member become delinquent may be especially significant. Thus, it is important for a mutual to have a robust and clear procedure for collecting delinquent fees.
Under previously existing Corporations Code § 14303, a mutual has the statutory authority to suspend water service or cause the forfeiture of the membership shares of a member who becomes delinquent in paying an assessment. A mutual should expand on that authority in its articles or bylaws to cover delinquent rates and charges and to establish a clear process with timelines.
AB 240 adopted new Corporations Code § 14304, which provides that a mutual water company may include a provision in its articles or bylaws allowing the company to record a notice of lien against the real property of a member to secure the collection of rates, charges and assessments owed to the company by the member based on provision of water service to the property. The provision requires the company to give at least 20 days prior written notice to the member. The act does not include a mandatory process for releasing the lien, but a mutual should include such a process in its articles or bylaws.
The Maywood Mutual Water Companies
AB 240 was sponsored by Assemblyman Anthony Rendon (D-Lakewood) in response to alleged water quality problems at three mutual water companies in the City of Maywood in Los Angeles County. The act included a statement of legislative intent in new Water Code § 10531.5 to encourage collaboration among the companies to create a public agency to consolidate and assume responsibility for drinking water services in the area. AB 240 included an appropriation of $7.5 million to the Water Replenishment District of Southern California to implement water quality projects in Maywood, but Governor Brown reduced that amount to $1 million. Reporting by the Los Angeles Times on the companies can be found here.
Board Member Training Required
AB 54 (2011) adopted a requirement that board members of mutual water companies complete a two-hour training on their duties as directors and the regulations applicable to mutuals. That statute made the training a one-time requirement, but AB 240 mandates training at least once every six years. Those directors who completed the training in 2012 will not need to repeat the training until 2018, but new directors will need to complete the training within six months of taking office. As in 2012, Brownstein will be offering the required training by webinar on the following dates in 2013:
- Wednesday, November 13, 2013 at 6:00 pm
- Thursday, December 12, 2013 at 6:00 pm.
More information on the training can be found here.
New Coordination with Legislature
Brownstein has several clients who have expressed interest in more actively seeking to influence the laws regarding mutual water companies in future legislative sessions. This will include reacting to legislation proposed by others and potentially seeking to introduce new laws that would be helpful to mutuals. If you are interested in joining or learning more about this coalition, please contact me.