New California Legislation re Mutual Water Companies

No year has passed since 2011 without the introduction of new legislation aimed at reforming the management and governance of mutual water companies in California. The 2015 legislative session was relatively light, but two laws regarding mutuals were passed and signed by Governor Brown: Assembly Bills 656 (Garcia) and 1077 (Holden).

Assembly Bill 656 allows mutual water companies to participate with public agencies in joint powers agreements (JPAs) for the purpose of insurance and risk pooling. Such JPAs are common among public agencies, and AB 656 will allow mutual water companies to join those organizations and reduce their insurance costs. Insurance may be provided by a JPA through self-insurance, co-insurance under a master policy or insurance purchased from any insurer authorized to transact business in California. (Cal. Govt. Code §§ 990.4, 990.8(a).) Any revenue generated by the JPA must be used to help its members reduce their risk liabilities and further their technical, managerial and financial capacities. A redline comparing the old and new statutes can be found here.

Assembly Bill 1077 modifies the Mutual Water Company Open Meeting Act, which is found at Corporations Code § 14305 and was adopted in 2013 as part of Assembly Bill 240. A redline of its changes to existing law can be found here. Section 1 of the bill includes legislative findings that are generally positive toward mutual water companies, noting that they have made great improvements since 2013 in their service quality, transparency and finances. The Legislature also found that many mutuals have small or no meeting facilities, and are located in remote parts of the state where meetings are difficult for shareholders to access.

In light of those findings, AB 1077 modified the rules for allowing eligible persons (a term which includes members, customers and local elected officials) to participate in board meetings via teleconference. Existing law required a mutual water company board to allow an eligible person to participate in a board meeting in person, if they gave at least 24 hours notice. Under the law as modified, the board must allow a person who fails to give notice access to the meeting, although the board may require the member to participate by teleconference rather than personally. In addition, a board may require an eligible person to participate by teleconference if the meeting space is too small to accommodate all requested participants. The board must provide all teleconference participants with an electronic copy or photocopy of all documents not related to an executive session held at the meeting. There is no deadline for an eligible person providing notice of their intent to attend a meeting by teleconference, so the Legislature has in effect deleted the notice requirement.

In practice, there are very few eligible persons who want to attend mutual water company board meetings. In fact, most mutuals have a difficult time recruiting members to serve on the board and convincing enough persons to attend member meetings to achieve quorum. The only time meeting attendance becomes an issue is when there are eligible persons who disagree with some action taken by the board, and in my experience their disagreement often takes on some degree of anger and interpersonal unpleasantness. In those cases, a board that does not want to be inundated with disgruntled and possibly disruptive members, who wait until the last minute to show up without notice, must have a teleconference set up and ready for all board meetings. Given the small size of most mutuals, very few have existing teleconference services, and this law will impose an additional expense to what the Legislature found were their “limited financial means.”

AB 1077 also modified the Open Meeting Act by clarifying that an executive session of the board must take place during a regular meeting. Thus, a board may no longer hold a meeting entirely in executive session. The board will need to call the meeting to order, take public comments, withdraw to executive session, return from executive session and report on the matters discussed there, and adjourn the meeting. That will make mutual board meetings more like public agency meetings.

Although 2015 saw limited legislation aimed directly at mutual water companies, I understand there are plans to make 2016 a more significant year, and mutuals will continue to be affected by the Sustainable Groundwater Management Act of 2014 and the amendments made to that law in 2015. I will post on that topic in the future.

2 Comments on “New California Legislation re Mutual Water Companies

  1. Mr. Strickland, with all due respect, you have misinterpreted AB 1077. On behalf of the California Association of Mutual Water Companies, I was involved in negotiating revisions to AB 1077 with Assembly Member Holden’s staff. We were able to get them to agree to making the use of teleconferencing permissive rather than mandatory – thus, the use of “may” in the first line of subdivision (b)(1)(B) of Corporations Code Section 14305 instead of “shall.” That was intentionally done in the drafting to ensure the teleconferencing would not be required for small companies that lack that technological capability.

    • Mr. Ciampa, thank you for the comment. I have modified the post to be more clear. While you are correct that the law permits a mutual to allow last-minute attendees to participate either in person or by teleconference, this is not particularly helpful for mutual water companies. In practice, it abolishes the 24 hour notice requirement, and forces mutuals to have a teleconference available unless they want to open up their meetings to those eligible persons who did not provide notice. There may be some eligible persons who do not provide notice because they are busy and forget, or because they are unaware of the notice requirement, but more realistically it will be because they want to ambush the board at the last minute. The only defense of a board in that case is being able to divert potentially disruptive attendees to participation by teleconference, which will need to have already been arranged. The switch from “shall” to “may” in this instance does not give significant protection to mutual water companies.

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