This post gives an overview of the organization of water utilities in California. For this purpose, water utilities are defined as entities that own and operate public drinking water systems at the retail level. There are few sources of information about who provides water utility service in the state, and this post offers only an overview of the topic. The data used for the analysis in this post was derived from a proprietary database I have of all water utilities in California.
Effective January 1, 2012, California law imposes new requirements on mutual water companies that own and operate a public water system. Adopted as Assembly Bill 54 (Solorio), and codified at several places in the California Corporations, Government, and Health and Safety Codes, the new requirements are intended to improve the quality of water served by domestic mutual water companies throughout the state. Assemblyman Solorio introduced the bill in response to failure of technical, managerial and financial capacity at the Diamond Park Mutual Water Company in Santa Ana, although that company is in the process of being dissolved after connection to the City of Santa Ana water system.
I have been asked several times in the past few weeks whether California mutual water companies are authorized to transfer water to non-shareholders at a profit. It appears some activists have begun arguing that California Public Utilities Code § 2705 prohibits mutual water companies from making money on water transfers. This challenge is part of a broader opposition to water transfers in the state, based on a public policy concern that some individuals are profiting from selling water, which is a public resource. As I explain below, § 2705 does not prohibit mutual water companies from transferring water to non-shareholders at a profit, and California law generally supports the right of any water rights holder, mutual or otherwise, to sell water for financial remuneration.
We often see critics linking together private water companies and bottled water as jointly promoting “commodification” of the world’s water supplies. While the differences should be fairly obvious between investor-owned utilities and companies that provide design, construction, operations and maintenance services to governments, on the one hand, and companies that bottle, distribute and sell water to consumers, on the other, last week those differences were brought into clear focus.
Several commentators have recently criticized the proposed California water bond for allowing private companies to own, operate and profit from water infrastructure paid for with bond proceeds. These criticisms have appeared in the San Francisco Chronicle and California Progress Report, and have been repeated in a number of other publications. The $11.14 billion water bond was adopted by the California Legislature and signed by Governor Schwarzenegger in SB2 (7x), and will be submitted to the voters at the statewide general election on November 2, 2010. I think these private profit criticisms are generally unfounded, but there are legitimate questions about public benefits from the bonds.