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.
I have received many comments and questions on my earlier post about California Mutual Water Company Basics. In order to protect the privacy of questioners, I have responded to most individually rather than on this blog. In the belief that there may be value in providing answers to some of the most frequently asked questions here, this post elaborates on a few issues regarding mutual water companies.
It has become increasingly common to note, under the general law that no good deed goes unpunished, that successful implementation of water conservation measures by utilities and their customers generally leads to higher commodity rates for water. This phenomenon occurs because water utilities have significant fixed costs, and as the amount of water decreases, those costs must be collected by increasing water commodity rates. The concept is simple, but it causes consternation among some who feel that water conservation is a moral good that should be rewarded rather than punished. While I am more inclined to view water conservation in economic rather than moral terms, undoubtedly the phenomenon has an impact on customer attitudes toward conservation and thus water resource management under conditions of scarcity.
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.