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Mutual Water Companies in the California Legislature 2016

I am happy to report that the California Legislature did no harm to mutual water companies in 2016. Given the past few sessions, that should be considered a positive outcome.

The only bill specifically naming mutual water companies that was passed by the Legislature, Senate Bill 1328, was vetoed by Governor Brown on September 24, 2016. That bill would have allowed the State Water Resources Control Board (SWRCB) to provide grants from the Greenhouse Gas Reduction Fund to implement drinking water, wastewater, water reuse and stormwater projects that were intended to decrease demand for fossil fuels needed to pump, transport and treat water. Named beneficiaries were public agencies, nonprofit organizations, public utilities and mutual water companies. It was good that mutuals and public utilities would have qualified for grant funding along with public agencies, and that the Legislature recognized the important role private water companies play in delivering water and wastewater services in California.

Governor Brown’s veto statement referenced a desire to prevent duplicative programs. He directed the Resources Agency to work with the SWRCB to include stormwater projects in the Urban Greening Program. Since SB 1328 was unlikely to provide a significant source of funds for private water companies, the veto can be considered neutral in its effect.

The Legislature did pass a number of bills which will affect the water supplies used by mutual water companies, but since those bills will impact all water organizations and users, I will address them in future posts.

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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.

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California SWRCB Modifies Order for Operation of the State Water Project and Central Valley Project

On April 6, 2015, the California State Water Resources Control Board (SWRCB) issued an order modifying its earlier orders from February 3 and March 5 concerning operations of the State Water Project (SWP) and Central Valley Project (CVP) in the Sacramento-San Joaquin River Delta (Delta). Those orders were the result of a petition by the California Department of Water Resources and U.S. Bureau of Reclamation for a temporary, urgency change to SWP and CVP withdrawals of water in the southern Delta in response to the current drought. The SWRCB’s action applies to joint project operations between March 25 and June 30, 2015. Later operational changes will be addressed by future SWRCB action.

The primary changes to SWP and CVP operations in the latest order are: increasing authorized diversions, by reducing minimum daily Delta outflow requirements at Collinsville from 7,100 cfs to 4,000 cfs; allowing the gates at the Delta Cross Channel to remain open under certain circumstances; reducing the minimum San Joaquin River outflows at Vernalis from 710-1,140 cfs (depending on hydrologic conditions) to 500 cfs; and changing the timing of Vernalis pulse flows from April 15-May 15 to March 25-April 25. The SWRCB denied a request to increase the maximum export rate from the southern Delta, due to concerns that releases from New Melones Reservoir would not leave sufficient water in storage to protect fish and wildlife on the Stanislaus River.

The SWRCB concluded that the authorized changes in SWP and CVP operations strike a reasonable balance between fish and wildlife protection and best serving other needs for water diversions for municipal and agricultural purposes. It is clear heading into the 2015 dry season that the projects will be under extreme stress, as will all water users relying on the Sacramento and San Joaquin Rivers.

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Dark Clouds Over California: The Sustainable Groundwater Management Act of 2014

I am excited to release a new white paper regarding the California Sustainable Groundwater Management Act of 2014, entitled Dark Clouds Over California. Please download the white paper and share with your colleagues. For your convenience, the executive summary is published below. Additionally, the Act is spread across three legislative bills, some of which modify each other, making them difficult to read. A compiled version of the Act is available here. Other provisions of the three bills that are not contained within the main body of the Act may be found here.

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New CPUC Resolution on Urban Water Conservation

Yesterday the California Public Utilities Commission (CPUC) adopted Resolution W-5000, which requires all investor-owned water utilities in the state to provide notice to their customers of the mandatory water conservation measures adopted by the State Water Resources Control Board (SWRCB) in its emergency regulations that became effective on July 28, 2014. The CPUC had required all Class A and B water utilities within its jurisdiction to activate Tariff Rule 14.1 calling for voluntary reductions in water use on February 28, 2014, in Resolution W-4976. Resolution W-5000 imposes further requirements.