Water Purveyor Consolidation

As recently reported, Chapter 27 (Stats. 2015) enacted provisions for the mandatory consolidation of water purveyors. The following provides those provisions in more detail.

The State Water Resources Control Board (State Board) may order the consolidation of a water purveyor within a “disadvantaged community” if the purveyor “consistently fails” to provide an adequate supply of safe drinking water. (Health and Safety Code Section 116682 (a).).  The consolidation may be physical or operational.  The term “consistently fails” is defined to mean “a failure to provide an adequate supply of safe drinking water.”  (Section 116681(c).) Thus, a single failure to provide safe water could trigger the State Board’s jurisdiction.

Prior to ordering consolidation, the State Board must attempt: (1) voluntary consolidation; (2) other enforcement remedies; (3) input of the Local Agency Formation Commission (LAFCO); (4) input from the Public Utilities Commission; (5) input from the land-use agency; (6) notify the potential surviving agency of a deadline to negotiate consolidation; (7) obtain consent of domestic well owners and customers of the agency to be consolidated; and (8) hold at least one public hearing. (Section 116662(b).)  The State Board is to provide the surviving agency with technical assistance and a “financing package that benefits both the receiving water system and the subsumed water system.” However, consolidation does not depend on the consent of the surviving agency.  Similarly, well owners or residents who do not consent are ineligible for grant funding to mitigate a well failure or other emergency.  In other words, the State Board can mandate consolidation.

Prior to actually ordering consolidation, the State Board must make findings: (1) the subsumed water system has ”consistently failed” to provide water service; (2) all reasonable efforts have been made to negotiate consolidation; (3) consolidation is “appropriate in technical and economically feasible;” (4) no pending LAFCO process is likely to resolve the problem; (5) concerns about water rates and water contracts have been ”adequately addressed;” (6) consolidation is the “most effective and cost-effective [sic]” means to provide adequate water; and (7) the connection to accomplish consolidation is limited to serving current customers of the subsumed agency purveyor. (Section 116682(d).)  Since the State Board will have commenced the process, it should have no difficulty making these findings.

After ordering consolidation, the State Board must: (1) make funds available to the surviving water system for processing costs, including legal fees; (2) ensure payment of standard LAFCO fees caused by State Board ordered consolidation; (3) adequately compensate the owners of the subsumed water system for the fair market value of the system; and (4) coordinate with LAFCO and other local agencies to facilitate the change of organization. (Section 116682(d).) The funds to cover costs are not available unless “appropriated by the legislature.”

Since water systems don’t “consistently fail” unless they are substandard, the surviving purveyor has the right to be concerned about liability.  The statute deals with liability in two ways: (1) There is no liability for claims by the subsumed purveyors’ customers for the operation and supply of water, including supplemental imported water during the period of transition to the surviving agency, provided the surviving agency acts in good-faith and makes a reasonable effort to exercise ordinary care; and (2) There’s no liability for water served before the transition.  (Section 116684(b).)  The surviving agency must be concerned about liability because “good faith” and “reasonable effort” can be contested.

The exemptions from liability exist only if:  (1) water supply through a temporary connection meets or exceeds federal and state drinking water standards; (2) reasonable water system flow and pressure is maintained during interim operations; (3) the consolidated system shall maintain or improve the condition, and firefighting support capabilities of the subsumed purveyor during the interim; and (4) customers of the subsumed system receive notice of change in control.  (Section 116684 (e).)  These exemptions from liability do not limit lawsuits by the attorney general, district attorney, city attorney or regulatory agencies.  Nor do they relieve the surviving agency from the obligation to comply with state and federal laws pertaining to drinking water quality.  (Section 116684 (f).)

The authors of this section pointed to the list of small water purveyors applying for state and federal loans and grants.  Applicants for state and federal assistance are encouraged to make the worst-case argument the legislature should have made.  We are aware of only one instance where a small purveyor actually failed and needed to consolidate with another purveyor.  This occurred because the small purveyor was ineligible for state or federal assistance.  A small solution could have been applied to a small problem.  Eligibility rules for state and federal assistance could have been revised.  In the best light, this legislation is a good faith attempt to deal with a misperceived problem. In the worst light, this legislation is part of a larger scheme for the state government to exercise greater control over local water purveyors and avoid making loans or grants.

by Wayne K. Lemieux

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