BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Tom Torlakson, Chair
BILL NO: SB 23x HEARING: 3/7/01
AUTHOR: Soto FISCAL: No
VERSION: 2/15/01 CONSULTANT: Detwiler
FORMATION OF MUNICIPAL UTILITY DISTRICTS
AND PUBLIC UTILITY DISTRICTS
Background and Existing Law
The California Constitution authorizes cities to purchase
and operate facilities that provide light, water, power,
and heat. State statutes allow counties to build and run
hydroelectric and wind energy generating facilities and
transmission lines but the counties cannot sell power at
retail.
The Legislature has authorized eight kinds of special
districts and some "special act special districts" to
generate or provide electricity:
California water districtsMunicipal water districts
Community services districtsPublic utility districts
Irrigation districtsResort improvement districts
Municipal utility districtsWater conservation
districts
In practice, 37 special districts generate or provide
electrical service. Only nine districts sell electricity
to retail customers.
Forming a new special district requires four major steps:
(1) initiation by petition, (2) review and approval or
disapproval by a Local Agency Formation Commission (LAFCO),
(3) measuring protests and calling an election, and (4) the
election, usually requiring majority voter approval. The
Cortese-Knox-Hertzberg Local Government Reorganization Act
also requires the LAFCO to solicit comments from the
California Public Utilities Commission (CPUC) if the
proponents want their new district to provide electricity
or gas service.
Recently, there were two attempts to form new municipal
utility districts (MUDs). The Yolo LAFCO denied an
application to form a proposed Davis MUD. The San
Francisco LAFCO forwarded an application to form a new MUD
SB 23x -- 2/15/01 -- Page 2
to the San Francisco Board of Supervisors without taking
any formal action. The San Francisco proposal is still
pending and may go to an election later this year.
Some observers say that the statutes controlling the
formation of new special districts to provide electricity
are too slow and they interfere with communities' attempts
to gain public ownership of electrical power. They want
the Legislature to streamline the procedures.
Proposed Law
Senate Bill 23x enacts the "Fair Citizen Access to Public
Power Act," and declares the Legislature's intent "to
streamline the process for forming public power districts."
[See 1 & 2.]
I. LAFCO Review . A Local Agency Formation Commission
(LAFCO) must review and approve or disapprove proposed
boundary changes for most special districts. State law
exempts from LAFCO review some types of districts such as
countywide water agencies and flood control districts. The
Act requires a LAFCO to consider several factors, including
the need for public services, the proposal's effect on
government structure and land use, and financing methods.
If a LAFCO approves of a proposal to form a new special
district, the LAFCO's executive officer must write an
impartial ballot analysis for the voters' pamphlet.
Senate Bill 23x exempts municipal utility districts (MUDs)
and public utility districts (PUDs) from LAFCO review by
adding those districts to the statutory list of districts
that are exempt from LAFCO review. [4] SB 23x repeals
the requirement for the LAFCO's executive officer to write
impartial ballot analyses for the ballot pamphlets on
forming MUDs and PUDs. [10 & 13] The bill declares that
the statutes governing MUDs and PUDs are the exclusive way
to change those districts' boundaries and that the
Cortese-Knox-Hertzberg Act does not apply. [5, 9 & 12]
II. CPUC Review . When a boundary change affects certain
topics of statewide interest, the Cortese-Knox-Hertzberg
Act requires a LAFCO to ask state departments to review and
comment on the proposal. If a proposed special district
formation or annexation would provide electricity or gas
service in a public utility's service area, the
SB 23x -- 2/15/01 -- Page 3
Cortese-Knox-Hertzberg Act requires a LAFCO to ask the
California Public Utilities Commission (CPUC) to review and
report on the proposal. The CPUC must tell the LAFCO if
the proposal will interfere with the public utility's
ability to serve the rest of its service area at reasonable
rates. The LAFCO's executive officer cannot set the
proposal for a hearing until the CPUC's report is on file.
Senate Bill 23x repeals the requirement for the CPUC to
review proposals for special districts to provide
electricity or gas within a public utility's service areas.
[7 & 8]
III. Voter Approval . The Cortese-Knox-Hertzberg Act
prohibits a special district from providing gas or electric
service within a public utility's service area without
majority voter approval in the affected area. Senate Bill
23x repeals that requirement. [5 & 6] The Municipal
Utility District Act requires a successful formation of a
new MUD to receive the votes of 2/3 of the registered
voters within the proposed district. Senate Bill 23x
lowers that requirement to approval by a majority of those
voting. [11]
IV. Condemnation . A local agency can use the power of
eminent domain to condemn property only under three
conditions:
Public interest and necessity require the project.
The project is most compatible with the greatest
public good and least
private injury.
The property is necessary for the project.
A local agency must adopt a formal resolution of necessity.
If the property to be condemned is electric, gas, or water
public utility property, the agency's resolution of
necessity creates a rebuttable presumption affecting the
burden of proof that the three conditions are true.
Senate Bill 23x deletes the rebuttable presumption
regarding the taking of electric or gas public utility
property. [3]
Comments
1. More power to the people . The current energy crisis
SB 23x -- 2/15/01 -- Page 4
only accelerated communities' interests in public ownership
of power generation, transmission, and distribution
systems. Dismay over the corporate response to energy
deregulation prompted public power advocates to explore the
formation of municipal utility districts with their own
directly elected boards of directors. The current laws
that require petitions, extensive fiscal and environmental
reviews, and protest hearings frustrate some proponents.
They want to move public power proposals to the ballot box
more quickly. SB 23x speeds the procedures for forming two
types of special districts by exempting them from review by
LAFCOs and the CPUC.
2. The Legislature's watchdog . Formed in the 1960s to
discourage urban sprawl and curb the proliferation of
special districts, LAFCOs exist in every county to balance
competing state policies based on local conditions and
circumstances. A 1998 research report credits LAFCOs for
holding down the number of overlapping local governments.
The courts refer to LAFCOs as the "Legislature's watchdogs
over local boundaries." SB 23x exempts two types of
special districts from LAFCOs' review and control,
effectively keeping the Legislature's watchdogs inside the
their kennels when MUDs and PUDs come around. Without
LAFCO oversight, proponents can ask voters to form a MUD or
a PUD on top of cities and other special districts that
already provide the same service. Why must the City of
Colton which provides its own electricity contend with a
potential Colton PUD with its own board of directors that
wants to take over the city's electrical system? If LAFCO
can't be the watchdog, who will?
3. Reform not reaction ? Public power advocates were
understandably disappointed when the Yolo LAFCO denied
their application to form a MUD. One reaction would be to
exempt the formation of MUDs from the LAFCOs' review, the
approach taken by SB 23x. The Committee may wish to
consider less radical reforms, including:
Reduce the voting requirement for forming a MUD from
2/3 of the af-
fected voters to majority voter approval, a reform
already in the bill.
Mesh the MUD statute with the Cortese-Knox-Hertzberg
Act.
Accelerate the deadlines for LAFCO and CPUC review
and approval of
SB 23x -- 2/15/01 -- Page 5
proposals affecting electrical and gas service (not
just MUDs and PUDs).
Direct state officials to help advocates draft
realistic proposals for the
generation, transmission, and distribution of
publicly owned power.
4. Contradictions . SB 23x reflects contradictory
policies. The bill exempts MUDs and PUDs from LAFCOs'
purview but not all MUDs and PUDs are in the power
business; most run water and sewer systems. Nevertheless,
the bill exempts MUDs and PUDs from review even if the new
districts intend to provide water and sewer service.
Besides MUDs and PUDs, six other kinds of special districts
can provide electricity: California water districts,
community services districts, irrigation districts,
municipal water districts, resort improvement districts,
and water conservation districts. But SB 23x doesn't
exempt these districts from the Cortese-Knox-Hertzberg Act.
If the Legislature is unhappy with how LAFCOs treated the
two recent attempts to create MUDs, is it necessary to
exempt all of these districts from LAFCOs' review?
5. Bypassing the CPUC . When a proposed boundary change
affects land under the Williamson Act, the LAFCO must
notify the State Department of Conservation. When a
proposal affects a local hospital district, the LAFCO must
notify four state agencies that oversee public hospitals.
Similarly, when a special district proposes to serve
electricity or gas inside a public utility's existing
service area, the LAFCO must refer the proposal to the CPUC
and wait for a report. Some advocates of public power
ownership see the CPUC's review and report as a delaying
tactic that gives corporate interests time to lobby the
members of the LAFCO. The Committee may wish to consider
whether the referral and report requirement adds important
information to the debate over public power ownership.
Should the review process be eliminated, as in SB 23x, or
reformed?
6. No more boundary changes . Besides exempting MUDs and
PUDs from the LAFCOs' review, SB 23x also declares that the
two districts' principal acts are the "sole and exclusive
authority and procedure" for changing the districts'
boundaries. However, in 1965, the Legislature took the
procedures for changing MUDs' and PUDs' boundaries out of
SB 23x -- 2/15/01 -- Page 6
the districts' principal acts and moved them over to the
LAFCO law, except for annexing territory to a PUD. After
SB 23x there will be no way to annex territory to a MUD, no
way to detach territory from a MUD or a PUD, and no way to
dissolve a MUD or a PUD. The Committee may wish to
consider whether legislators should leave MUDs and PUDs
without the means to change their boundaries.
7. Double-referral . Because SB 23x changes the
presumptions in the eminent domain laws, the Senate Rules
Committee has ordered a double-referral of the bill to the
Senate Judiciary Committee.
Support and Opposition (3/1/)
Support : California Municipal Utilities Association,
League of California Cities.
Opposition : California Association of LAFCOs.