BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Tom Torlakson, Chair
BILL NO: SB 23x HEARING: 3/7/01
AUTHOR: Soto FISCAL: No
VERSION: 3/5/01 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 -- 3/5/01 -- 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. The
Cortese-Knox-Hertzberg 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.
Senate Bill 23x prohibits a LAFCO from denying the approval
of the formation of a special district that would have the
primary purpose of furnishing gas or electric service. The
district's authority to furnish water and sewer service is
subject to the LAFCO's approval. SB 23x also prohibits a
LAFCO from denying the annexation or detachment of an
existing public utility district or municipal utility
district that furnishes gas or electric service. [4]
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
Cortese-Knox-Hertzberg Act requires a LAFCO to ask the
California Public Utilities Commission (CPUC) to review and
report on the proposal. The CPUC has 90 days to tell the
LAFCO if the proposal will interfere with the utility's
ability to serve the rest of its service area at reasonable
rates. If a special district gains those powers, its clerk
SB 23x -- 3/5/01 -- Page 3
must notify the CPUC of the district's intent to furnish
gas or electricity in the public utility's service area.
Senate Bill 23x reduces the amount of time for the CPUC to
review proposals for special districts to provide
electricity or gas from 90 days to 60 days. SB 23x deletes
the statutory description of the contents of the CPUC's
report. The bill repeals the requirement for the special
district clerk to notify the CPUC that the district intends
to provide gas or electricity within a public utility's
service area. [4]
III. Voter Approval . Most special districts' principal
acts require majority voter approval to form a new
district. The Municipal Utility District Act requires a
successful formation of a new MUD to receive majority voter
approval if the total number of approving voters is at
least 2/3 of the registered voters within the district as
first proposed. Senate Bill 23x lowers that requirement
from 2/3 of the voters in the proposed district to a
majority of those voters. [5]
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
only accelerated communities' interests in public ownership
SB 23x -- 3/5/01 -- Page 4
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
special districts by cutting the time for CPUC review and
by prohibiting LAFCOs from denying applications to form new
districts that would furnish gas or electric service.
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 stops LAFCOs from denying
attempts to form new districts that would provide gas or
electricity, effectively muzzling the Legislature's
watchdogs. 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. More amendments ? The author's March 5 amendments
reduced the bill's scope. At the March 7 hearing, the
author and the Committee may wish to consider further
amendments:
Allow a MUD to be formed in just a single city or
county.
Retain a LAFCO's ability to approve or disapprove
the formation of a special district that would furnish gas
or electricity unless the underlying city councils or
county boards of supervisors agree to the proposed
district, then the LAFCO could not disapprove.
Restore a LAFCO's ability to approve or disapprove
annexations to and detachments from PUDs and MUDs that
SB 23x -- 3/5/01 -- Page 5
provide gas or electricity.
4. Existing districts . SB 23x prohibits a LAFCO from
denying annexations to and detachments from existing PUDs
and MUDs that provide gas or electricity. The bill would
allow a group of unhappy SMUD customers to get out of the
district without the Sacramento LAFCO's oversight.
Alternatively, it would allow a group unhappy PG&E
customers in Yolo County to annex to SMUD without the
Sacramento LAFCO's permission. The Committee may wish to
consider whether SB 23x should force a PUD or MUD to accept
new customers or give up existing customers without any
local oversight.
5. Go further ? SB 23x helps proponents speed up the
process for forming utility districts but the Committee may
wish to consider going further to:
Reduce the voting requirement for forming a MUD from
a majority of
the voters inside the proposed district to simple
majority voter approval.
Mesh the MUD statute with the Cortese-Knox-Hertzberg
Act.
Direct state officials to help advocates draft
realistic proposals for the
generation, transmission, and distribution of
publicly owned power.
6. 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.
7. Similar bill . SB 1076 (Soto), a bill in the 2001-02
Regular Session, is similar to earlier versions of SB 23x.
If the Legislature closes the First Extraordinary Session
before SB 23x passes, the author and the Committee may wish
to consider amending the bill's current or future language
into SB 1076.
Support and Opposition (3/6/)
Support : California Municipal Utilities Association,
League of California Cities.
SB 23x -- 3/5/01 -- Page 6
Opposition : California Association of LAFCOs, Orange
LAFCO, San Diego LAFCO, Pacific Gas & Electric Company.