BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2001-2002 Extraordinary Session
SB 23x S
Senator Soto B
As Amended March 14, 2001
Hearing Date: March 20, 2001 2
Code of Civil Procedure 3
CJW:cjt x
SUBJECT
Formation of public power districts:
Repealing Rebuttable Presumption in Eminent Domain Actions
DESCRIPTION
This bill would delete or amend various formation,
regulatory approval, and voter approval requirements for
the creation of public power districts. In addition, the
bill would delete the rebuttable presumption of public
necessity for condemnation of private gas or electric
utility property, which was added to eminent domain law in
1992, and would restore the law to a conclusive
presumption.
BACKGROUND
The current energy crisis has increased communities'
interest in public ownership of power generation and
distribution through formation of "special districts." The
Legislature authorizes eight kinds of special districts to
generate or sell electricity; 37 such districts now operate
in the state (only nine of which actually sell electricity
to retail customers).
Forming a special district requires four major steps: (1)
Initiation by petition, (2) approval by a Local Agency
Formation Commission (LAFCO), (3) measuring protests and
calling an election, and (4) the election, which may
require anywhere from a simple majority vote, or (for a
(more)
SB 23x (Soto)
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municipal utility district, or "MUD") a majority of
"two-thirds of the voters within the district as first
proposed." [Pub. Util. Code Sec. 11652.] The
Cortese-Knox-Hertzberg Local Government Reorganization Act
also requires the LAFCO to solicit comments from the PUC if
the special district is to provide gas or electricity
service.
Also, where the formation or expanded operation of a public
power agency requires condemnation of private property
(such as power transmission lines) by eminent domain, the
agency must adopt a formal resolution of necessity which,
under existing law, creates a rebuttable presumption
affecting the burden of proof, but which allows opponents
to challenge the validity of the resolution in court.
Proponents of this bill believe these formation procedures
are too slow and burdensome, and are seeking the various
streamlining measures outlined below.
Of interest to this Committee's jurisdiction is the repeal
of the rebuttable presumption. The bill was heard by the
Senate Local Government Committee on March 7, and was
approved and referred to this Committee to address the
eminent domain provision.
CHANGES TO EXISTING LAW
1. Existing law generally provides that, when a public
entity initiates an eminent domain action within its
jurisdictional boundaries, the entity's resolution of
necessity is a conclusive determination. Private
property owners whose property is taken by eminent domain
therefore may not dispute the finding that the taking is
"necessary;" they may challenge only the appropriate
valuation of the property taken.
When such an action is brought against electric, gas, or
water utility property, however, the resolution is not
conclusive, but instead is presumed to be true, and the
utility property owner is allowed to rebut, or challenge,
that presumption in court. The utility property owner
has the burden of proving that the resolution of
necessity is not true. [C. C. P. Secs. 1240.650,
SB 23x (Soto)
Page 3
1245.250.]
This bill would delete the rebuttable presumption
regarding the taking, by eminent domain, of gas or
electricity property. Specifically, this bill would
amend Sections 1240.650 and 1245.250 of the Code of Civil
Procedure to delete the words "electric, gas or" from the
existing language that allows a challenge to takings of
"electric, gas or water public utility property."
2. Senate Bill 23x also would enact the "Fair Citizen
Access to Public Power Act," with a declared legislative
intent to "streamline the process for forming public
power districts." This bill would ease the process of
forming or expanding a special district in these other
ways:
(1) simplifying the boundary requirements for proposed
districts;
(2) eliminating the LAFCO approval requirement;
(3) reducing the time period in which the PUC must
issue its report, deleting the specifications of
what the report must address, and allowing the
special district proposal to be set for a hearing
without the report if it is not timely issued;
(4) lowering the more complex "majority of
two-thirds" MUD formation voter requirement to a
simple majority of those voting, in conformation
with the requirements of most special districts; and
(5) requiring the California Energy Commission to
provide technical assistance to local jurisdictions
attempting to draft proposals to form public power
districts.
COMMENT
1. Eminent domain normally has operated by conclusive
presumption
Eminent domain is the sovereign right of the people or
their government to take private property for public use.
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The taking must be for a proper public purpose, and a
resolution of necessity is required. [C. C. P. Sec.
1240.040.] In most instances, the legislative
determination of a public use, purpose or function is a
conclusive determination. [C. C. P. Sec. 1245.250.] It
also is conclusively presumed, in most cases, that the
same use by public entities of the property to be taken
is a "more necessary use" than the use for which the
property was already being used by the private entity.
[C. C. P. Sec. 1240.650.] The purpose of these
presumptions is to avoid litigation and challenges to a
public entity's legislative determination of public use
and necessity.
2. History of current rebuttable presumption for taking of
utility property
In 1992, water, gas and electric utilities sought and
obtained a statutory exemption from the conclusive
presumption for utility property being condemned for
public utility use, on the ground that, since the
condemnation would put the property to the same essential
use, that use was not by definition "more necessary" and
a conclusive presumption to that effect was unfair.
The 1992 bill providing the rebuttable presumption for
water, gas and electric utility property (SB 1757) was
strongly opposed by cities and municipal utility
districts, who argued that the bill's proponents were
ignoring the fact that most public condemnations of
private utility property were initiated by citizens, not
local authorities, and usually were in response to poor
service or the private utility's unresponsiveness to
public needs.
The Assembly Judiciary Committee analysis of SB 1757
concluded that creation of the rebuttable presumption
"will give electric, gas and water utilities much greater
ability to challenge any proposed taking" of their
property, and that it "may result in longer and perhaps
more expensive eminent domain litigation." The Senate
Judiciary Committee analysis opined that this greater
ability to challenge any proposed taking "will result in
higher transaction costs as well as higher settlements."
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Page 5
3. Effect of SB 1757
To help assess the effect of the extension of the
rebuttable presumption to eminent domain proceedings
against private utility property, Committee staff has
asked both proponents and opponents of this bill to cite
any examples of such proceedings initiated since SB 1757
was enacted in 1992. The only response received cited a
proceeding initiated by the Laguna Irrigation District in
April of 1999, in which the District's resolution of
necessity was challenged by the utility via the
rebuttable presumption provision. Apparently, this
proceeding is still under litigation - two years later.
It is difficult to extrapolate any conclusion from such
minimal anecdotal evidence, except to note the
possibility that the introduction of the rebuttable
presumption may have discouraged eminent domain
proceedings against private utility property, and its
deletion from existing law may encourage such actions.
Since the expressed legislative intent of this bill is
"to streamline the process for forming public power
districts," the deletion of the rebuttable presumption
for challenging the condemnation of private gas and
electric utility property would appear to serve that
goal.
4. Support by cities, municipal power groups, and
citizens' groups
This bill's supporters, which include the League of
California Cities, the California Municipal Utilities
Association, and the Citizens' Power Lobby, among others,
state that publicly owned utilities have an excellent
record of cost efficiency, tend to provide cheaper and
cleaner power than private utilities, help small
businesses in energy efficiency and renewable energy
endeavors, and are devoted to serving their customers
instead of stockholders. They assert that existing law
"makes it very cumbersome, if not impossible, to form
MUDs."
5. Objections by private utilities
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Private utilities such as Pacific Gas and Electric
Company and Southern California Edison oppose the bill in
general, and the elimination of the rebuttable
presumption in particular. They state that "the
rebuttable presumption was placed into law specifically
to protect utility consumers statewide and to ensure
ample opportunity to provide input on the [many]
consequences of a proposed municipalization in court."
Asserting that it has no desire to unreasonably delay the
eminent domain process, PG&E has offered an alternative
amendment that would preserve the rebuttable presumption,
but subject it to a 120-day expedited trial.
Although an expedited trial might reduce the delay
associated with a private utility's exercise of the
rebuttable presumption, delay may not be the only
obstacle the rebuttable presumption poses to a
streamlined formation process for public power districts.
Litigation of any length costs money, time, and human
resources, and the right to litigate means that the
threat of litigation has its own cost factor that must be
addressed.
Further, proponents assert that the need for fair and
adequate public airing of the consequences of
municipalization of power service does not by definition
require court proceedings. Even with the streamlining
proposals contained in this bill, the various steps in
the district formation process require a public hearing
process and approval by city councils and boards of
supervisors, and by the voters themselves, with the aid
of a PUC report on the consequences of district
formation. All of these steps are subject to input and
persuasion by interested parties, including the affected
utility, long before any district is formed and
condemnation proceedings take place. Opponents contend,
however, that the reduced role of the PUC and LAFCO
significantly reduce their ability to argue their case in
a more neutral forum than the city council of the city
proposing to take the property.
6. A new look at SB 1757 ?
When eminent domain proceedings begin, they are based on
a resolution of public necessity that historically has
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been deemed conclusive as to all private property owners,
individual or corporate, when the condemned property is
within the condemning authority's jurisdiction. When the
Legislature modified this rule in 1992 by SB 1757, one of
the utilities' arguments, which they re-assert now, is
that "the conclusive presumption is not always true,
especially when the public entity seeks to take only a
portion of an existing integrated utility system which
serves multiple municipalities." (Analysis of SB 1757,
Senate Committee on Judiciary, May 5, 1992.)
Perhaps, in retrospect, this argument is not one that has
a bearing on the question of the "public necessity" or
"more necessary use" of the taking, but on the cost to
the utility of that taking. Perhaps the author or
Committee may wish to consider an amendment that would
specifically allow the court to consider, in valuing the
taking, any added or reduced cost to the utility of
serving the remainder of customers outside the new
district without the property being taken.
Alternatively, the Committee may wish to re-refer the
bill back to Rules Committee for possible re-referral to
the Senate Energy Committee on the question of whether
the PUC should have a stronger voice regarding the
possible impact of the taking on other customers of the
utility. (See also next comment.)
7. Effect on ratepayers excluded from newly formed
districts may need review
Existing law requires that, before a proposed public
power district is presented for voter approval it must
receive LAFCO approval, depending upon LAFCO review of
the PUC report as to whether formation of the new
district "will substantially impair the ability of the
public utility to provide adequate service at reasonable
rates within the remainder of the service area of the
public utility." [Govt. Code Secs. 56129, 56131.]
This bill would delete the requirement for LAFCO
approval, and would delete the above-referenced language
as to the required content of the PUC report. As a
result, there is no apparent step in the proceedings to
consider the result of district formation on the cost of
power to consumers in rural or unincorporated areas
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excluded from the new district. This Committee may wish
to consider a referral back to the Rules Committee for
possible referral to the Energy Committee in order that
this point may be fully addressed.
8. Cable TV objections to deletion of rebuttable
presumption
At the Local Government Committee hearing, cable
television representatives also objected to the deletion
of the rebuttable presumption provision. They stated
that its deletion would prevent them from challenging the
condemnation of electric poles and lines, which
municipalities might use to enter the cable TV business
with an unfair advantage.
The California Cable Television Association (CCTA) has
since submitted four suggested amendments to the bill,
which would (1 and 2) confirm application of the
rebuttable presumption to utility property condemnations
that could be used for municipal cable TV operations; (3)
ensure that municipal cable providers would not be able
to "cross-subsidize" their service with other revenues,
or otherwise compete at any perceived advantage over
private companies; and (4) would limit attachment fees
charged by municipalities on condemned utility property
to their cost of ownership, as adjusted for inflation.
After meeting with both cable TV and municipal
representatives, the author rejected the CCTA's proposed
amendments.
9. Author's rejection of CCTA suggested amendments
appears justified
The CCTA's suggested amendments are based on cable
companies' asserted right to exercise the rebuttable
presumption currently existing for the condemnation of
utility property. However, no such right is expressly
provided by statute, and the purported existence of such
a right is subject to serious question, as discussed
further below. As the first two of the CCTA's suggested
amendments would serve no purpose other than to
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statutorily establish such a right for cable companies,
they undercut the CCTA's assertion of a currently
existing right. Instead, the CCTA's first two suggested
amendments would give cable companies a right of
challenge that no other private property owners except
utility companies currently possess, and which this bill
would take away from utility companies.
The CCTA's other two suggested amendments are meant to
establish what the CCTA calls a "level playing field" for
competition between private cable companies and
municipalities that might enter the field with assets
obtained through the condemnation of utility property.
Although such concerns might have merit, they have no
place in this proposed bill, which deals solely with
formation of public power districts. In fact, these
suggested amendments would promote confusion as to the
obligations of municipal cable companies that possess
condemned utility property versus those that do not. The
CCTA would be better served by proposing separate
legislation aimed directly at any perceived unfair
competition from municipal cable companies.
10. Author's proposed amendment may be necessary only as
compromise
As an alternative to the CCTA's suggested amendments, the
author crafted the following amendment to Section
1245.250 in accordance with a suggestion by the
California Municipal Utilities Association. That
amendment, now in Section 4 of the proposed bill, states:
(e) For a period of five years following the
acquisition of property to furnish electric or gas
service, the district board, or the city council, of
the district or city furnishing gas or electric
service, shall not increase the annual recurring fee
for attachments by cable corporations or certified
telecommunications carriers to that property above
the amount in effect at the time of the acquisition,
except for prospective annual adjustments for
inflation, based upon changes in the Consumer Price
Index.
This amendment is intended to compensate for any
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perceived loss the cable industry might suffer through
the deletion of the rebuttable presumption by providing
for a five-year freeze on the annual fees charged to
cable and telecommunications carriers by cities and
districts that acquire property to furnish gas or
electric service.
As with the CCTA's suggested amendments, this proposed
amendment appears to be based on the belief that the
rebuttable presumption is available for use by cable
companies, and that its loss would deprive them of a
right they currently possess. (In one such meeting
attended by Committee staff, the cable representatives
conceded that, to their knowledge, no one in their
industry had attempted to exercise this perceived right,
but that their reading of the law indicated to them that
they possessed it.)
A close reading of the law and its history, however, puts
their conclusion in some doubt. SB 1757 was introduced
and adopted on the premise that condemnation of private
utility property that the public district intends to put
to the same use ( i.e ., for public power generation and
distribution) should be subject to the rebuttable
presumption because the same use cannot fairly be
considered a "more necessary" use. All of the committee
analyses of the bill stated that the rebuttable
presumption was to apply in cases in which the condemned
property is put "to the same use." Accordingly, Section
1240.650 of the Code of Civil Procedure, as amended by SB
1757, applies the rebuttable presumption to cases in
which the condemning authority intends to put the
property "to the same use." This language appears to
exclude any intervention by cable companies into the
condemnation of privately owned utility property unless
the property in question already is being used to provide
cable TV service at the time it is condemned.
Curiously, Section 1245.250, a parallel statute also
amended by SB 1767, does not include the "same use"
language. Whether this difference, which is unaddressed
in the legislative history, was intentional or an
oversight, it does leave open the possibility the
rebuttable presumption might be exercised if a city or
special district were to seek to condemn private power
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lines not only for public power distribution, but also
for the facilitation of a city-owned cable TV service.
However, the fact that a city may enter the cable TV
business in a variety of ways (including laying its own
cable or purchasing or renting distribution facilities
from a willing seller), without subjecting itself to a
legal challenge from its private competitors, argues
against the notion that the rebuttable presumption has
conferred any power to the cable TV industry for which it
can claim a right to compensation.
Thus, the proposed amendment adding subsection (e) to
Section 1245.250 may be necessary as a compromise to
remove opposition, as opposed to language that maintains
the status quo for cable television operators. It is
worth noting once more, however, that the reason the
proposed deletion of the rebuttable presumption for
private utility companies does not appear to violate any
evident public policy concerns is because it simply
restores the utility companies to the position of all
other private property owners. As such, they would be
entitled to fair compensation for the loss of property
taken by eminent domain; they are not being compensated
for the loss of the rebuttable presumption. Accordingly,
there is no evident reason to assume the existence of, and
then attempt to compensate for, any right to a rebuttable
presumption asserted by the cable companies.
Support: Independent Cities Association; League of
California Cities; City of San Bernardino;
California Municipal Utilities Association;
Citizens Power Lobby; California Public Interest
Research Group (CALPIRG); San Francisco Bay
Guardian ; letters from numerous individual
citizens
Opposition: Pacific Gas & Electric Company; Southern
California Edison; Sempra Energy; California
Cable TV Association
HISTORY
Source: Author; co-authors and Assembly Members
Strom-Martin and Washington
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Page 12
Related Pending Legislation: SB 1076 (in Local Government
Committee);
AB 47x (passed out of Assembly
Judiciary to Energy, Cost and
Availability Committee)
Prior Legislation: SB 1757 (Morgan) Chapter 812, Stats.
of 1992)
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