BILL ANALYSIS Ó
AB 727
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Date of Hearing: May 6, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
AB 727
(Wilk) - As Amended April 6, 2015
SUBJECT: Castaic Lake Water Agency.
SUMMARY: Makes a number of changes to the Castaic Lake Water
Agency (CLWA) Law, and to CLWA's contracting authority under the
Public Contract Code. Specifically, this bill:
1)Increases CLWA's bid threshold for construction contracts, and
its force account limit for the purchase of materials and
supplies that will be used in any new construction, from
$5,000 to $75,000.
2)Allows the CLWA Board of Directors (Board) to appoint more
than one vice president.
3)Expands CLWA's existing authority to construct, operate and
maintain works to develop hydroelectric energy projects by
allowing CLWA to develop any kind of energy project, and makes
conforming changes.
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4)Allows CLWA to contract, in connection with the construction
and operation of CLWA's works, for the sale of the right to
use facilities or real property for electric energy purposes
with any public agency or private entity engaged in the retail
distribution of electric energy, for a term not to exceed 100
years.
5)Allows CLWA to establish and impose a facility capacity fee on
any person who has an existing retail connection to the water
distribution system of any retail water distributor within
CLWA that obtains all, or any portion, of its water supplies
from CLWA, and makes conforming changes.
6)Defines "facility capacity fee" to mean a fee for public
facilities in existence at the time a fee is imposed and for
new public facilities to be acquired or constructed in the
future that are of proportional benefit to the person or
property being charged, including supply or capacity contracts
for rights or entitlements, real property interests, and
entitlements and other rights of CLWA involving capital
expense relating to its use of existing or new public
facilities.
A "facility capacity fee" does not include a commodity charge.
7)Allows CLWA to use the facility capacity fee to adopt and
carry out a plan to do the following:
a) To finance or reimburse CLWA for advancing the cost of
acquiring facilities, works, property, improvements, and
supplies of water and to allocate that cost among lands
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within water service areas of CLWA which, by reason of new
development or new construction thereon, will need an
expanded retail connection, or will result in expanded use
of water at the retail connection, and will be benefited by
making the additional supplies of CLWA water available for
purchase by the retail water distributors that will supply
those lands with water; and,
b) To finance or reimburse CLWA for advancing net costs for
capital facilities for remediating groundwater
contamination, which originated solely from the land within
a given water service area.
8)Allows CLWA to transmit electronically to interested parties
who request it specified data regarding the costs of providing
water to new developments.
9)Removes from CLWA's annual facility capacity fee capital
budget payments of capital costs to the state for purposes of
the State Water Project (SWP), and makes conforming changes.
10)Removes a requirement that CLWA annually adopt a resolution
of intention to continue water service areas previously
established.
11)Removes a requirement that CLWA annually adopt a resolution
of intention to form new water service areas or amend or
modify water service areas previously established, if there is
not a change from the previous year to the water service areas
or the existing facility capacity fees.
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12)Repeals provisions of the CLWA Law governing CLWA's
allocations of water to its water retailers.
13)Repeals provisions of CLWA Law allowing CLWA to adopt a
multi-year capital budget.
EXISTING LAW:
1)Establishes the CLWA Law, which creates the CLWA and
authorizes the CLWA to acquire water and water rights,
including water from the SWP, and to provide, sell, and
deliver water at wholesale for municipal, industrial,
domestic, and other purposes.
2)Authorizes CLWA to prescribe methods for the construction of
works and for the letting
of contracts for the construction of works, structures, or
equipment, or the performance or furnishing of labor,
materials, or supplies, for carrying out specified provisions.
3)Requires all CLWA contracts for any improvement or unit of
work when the cost estimate exceeds $5,000 to be let to the
lowest responsible bidder or bidders.
4)Authorizes CLWA to have work done by force account without
advertising for bids and to purchase in the open market
materials and supplies when the estimated cost of the work
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does not exceed $5,000.
5)Authorizes the CLWA Board, by majority vote, to appoint from
its members one vice president.
6)Authorizes CLWA to construct, operate, and maintain works to
develop hydroelectric energy for use by CLWA in the operation
of its works or as a means of assisting in financing the
construction, operation, and maintenance of its projects for
the control, conservation, diversion, and transmission of
water and to enter into contracts for the sale of the energy
for a term not to exceed 100 years. The energy may be
marketed only at wholesale to any public agency or private
entity, or both, or the federal or state government.
7)Allows CLWA to contract, in connection with the construction
and operation of CLWA's works, for the sale of the right to
use falling water for electric energy purposes with any public
agency or private entity engaged in the retail distribution of
electric energy, for a term not to exceed 100 years.
8)Authorizes CLWA to establish and impose a facility capacity
fee for the right to make a new retail connection to the water
distribution system of any retail water distributor within
CLWA that obtains water supplies from CLWA.
9)Requires the proceeds of the facility capacity fee to be used
exclusively for CLWA's annual capital budget, as specified.
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10)Defines the CLWA's capital budget to include payments of
capital costs to the state for purposes of the SWP.
11)Authorizes CLWA to develop, treat, distribute, and reclaim
water, and to store and recover water from groundwater basins
located outside CLWA's boundaries.
12)Requires the CLWA Board to annually adopt a resolution of
intention to form new water service areas, or to continue,
amend, or modify water service areas previously established.
13)Requires, until July 1, 1991, or the date the Board finds and
declares by resolution that there is more than 25,000
acre-feet of potable water available each year from the CLWA,
whichever is later, CLWA to allocate water to each purveyor on
a specified percentage basis. The allocation of CLWA water
after this date is to be with respect to CLWA's water service
areas.
14)Authorizes the CLWA Board to adopt a multiyear capital
budget, not to encompass more than three fiscal years.
15)Governs the procedures local agencies must follow in adopting
fees for water connections, and defines a "capacity charge" to
mean a charge for public facilities in existence at the time a
charge is imposed or charges for new public facilities to be
acquired or constructed in the future that are of proportional
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benefit to the person or property being charged, including
supply or capacity contracts for rights or entitlements, real
property interests, and entitlements and other rights of the
local agency involving capital expense relating to its use of
existing or new public facilities. A "capacity charge" does
not include a commodity charge. (GOV 66013)
FISCAL EFFECT: None
COMMENTS:
1)Bill Summary. This bill makes numerous changes to CLWA's
powers and duties under its enacting statute, the CLWA Law,
and to its contracting authority under the Public Contract
Code. The major provisions of this bill include:
a) An expansion of CLWA's contracting authority by
increasing CLWA's construction bid threshold and force
account limits from $5,000 to $75,000;
b) An expansion of CLWA's authority to construct, operate
and maintain energy projects, which is currently limited to
hydroelectric energy and is expanded by this bill to
include any type of energy generation;
c) A change to CLWA's facility capacity fee, which is
currently limited to new connections, to also include
existing connections;
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d) A new authorization to adopt and implement a plan to
finance or reimburse CLWA for advancing net costs for
capital facilities for remediating groundwater
contamination, which originated solely from land within a
given water service area; and,
e) Repealing provision of CLWA Law that govern CLWA's
allocation of water to its retailers.
This bill is sponsored by CLWA.
2)Author's Statement. According to the author, "The purpose of
AB 727 is to make some minor changes to the Castaic Lake Water
Agency Act (Water Code Appendix 103-2) to improve efficiency,
make it consistent with existing budgeting practices, and
provide greater internal flexibility, among other small
changes."
3)Background. The CLWA is a special act special district that
was established by the Legislature in 1962 as a contractor
agency to the SWP. CLWA is a water wholesaler that
historically provided water to four retailers within its
boundaries. Two are public retailers - the Newhall County
Water District (NCWD) and the Los Angeles County Waterworks
District #36. The other two were private retailers - the
Valencia Water Company (Valencia) and the Santa Clarita Water
Company (SCWC).
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The CLWA provides about half of the water that Santa Clarita
households and businesses use. CLWA operates three treatment
plants, three pump stations, three storage facilities, and
over 45 miles of transmission pipelines. The Santa Clarita
Valley's available sources of drinking water include rivers,
lakes, streams, ponds, reservoirs, springs and wells. CLWA
supplements local groundwater supplies with SWP water from
Northern California.
4)State Water Project. The SWP is a water storage and delivery
system of reservoirs, aqueducts, power plants and pumping
plants that extends for more than 600 miles - two-thirds the
length of California.
Planned, constructed, and operated by the Department of Water
Resources (DWR), the SWP is the largest state-built,
multi-purpose water project in the U.S. It provides water
supply to more than 25 million Californians in Northern
California, the Bay Area, the San Joaquin Valley, the Central
Coast and Southern California. The system also provides flood
control, power generation, recreation, fish and wildlife
protection, and water quality improvements in the
Sacramento-San Joaquin Delta.
In 1951, the Legislature authorized what is now the SWP.
Construction began on facilities at Oroville in 1957, and in
1960 voters approved a $1.75 billion bond act to build the
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initial SWP facilities. Work began on the California Aqueduct
in 1963 and the SWP was able to deliver water to the San
Joaquin Valley by 1968. SWP facilities were completed in 1973
to allow water delivery to Lake Perris in Riverside County,
the southernmost point in the system.
Costs for water development and delivery are paid by SWP water
supply contractors, which are comprised of 29 local and
regional water agencies. The CLWA is one of those
contractors. Existing law allows CLWA, or any other public
agency that is a contractor with the SWP, to sell state water
to any ultimate water consumer.
5)What is a Facility Capacity Fee? According to the CLWA
website, "In accordance with the Castaic Lake Water Agency
(CLWA) Act Section 26.1, all new developments requiring a
retail connection to the water distribution system of any
retail water distributor within CLWA that obtains all, or any
portion, of its water supplies from the CLWA service area is
subject to a Facility Capacity Fee (FCF). As part of the
permitting process, applicants must reimburse CLWA for the
costs associated with water supply acquisition, facility
capital investment, and facility operation and maintenance.
"In addition to the determination and collection of FCFs for
new development and associated retail connections, CLWA
includes in its capital improvement plan and water supply
portfolio facilities and supplies to accommodate additional
demands on the water system not related to new development
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(e.g., tenant improvements, remodels or conversions, etc.).
Government Code Section 66013 allows for the imposition of
capacity charges, separate from FCFs, that can be imposed on
any person, firm, corporation or other entity that requests an
additional water connection, a larger water connection, or in
any other way increases the water usage required to serve a
property as a result of new construction, the addition of any
type of dwelling, commercial or industrial unit or units, or
the conversion of all or a portion of any dwelling, commercial
or industrial unit or units."
6)Lawsuits and Legislation. In 1999, CLWA purchased SCWC for
$63 million. This purchase spurred litigation against CLWA
and subsequent legislation in the form of AB 134 (Kelley),
Chapter 929, Statutes of 2001. AB 134 specified the
provisions under which CLWA may exercise its authority to sell
SWP water, specifically the rules by which it could sell water
at retail in the boundaries of SCWC.
More recently, CLWA also purchased Valencia. This purchase
prompted a similar lawsuit challenging the legal authority of
CLWA to purchase Valencia stock, a move that was criticized as
lacking in public transparency. The Court has ruled in favor
of CLWA, although the case can still be appealed.
7)Minor Changes, or CLWA Act Rewrite? According to CLWA, this
bill's proposed amendments to the CLWA Act would:
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a) Allow the Board to elect one or more vice presidents of
the Board. The CLWA Act currently only allows one vice
president. The proposed change would provide the Board,
which is composed of eleven members, with more flexibility
for covering meetings and representing CLWA, as well as
provide training and succession planning opportunities.
b) Remove reference to "hydroelectric" power as the only
kind of power that the Agency may develop. This change
will enable CLWA to develop and operate other forms of
energy, including, but not limited to, solar and wind power
facilities. This will help CLWA reduce its carbon
footprint and may also provide opportunities to reduce
operating costs. According to CLWA, a number of water
districts around the state have, or are developing,
renewable energy projects to defray power costs associated
with the transporting and providing water. CLWA has
developed two solar projects (1 MW and 3.5 MW) on its
property, which CLWA accesses through power purchase
agreements (PPA) with a private company. CLWA cannot
currently own and operate these plants, even if it could do
so more cost effectively. CLWA has also been approached
about a larger solar project (up to 200 MW) on its
properties, and has been approached about wind turbine
projects.
c) Incorporate provisions of Government Code section 66013
into the CLWA Act to allow CLWA to follow the same
procedures for the adoption of facility capacity fees for
the expansion of existing connections as they currently
follow for new connections. According to CLWA, the
proposed language essentially consolidates two processes,
both of which are authorized under existing law, into one
process in the CLWA Act. The CLWA Act currently allows
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CLWA to impose facility capacity fees for new water
connections that result in increased water demands on the
CLWA system. Government Code section 66013 authorizes CLWA
to impose capacity fees for increases in water demand
related to expansion of existing connections. Each of
these has its own procedures to follow for adoption that
are not the same. As a result, CLWA has to engage in a
two-step process that is less efficient. AB 727 would
consolidate these into the CLWA Act and make them subject
to the more rigorous process for adoption that is in the
CLWA Act.
d) Clarify that CLWA may apply facility capacity fees to
pay for facilities to clean up contaminated groundwater in
connection with providing water for new and expanded water
connections. This is of particular importance in one area
in CLWA's service area, where the cost of providing new and
expanded service is higher because of necessary groundwater
cleanup. This addition will also ensure that the lands
that are the source of contaminated groundwater will fund
the clean-up, rather than all of the service area's
ratepayers and taxpayers.
e) Change references in the Act to "annual capital budget"
to the "annual facility capacity fee capital budget." This
change makes the CLWA Act consistent with its annual
budgeting process.
f) Remove the requirement that CLWA have an annual hearing
and adopt a resolution to continue water service areas and
facility capacity fees if there are no changes to the
service areas or fees from the previous year. This change
would relieve CLWA from having to spend unnecessary time
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and expense to re-adopt an annual resolution for water
service area boundaries and existing facility capacity fees
in years in which there are no changes to either.
g) Increase the public works contract amount from $5,000 to
$75,000. This change is being sought to account for
construction cost inflation since 1962, when the bid
thresholds were established. It will also improve cost
effectiveness by avoiding expensive preparation of
engineering plans and technical specifications, and enhance
timely project completion for minor repair and maintenance
projects.
CLWA notes that preparation of design plans and technical
specifications in a format suitable for public bidding adds
time and expense disproportionate to the cost of the work.
For small projects of $5,000 or less, the cost of public
bidding and advertising can significantly exceed the
contract price by 100% or more. For minor projects of
$75,000 or less, the cost of public bidding and advertising
can increase total project costs by 25% or more,
disproportionately more than for large construction
projects. The public bidding and advertising requirements
can also significantly impact the schedule for smaller
projects, which are often critical repair projects.
Increasing the public works contract amount will not change
CLWA's compliance with other purchasing laws and
regulations, such as prevailing wage rules. Examples of
recent projects include:
i) Modifications to treatment plant washwater return
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basins to meet water quality regulations ($70,000);
ii) Treatment plant pipe trench modifications to meet
operational requirements ($45,000);
iii) Repair of critical pumps at water treatment plants
($25,000 to $50,000);
iv) Modification of service connections to meet water
quality regulations ($30,000);
v) Installation of drain pipe at treatment plant pipes
to address operational issues ($75,000);
vi) Repairs to pumping systems of groundwater wells
addressing perchlorate contamination ($30,000 to
$75,000); and,
vii) Construction of recycled water connections
($65,000).
8)Policy Considerations. The Committee may wish to consider the
following:
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a) Bid Threshold Increase. According to the United States
Department of Labor Bureau of Labor Statistics' CPI
Inflation Calculator, $5,000 in 1962 has the same buying
power as about $38,700 today. CLWA is asking for an
increase to $75,000, significantly higher than a CPI
adjustment. The Committee may wish to consider whether an
increase to $75,000 is appropriate, or whether a more
modest increase is preferable.
b) Expansion of Power Projects. Existing law allows CLWA
to construct, operate and maintain works to develop
hydroelectric energy projects. This bill allows CLWA to
develop any kind of energy project. CLWA has cited two
types of renewable energy projects it would like to develop
as an owner (rather than a party to a PPA): solar and wind.
Given this stated intent, and California's policies
promoting renewable energy and discouraging the use of
fossil fuels, the Committee may wish to consider narrowing
this expansion to renewable energy projects only.
c) Repeal of Water Allocation Rules. This bill repeals the
provisions of CLWA Law governing CLWA's authority to
allocate water to its retailers. According to information
provided by the author, CLWA's Board on April 22 took
action to amend, rather than to repeal, these provisions to
state, "The Board of Directors may adopt reasonable
allocations of water within the Agency's service area."
The Committee may wish to consider whether this
modification or a different amendment of these rules would
be more prudent than repealing them altogether.
d) Pending Litigation. AB 134 (Kelly) contained findings
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and declarations that its effect was prospective to ensure
that it didn't prejudice pending legal actions. CLWA finds
itself in a very similar position as it occupied at the
time AB 134 was enacted: there is pending legal action
against CLWA regarding its purchase of one of its water
retailers. The Committee may wish to consider whether a
similar clarification is needed for this bill.
9)Previous Legislation. SB 61 (Runner), Chapter 688, Statutes
of 2008, lengthened the initial term of office for the CLWA's
at-large director position from two years to four years and
deleted obsolete statutory language.
AB 1425 (Pacheco) of 2003 would have extended the boundaries
of the Newhall County Water District and the CLWA to include
the Paradise Ranch Mobile Home Park. AB 1425 was referred to
this Committee, but was never heard.
AB 134 (Kelley), Chapter 929, Statutes of 2001, specified
statutory provisions under which the CLWA may exercise its
authority to sell SWP water.
AB 553 (Runner), Chapter 225, Statutes of 2001, converted an
appointed directorial position of the CLWA board to an elected
one.
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10)Arguments in Support. CLWA, sponsor of this measure, writes,
"The original Agency Act was enacted in 1962 and underwent
significant amendments in 1986 to provide the Agency with the
ability to impose Facility Capacity Fees and appointed
Directors, in 1998 to provide powers for recycled water
operations and in 2001 to allow for retail water service
within the Santa Clarita Water Division service area."
11)Arguments in Opposition. The State Building and Construction
Trades Council, in opposition, states, " Existing law protects
private sector contractors by allowing local agencies such as
the CLWA, to perform a project of up to $45,000 with its own
workforce
if the agency follows the cost accounting procedures within the
policies and procedures made available by the Uniform Public
Construction Cost Accounting Act (Act) in the Public Contract
Code. AB 727 would bypass the flexibilities and protections
of the Act by instead raising the bid limit to $75,000 for
construction and for the purchase of materials and supplies
related to maintenance work and channel protection. AB 727
seems to include minor governance changes along with major
expansions of authority relating to bid thresholds. While we
are not opposed to the agency's need to alter its system of
governance, the combination of changes this bill seeks raises
serious concerns."
The Newhall County Water District (NCWD), which has adopted an
"oppose, unless amended" position, is requesting amendments as
follows:
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a) Define, for the purposes of the facility capacity fee,
"existing retail connection" as "verifiable volumetric
increase;"
b) Strike language in the bill pertaining to groundwater
cleanup, as "it implies CLWA has authority over the
management of groundwater basins, which it does not;" and,
c) Include language stating, "No provision contained in
this legislation is intended to allow or authorize the
agency to exercise retail water authority outside of the
boundaries described in Section 15.1(a) of the existing
CLWA governing act."
NCWD also asserts that any proposed changes to the CLWA Act
are premature while legal disputes between NCWD and CLWA
continue.
12)Double-Referral. This bill is double-referred to the
Utilities and Commerce Committee.
REGISTERED SUPPORT / OPPOSITION:
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Support
Castaic Lake Water Agency [SPONSOR]
Opposition
State Building and Construction Trades Council
Newhall County Water District
Analysis Prepared by:Angela Mapp / L. GOV. / (916) 319-3958
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