BILL ANALYSIS
SENATE RULES COMMITTEE AB 1770
Office of Senate Floor Analyses
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THIRD READING
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Bill No: AB 1770
Author: Brewer (R)
Amended: 1/31/96 in Senate
Vote: 27 - Urgency
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SENATE JUDICIARY COMMITTEE: 5-0, 2/6/96
AYES: Haynes, Mello, Petris, Wright, Leslie
NOT VOTING: Lockyer, O'Connell, Solis, Calderon
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: Not Relevant
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SUBJECT: Public utilities: services to tenants
SOURCE: California Apartment Association
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DIGEST: This bill:
1.Prohibits municipal utilities from charging subsequent
tenants or landlords for a bill issued, but not paid, by
a previous tenant.
2.Requires municipal utilities to obtain the consent of a
landlord before requiring its tenants' utility service to
be billed to the landlord's account.
3.Requires the municipal utilities to require a security
deposit of no more than three times the average monthly
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bill.
4.Exempts master-metered apartment buildings from the
above.
NOTE: The bill has been amended in the Senate deleting the
previous Assembly version concerning telecommunications.
ANALYSIS: The purpose of this bill is to prohibit a
number of practices by municipal utilities that apartment
owners believe are unfair because they make the landlord
responsible for nonpayment of utility bills by their
tenants.
There are at least two types of municipal utilities:
"municipally owned utilities", which are public utilities
owned by cities; and "municipal utility districts" (MUDs),
which are special districts organized for the purpose of
providing utility service. There are hundreds of
"municipally-owned utilities" in the state, but there are
only two major MUDs: the East Bay Municipal Utility
District (EBMUD), which provides water and sewer service,
and the Sacramento Municipal Utility District (SMUD), which
provides electrical service.
1. Expanding prohibition against seeking payment from other
people for previous tenants' nonpayment
Under existing law, both types of municipal utilities,
when they provide water service directly on the account
of a tenant, are prohibited from seeking to recover from
a subsequent tenant any charges which were incurred by a
previous tenant.
This bill would expand this provision to apply to the
provision of all utility services, not just water
service, and clarifies that subsequent tenants can be
charged for previous tenants' non-payment if the
subsequent tenant is an adult who lived with the
non-paying previous tenant.
The bill also expands this provision to prohibit property
owners from being charged for nonpayment by previous
tenants.
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2. Requiring tenants' service to be on the account of the
landlord
Existing law authorizes both types of municipal
utilities, when there has been a nonpayment by a previous
tenant for water service, to "require that service to
subsequent tenants be furnished on the account of the
landlord or property owner.
This bill deletes this provision for both types of
utilities and instead prohibits municipal utilities from
requiring that service to subsequent tenants be furnished
on the account of the landlord or property owner unless
the property owner consents through a written agreement.
The bill applies this prohibition to all utility
services, rather than just to water service.
This bill exempts master-metered buildings from its
provisions. As a result, municipal utilities could
continue to require landlords in master-metered buildings
to be billed directly.
3. Changing the ability to require deposits
Existing law provides that the decision of both types of
municipal utilities to require a new residential
applicant to deposit a sum of money prior to establishing
an account "shall be based solely upon the credit
worthiness of the applicant as determined by the public
utility."
This bill retains this provision requiring deposits to be
based upon credit worthiness, but it prohibits both types
of municipal utilities from demanding or receiving
security in an amount that exceeds two billing cycles of
service charges, or three times the average monthly bill.
Similar legislation was AB 1785 of 1995 which was vetoed.
It passed the Senate 32-2 (Noes: Alquist and Leslie).
Governor's veto message:
"This bill would prohibit municipally owned utilities
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from recovering delinquent service charges from any
subsequent tenants due to non-payment by a previous
resident.
"It would also authorize a municipally owned utility to
collect a deposit from a residential applicant prior to
establishing an account.
"Due to a drafting error the author has requested that I
veto this measure. The error substantially changes the
overall intent of the measure."
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes
Local: Yes
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SUPPORT: (Verified 2/22/96)
California Apartment Association (source)
Virginia Park Garden Apartments
Lambert Investments, Inc.
Maxim Property Management
City of Modesto
Institute of Real Estate Management
Holt and Associates Real Estate
San Diego County Apartment Association
Emerald Properties
JMK Investments
Shepardson Reality
J&M Reality
Woodside Management Group
Southern Los Angeles County Apartment Association
Cal-Western Property Management
Krystle Property Management
SLPM Property Management
The Matteson Companies
Skyline Hills Apartments
Kimberly Place Apartments
Glen Oaks Apartments
Matel Realtors
Sims Real Estate
Sea Jay Enterprises
Empire Management
Eden Reality
Apartment Association Greater Inland Empire
OPPOSITION: (Verified 2/22/96)
City of Chula Vista
League of California Cities
East Bay Municipal Utilities District
Association of California Water Agencies
California Municipal Utilities Association
ARGUMENTS IN SUPPORT: The California Apartment
Association states the bill reinforces the municipal
utilities companies' and districts' ability to collect a
utility deposit upon establishing a residential tenant
account on individually-metered units and eliminates the
utility companies' ability to transfer delinquent tenant
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service charges from the tenant to the property owner. By
establishing these limits, AB 1785 will have a positive
impact on communities in the following ways:
-- Reduces unforeseen operating costs to rental property
owners. (Excessive unforeseen operating costs
financially overburden rental property owners, forcing
removal of units from the housing stock.)
-- Encourages property owners' continued investment in
rental property.
-- Assists in streamlining municipal utility deposit be
collected from tenants. (Prohibits utilities from
collecting a deposit in excess of three months or two
billing cycles.)
-- Corrects an unfair business practice.
-- Stops the transfer of unpaid utility bills of
unscrupulous tenants to property owners and subsequent
tenants.
Opponents argue that property owner benefits far exceed the
obligations that a property owner may assume for a tenant's
delinquencies. It is not a property owner's obligation to
be the guarantor of an unscrupulous tenant's bad debt.
Benefit for utilities is assessed twice. First, a property
is assessed when it develops (utility extension and
connection fees). Second, an assessment is required of the
service user, which is not always the property owner.
Opponents infer that if delinquent service charges cannot
be obtained from the landlord, utility companies may be
forced to terminate service sooner, resulting a
deterioration of property value. The California Apartment
Association believes that property values deteriorate as a
result of transferring tenant utility charges to the
property by burdening affordable housing with additional
operating costs. This bill promotes efficient management
of utility receivables, on the part of the utility
companies, by acting on the receivable account after the
first billing cycle prior to service charges exceeding the
amount of the security deposit.
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ARGUMENTS IN OPPOSITION: The California Municipal
Utilities Association states, "this measure would limit the
ability of municipally owned utilities to reduce losses
from bad debts and would thus contribute to utility rate
increases. It could also increase the need to shut-off
water service for non-payment of utility bills.
"First, this bill would prevent municipal water utilities
from requiring landlords from becoming the customer of
record for future tenants in cases where previous tenants
have left unpaid utility bills. Second, the bill places a
statutory limit on the amount of deposit that can be
required from customers to assure payment of bills. This
measure is intended to reduce the obligations of landlords
for payment for utility service to their property. To the
extent that it does so, it will shift the burden to utility
customers generally and perhaps, to a limited extent to
tenants.
"Third, AB 1770 applies only to utilities owned by cities
or municipal utility districts; it does not apply to
investor-owned utilities. If it is the judgment of the
Legislature that additional restrictions be placed on the
operation of these publicly-owned utilities, then surely
there is an equally compelling reason to impose the same
restrictions on the investor-owned utilities by amending
Sections 779.5 and 2714 of the Public Utilities Code."
The opposition would like to see the bill amnended to apply
to the investor-owned utilties. League of Cities believes
there should be a level playing field which is important to
them, especially since, as they state, the financial
impacts of the procedures proposed by the bill could be
significant on the utility. Without having it apply to
investor-owned utilities, it would put municipal utiliites
at an extreme disadvantage, relative to investor-owned
utilities.
DLW:sl 2/23/94 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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