BILL ANALYSIS                                                                                                                                                                                                    




SENATE RULES COMMITTEE                           AB 1770
Office of Senate Floor Analyses
1020 N Street, Suite 524
(916) 445-6614         Fax: (916) 327-4478
                                                              
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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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