BILL ANALYSIS SENATE RULES COMMITTEE AB 1770 Office of Senate Floor Analyses 1020 N Street, Suite 524 (916) 445-6614 Fax: (916) 327-4478 . THIRD READING . Bill No: AB 1770 Author: Brewer (R) Amended: 1/31/96 in Senate Vote: 27 - Urgency . 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 . SUBJECT: Public utilities: services to tenants SOURCE: California Apartment Association . 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 ?1 CONTINUED AB 1770 Page 2 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. ?2 ? AB 1770 Page 3 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 ?3 ? AB 1770 Page 4 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 ?4 ? AB 1770 Page 5 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 ?5 ? AB 1770 Page 6 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. ?6 ? AB 1770 Page 7 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 **** END **** ?7 ?