3. Eligibility for Future State Grant Funds
Proposition 50, which included additions to the Water Code - Division 26.5, was passed by California voters in the November 2002 General Election.4 The bond measure allows the state to sell $3.46 billion in general obligation bonds for various water-related projects.5
With the passage of Proposition 50, investor-owned water utilities for the first time applied for state grants. Previously, water quality bond measures specifically denied investor-owned water utilities grant eligibility. Proposition 50 is silent on this issue. DHS is the primary agency in administering Proposition 50 grant funds for investor-owned utilities.6 In its draft evaluation criteria, DHS takes the position that Proposition 50 funds should be available to all water systems, including investor-owned. This position is consistent with appellate court decisions holding that, while our state Constitution precludes the Legislature from making a gift of public funds to a private person or corporate entity (Section 6 of Article XVI of the California Constitution), as long as the funds are expended for a public purpose and the benefits accrue to the public, the allocation of public funds to private entities is not an unlawful gift.7
During the 2004 legislative session, legislation was proposed to prohibit DHS from awarding Proposition 50 grant funds to investor-owned water utilities.8 The concern expressed by legislators was that private water utilities not earn a return or profit in any way from Proposition 50 grant-funded investment. The Commission has provided assurances that this would not occur. In issuing this OIR, the Commission stated its objective was to adopt rules that would ensure that "Utilities should not receive a windfall nor should shareholders benefit from grant-funded facilities even if, years later, the utility itself or the individual, grant-funded facility is subsequently leased or sold." (R.04-09-002, page 2.)
Of the current requests for Proposition 50 grant funds from investor-owned water utilities, Class A water utilities account for 83% of the total dollars requested, Class B account for 6%, Class C account for 4%, and Class D account for 7%. A summary of the Proposition 50 grant programs open to investor-owned water utilities, which total approximately $430 million, is attached at Appendix B. DHS is processing the first round of Proposition 50 grant fund applications and is currently scheduled to begin receiving the second round of applications in October 2005.
In the opening comments filed January 17, 2006 on Administrative Law Judge Christine M. Walwyn's December 27, 2005 draft decision (draft decision), Golden State Water Company (GSWC) recommends we expand the scope of the draft decision to apply to the receipt of all state bond funds by investor-owned water utilities (water utilities), rather than the current scope of only Proposition 50 grant funds. GSWC states the same rules should apply to all state grant funds and there is a pressing need to conform our draft decision to reflect this due to the numerous new bond measures recently announced under Governor Arnold Schwarzenegger's infrastructure plan. The Governor's proposals for water projects, facilities and programs are set forth in Assembly and Senate bills, AB 1839 (Laird) and SB 1166 (Aanestad and Machado), Flood Protection and Clean, Safe, Reliable Water Supply Bond and Financing Acts of 2006 and 2010. SB 1166 provides generally that:
82014. It is the intention of the people that the investment of public finds (sic) pursuant to this division should result in public benefits.
82015. It is the intention of the people that any public funds made available by this division to investor-owned utilities regulated by Public Utilities Commission will be for the benefit of the ratepayers and not the investors pursuant to oversight by the Public Utilities Commission.
In considering this legislation, GSWC states that policy makers and the public will want to be assured, in advance, that the intent of Sections 82014 and 82015 is satisfied by rules which have been adopted by the Commission. Therefore, GSWC requests the Commission to conform the current draft decision to include all future state grant funds so that "the rules are already in place ensuring that it is the ratepayers and not the shareholders who benefit through the receipt of public funds." (Id., at page 9.)
4 Subsequently, Assembly Bill 1747 (chaptered August 2003), Senate Bill (SB) 278 (chaptered September 2003), and SB 1049 (chaptered October 2003) clarified certain sections of Division 26.5 of the Water Code (regarding requirements, guidelines, and applicable projects) and sections of the Government Code, the Fish and Game Code, and the Public Resources Code.
5 These projects include specific CALFED Bay-Delta Program projects, including urban and agricultural water use efficiency programs. In Southern California, the bond funds will contribute to projects that promote alternatives for Colorado River water use, since California must cut its use of Colorado River water. Funds will allow for the purchasing, protecting, and restoring of wetlands near urban areas. Grants are provided for water management and quality improvement programs along with funding for the development of river parkways. State security funding for local and regional water systems is added to this bond measure along with grants for desalinization and drinking water disinfection.
6 DHS has sole responsibility to administer the allocation of Proposition 50 grant funds that private water utilities are eligible for - Water Security (Chapter 3) and Safe Drinking Water (Chapter 4); DHS and DWR have joint responsibility to administer Contaminant and Salt Removal Technologies (Chapter 6).
DWR and the State Water Resources Control Board (SWRCB) jointly administer Chapter 8 of Proposition 50 which addresses Integrated Regional Water Management. Private water utilities are not eligible for these grant funds as the lead agency of the project, but are eligible in a subsidiary position.
7 See Opinion of Attorney General No. 97-401; 80 Ops.Cal.Atty.Gen. 56, Paramount Unified School Dist. v. Teachers Assn. of Paramount (1994) 26 Cal.App.4th 1371, and County of Sonoma v. State Bd. Of Equalization (1987) 195 Cal.App.3d 982.
8 There was also a bill in the 2003/2004 legislative session, SB 909 (Machado) that would have expressly allowed private water utilities to receive Proposition 50 funds.
