Private, Non-Governmental Water Providers

Overview of Investor-Owned Utilities and
Mutual Water Companies

What Are Private Providers?

Private water providers are either regulated or unregulated. Regulated water providers are those owned by private investors and are called investor-owned water utilities. Unregulated water providers usually refer to mutual water companies, but can also be other private companies.

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What’s the Difference Between Private and Public?

Private, or non-governmental, water providers are called as such because they are in the “private sector” of the economy, which is made up of both a “private” and “public” sector. The private sector is not run by the government, whereas the public sector is run by the government. Private sector entities focus on providing products or services in order to make a profit, whereas public sector entities generally focus on just providing that product or service.

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State laws that help hold public entities accountable do not apply to private entities. This means that the Public Records Act, the Brown Act, Proposition 218, referendum law, and initiative law do not apply and cannot be used to protect communities. This also means that the only response to a water provider’s unlawful action is through the courts, by either reporting business conduct to the state Attorney General’s Complaint Form or litigating under the Torts Claims Act and local/state health ordinances.

Regulated Utilities: Investor-Owned Utilities

Regulated utilities, also called investor-owned utilities, are separated into four classifications based on the number of service connections the utility has.1

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  • Public water systems and most public water providers are regulated by the California State Water Board. In contrast, regulated utilities (which often provide both water and sewer services) are regulated by the California Public Utilities Commission (Commission), with regulations located in the Public Utilities Code (PUC). More about the Commission here: Agencies and Organizations. To check if an investor-owned utility is in good standing or to get in contact with an investor-owned utility, search for it by name on the California Secretary of State Business Search site.

    The PUC details requirements for investor-owned utilities, including the need to maintain a physical office in the county and adequate water system infrastructure, keep proper accounting records, submit various reports to the Commission, and pay an annual fee for the Commission’s oversight.2

    Most importantly, the Commission enforces the standards for how water rates are set by investor-owned utilities.3 Water rates are what a utility charges its customers for water use. The PUC requires that investor-owned utility rates be just and reasonable, balancing the utility’s need to make a profit with water customers’ need for affordable, reliable water service.4 If an investor-owned utility wants to increase its water rates, i.e. charge its customers more, it has to follow a procedure set by the Commission to ensure the increase is fair. This procedure includes the requirement to file a rate increase request with the Commission and provide notice to customers in their next bill, detailing the amount of increase, reason for the increase, and contact information for customers to ask questions.5 If the Commission holds a hearing on the rate increase request, it must let investor-owned utility customers and advocate organizations supporting those customers give public comment on the issue.6

    Also, the Commission has the authority to implement programs to provide rate relief for low-income customers of investor-owned utilities.7 The Commission approved customer assistance programs for several investor-owned water utilities to support low-income customers.8

    For a full list of regulated utilities, including investor-owned water utilities, visit the California Public Utilities Commission site.

Unregulated Private Water Providers:
Mutual Water Companies

Mutuals are also referred to as mutual benefit corporations, nonprofit mutual benefit corporations, nonprofit mutual water companies, and nonprofit mutual water associations. Mutuals are often formed by landowners in small communities to sell, supply, and/or deliver water for irrigation purposes or domestic use.9 In other words, mutuals are customer-owned water providers meeting the water needs of their properties.

  • As mentioned above, other private water providers include mutual water companies (mutuals) which do not have a state or local agency dedicated to regulating water quality for the mutual in the way that public providers (regulated by the State Water Resources Control Board) or investor-owned utilities (regulated by the Commission) do. Mutuals are still subject to California’s Water Code, Health and Safety Code, open meetings laws, and records disclosure laws.10 If a mutual is operating a public water system, it must comply with water quality requirements imposed by the State Water Resources Control Board.11

    The laws and regulations that apply to mutuals are located in the California Corporations Code because mutuals are a type of corporation. This includes general corporation provisions and definitions (California Corporations Code Sections 5002 – 5080);12 provisions regarding a corporation’s organizational procedure, governing body, meetings, and criminal penalties, among others (California Corporations Code Sections 7110 – 8910);13 and provisions specific to companies that provide water to cities, towns, or counties (California Corporations Code Sections 14300 – 14307).14

    Mutuals eligible for state assistance: To make it more complex, there are special types of mutuals that qualify for state funding and management support.15 These are called small business development corporations or small business financial development corporations, and are usually started by female, minority, or disabled people to support local economic development in economically disadvantaged areas.16 These special mutuals have additional laws and regulations, mainly located in the California Corporations Code Sections 14000 – 14024.17

  • The creator of the mutual must file articles of incorporation, among other incorporation requirements, to the Secretary of State to create a mutual. More information on how to incorporate, including filing articles of incorporation: (English / Español).

    The mutual is governed by a board of directors, which is responsible for all the mutual’s activities and exercising the mutual’s powers.18 When filing articles of incorporation, the creator of the mutual has to specify the number of directors on the board.19 The mutual must also have either a chairman of the board, a board president, or both. If the mutual has a chair, they also serve as the mutual’s general manager and chief executive officer; otherwise, the president must fulfill this role. Other required officers include a secretary and a chief financial officer.20 Generally, the board appoints all of the officers, and one person can have multiple roles.21

    The articles of incorporation and any bylaws created by a mutual should also detail the following information:

    • Qualifications for potential board members, including requirements like who can serve on the board;22

      • Many mutuals require that directors be landowners who live within the boundaries of the mutual service area.

    • Whether board members are elected or appointed;23

    • Length of term for board members, with a max of four years;24

      • Default length of a term is one year if not specified.25

    • Who can be a member of the mutual;26 and

    • Requirement to provide water at the actual cost plus necessary expenses like repairs.

      • This requirement generally gives mutuals enough discretion to raise costs with little oversight.

  • There are three ways to replace a board member of a mutual:

    1. A majority of members can vote to remove a member without needing a reason for removal. The amount of people to create a “majority” depends on the size of the mutual. For small mutuals with less than 50 members, a majority (half of all + 1, so 26 members) of all who could vote have to vote to remove the board member.27 For large mutuals with 50 or more members, only a majority of all those who actually vote are needed to remove the board member, but at least one-third of all those who could vote have to be present at the meeting.28 This vote can happen at a regular or special meeting, or by written ballot.29

    2. The board itself can remove a member for one of the following reasons:30

      • A court declares the director is “of unsound mind,”

      • If the director is convicted of a felony,

      • If the bylaws provide that a board member can be removed for missing a specified number of meetings, and the director misses the specified number of meetings, and

      • If the articles of incorporation or bylaws require the board member to have certain qualifications and they do not have those qualifications anymore.

    3. A board member or mutual members can file a lawsuit against the mutual in the superior court of the proper county asking the court to issue an order to remove a board member.31 This is only available if the board member has either committed fraud or dishonest acts or abused their authority in an extreme manner.32

  • Generally, only members of the mutual can vote.33

  • The bylaws, if created, will state how often mutual member meetings have to happen, otherwise the default requirement is one meeting per year.34 If members have to take action at a meeting by voting on something, the mutual must give written notice to all voting members between 10 to 90 days before the meeting.35

    Public and member access to a mutual’s board of directors meeting is detailed in the Mutual Water Company Open Meeting Act.36 In short, the person has to give the board 24 hours advance written notice of intent to attend the meeting.37

  • Members are allowed to see mutual records or get notifications about operations. Mutuals are required to keep records of customer accounts, minutes of most meetings, and a record of its members’ names, addresses, and class of membership.38 Records must be available for inspection as a physical copy in the mutual’s office.39 If a mutual has records in an electronic format, reach out directly to ask if it is possible to access records remotely.

  • California law allows for mutuals to be sued in court.40 A member of the mutual can file a lawsuit against the mutual in the local superior court under the following circumstances:

    • To request information: Members are allowed to see financial records and other information, and can sue for access if the mutual does not provide records in a timely manner.41 If the mutual is reasonably worried that the member will use the information for a purpose not related to their membership in the mutual, it can offer the member an alternative solution.42 If the member rejects the alternative, the mutual can file a lawsuit in the same superior court requesting a protective order to prevent the member from getting the information.43

    • To challenge an election or appointment or removal of a board member: Board members or mutual members can file a lawsuit to challenge an election, appointment, or removal.44 The superior court will look at the mutual’s articles of incorporation and bylaws to solve the issue.45

  • For templates and samples for Mutual documents, please see below:

    • Create a Mutual (English/ Español)

    • Mutual bylaws (English/ Español)

    • Sample of Mutual rates (English/ Español)

Other Unregulated Private Water Companies

Other private companies that are water providers but are not regulated investor-owned utilities or unregulated mutual water companies include mobile home properties, restaurants, and individual or family-owned water companies. 

If a mobile home park provides water service to tenants, it must let the tenants know in writing that they can complain about unsafe water and water service to the Commission.46 A group of tenants, representing at least 10% of the mobile home park’s service connections during a 12-month period, can file a complaint with the Commission about unjust and unreasonable water rates or inadequate service.47 Then, the Commission must decide whether the water rates are just and reasonable, or whether the water service is adequate.48

This Page Last Updated: July 17, 2024