SECTIONS 14310-14318 - California Statutes

CORPORATIONS CODE

SECTION 14310-14318

14310. (a) It is the intent of the Legislature to ensure both of
the following:
(1) That when a mutual water company is formed or is about to be
formed in connection with a subdivision, as defined in Sections 11000
and 11004.5 of the Business and Professions Code, an adequate
potable water supply and distribution system exists for domestic use
and fire protection.
(2) That adequate disclosure and protection to the security
holders exist with respect to rights and duties arising from their
security holdings in a mutual water company.
(b) For purposes of this chapter, the use of the term "subdivision"
has the same definition as "subdivision" as defined in Sections
11000 and 11004.5 of the Business and Professions Code.

14311. A mutual water company formed on or after January 1, 1998,
in connection with the offering for sale or lease, or with the sale
or lease, of lots within a subdivision and organized to sell,
distribute, supply, or deliver water for domestic use to owners of
lots in the subdivision shall meet all the requirements of this
chapter. A mutual water company described in this section and formed
before January 1, 1998, may elect to meet all the requirements of
this chapter.

14312. (a) Any person who intends to offer for sale or lease lots
within a subdivision within this state and to provide water for
domestic use to purchasers of the lots within a subdivision through
the formation of a mutual water corporation described in Section
14311, shall include as part of the application for a public report,
as described in Section 11010 of the Business and Professions Code, a
separate document containing all of the following information,
representations, and assurances:
(1) That the provisions of this chapter have been complied with.
(2) That the area in which the mutual water company proposes to
deliver water encompasses and includes the entire subdivision and,
when applicable, will include parcels to be annexed to the
subdivision.
(3) That the mutual water company has contacted the Public
Utilities Commission and the county local agency formation commission
to determine if the proposed area described in paragraph (2) will
overlap an existing water service area or if an existing water
service area could more appropriately serve the subdivision.
(4) That the mutual water company has a source of, and title to, a
water supply, distribution, and fire protection system sufficient to
satisfy expected demands for water from the subdivision.
(5) That copies of the contracts and other documents relating to
the acquisition by the mutual water company of the water supply,
distribution, and fire protection system have been delivered to, and
are on file with, the mutual water company and that these contracts
and documents evidence the mutual water company's title to the water
supply, distribution, and fire protection system.
(6) That the subdivider or applicant has executed and entered into
a written contract with the mutual water company wherein the
subdivider or applicant has agreed to pay monthly a proportional part
of the repair and replacement fund according to a ratio of the
number of lots owned or controlled by the subdivider or applicant to
the total number of lots in the subdivision.
(7) That an engineer's report has been prepared in accordance with
this chapter and Sections 260.504.2 to 260.504.2.4, inclusive, of
Title 10 of the California Code of Regulations and is on file with
the mutual water company.
(8) That the mutual water company will distribute potable water
for domestic use and has obtained, and has on file, a copy of the
certificate of the State Director of Health Services, as required by
Sections 116300 to 116385, inclusive, of the Health and Safety Code.
(9) That the securities of the mutual benefit water corporation
will be sold or issued only to purchasers of lots in the subdivision,
or to successors in interest of purchasers of lots in the
subdivision, and not sold or issued to the subdivider, applicant, or
to the successor in interest of the subdivider or applicant, and that
the securities will be sold or issued only after a public report for
the subdivision has been issued by the Real Estate Commissioner.
(10) That the securities to be issued by the mutual water company
are appurtenant to the land pursuant to Section 14300.
(11) That the water supply and distribution system will serve each
lot in the subdivision and be completed prior to the issuance of the
public report by the Real Estate Commissioner.
(12) That there is a statement, signed by either the engineer who
prepared the engineer's report referred to in paragraph (7) or a
person employed or acting on behalf of a public agency or other
independent qualified person, that the water supply and distribution
system has been examined and tested and that the water supply and
distribution system operates in accordance with the design standards
of the water supply and distribution system required by this chapter,
and that a copy of this statement is on file with the mutual water
company.
(13) That the articles of incorporation or bylaws of the mutual
water company contain all of the following:
(A) A statement to the effect that the mutual water company shall
provide water to all members or shareholders. If there will be an
owners' association of the subdivision, an additional statement that
water shall also be provided to the common areas.
(B) A provision directing the board of directors to establish a
rate structure that will result in the accumulation and maintenance
of a fund for the repair, administration, maintenance, and
replacement of the water supply, distribution, and fire protection
system, that the rate charged shall bear a reasonable relationship to
the cost of furnishing water and maintaining the system, and that
unimproved lots included within the area to be served shall bear a
proportionate share of the cost of repair and replacement of the
water supply, distribution, and fire protection system, as well as a
proportionate share of the cost of maintaining the fund.
(C) A statement evidencing a reasonable relationship between each
unit of the securities to be issued and each unit of the area to be
served, such as one share of common stock issued for each subdivision
lot purchased.
(D) A prohibition on the issuance of fractional shares or
securities.
(E) A statement, meeting the requirements of Section 14300, that
the securities are appurtenant to the land within the area to be
served.
(F) Provision for the transfer of the securities, voting rights of
the security holders, inspection of books and records by security
holders, necessary or contemplated expansion of the facilities of the
mutual water company, and further subdivision, where applicable, of
the area to be served.
(G) The limitation on the salaries paid to the persons operating,
or employed by, the mutual water company, including officers and
directors.
(H) A provision for annual meetings of the security holders
accompanied by a provision for adequate notice.
(I) A provision for the annual distribution to each security
holder of fiscal yearend financial statements within 105 days of the
close of the fiscal year.
(J) In the case of a mutual water company that purchases water for
distribution from a public utility, municipal water company, or
water district, a provision for charging all security holders a pro
rata amount of the cost of water supplied to an entity providing fire
protection service.
(K) A provision that a share certificate shall be issued to each
lot purchased.
(L) In the case of a mutual water company serving a residential
subdivision, the following statements: (i) the mutual water company
shall be a separate corporation formed and organized for the purpose
described in Section 14311; and (ii) if a shareholder becomes
delinquent in paying assessments, the right to receive water or
dividends may be denied or forfeited but those rights shall not be
sold or transferred without the land.
(14) That an offering circular has been prepared and will be used
in any offer and sale of the securities of the mutual water company.
(15) That the writings and documents evidencing compliance with
all of the above provisions of the subdivision are on file as part of
the permanent record of the mutual water company.
(b) The contracts and documents described in paragraph (5) of
subdivision (a) shall include all of the following:
(1) Any bill of sale transferring all personal property used and
usable in the operation of the mutual water company.
(2) A copy of any recorded deed to the wells and water tanks to be
used by the mutual water company in the supply, distribution, and
fire protection system.
(3) Copies of any recorded deeds granting easements for
construction, repair, maintenance, and improvements of the water
supply, distribution, and fire protection system.
(c) The written contract described in paragraph (6) of subdivision
(a) shall provide that, in consideration of the transfer by the
subdivider or applicant to the mutual water company of the water
supply, distribution, and fire protection system, the mutual water
company agrees to do all of the following:
(1) Sell and issue securities to the purchasers of the remaining
lots in the subdivision on the same terms, except for the price if
the difference is justified, as for the initial purchasers.
(2) Cooperate with the subdivider or applicant in the operation,
maintenance, and improvement of the present and contemplated water
supply, distribution, and fire protection system.
(3) Contract with the subdivider, applicant, or a successor in
interest, if a reasonable request is made to do so, for the
management of the mutual water company for as long as lots in the
subdivision remain unsold. The terms of the contract shall be subject
to approval by the board of directors of the mutual water company,
including terms related to the compensation to the subdivider,
applicant, or successor in interest, if any.
(d) The offering circular described in paragraph (14) of
subdivision (a) shall be delivered to each prospective purchaser of
the securities and shall include, among other things, all of the
following:
(1) A discussion of the water supply, distribution, and fire
protection system.
(2) A summary of the opinion of the engineer along with the
engineer's consent, as required by Sections 260.504.2 to 260.504.2.4,
inclusive, of Title 10 of the California Code of Regulations.
(3) The area in which the mutual water company intends to provide
water service.
(4) A discussion of the rights and duties of the security holders
of the mutual water company as set forth in its articles of
incorporation and bylaws, including the consequence of failure to pay
for water or assessments.
(5) The fact that the articles of incorporation or bylaws provide
that the shares or securities of the mutual water company may not be
sold separately from the right to water evidenced by the security of
the mutual water company and prohibit issuance of fractional shares
or securities of the mutual water company.
(6) A discussion of the certificate issued by the State Director
of Health Services certifying that the water is fit for domestic use.
(7) The limitation imposed on salaries to be paid to personnel
operating, or employed by, the mutual water company, including
officers and directors.
(8) A discussion of the transferability of the securities, the
voting rights of the security holders, access to books and records,
necessary or contemplated expansion of the facilities of the mutual
water company, and further subdivision of the area to be served, if
applicable.
(9) A discussion of the subdivider's duties with respect to
maintenance and repair or replacement of the water supply,
distribution, or fire protection system; and a discussion of the
establishment and maintenance of the operating, repair, and
replacement fund.
(e) The following exhibits shall also be attached to the offering
circular:
(1) A copy of the articles of incorporation and bylaws of the
mutual water company, including the articles or bylaws recorded under
Section 14300.
(2) A copy of financial statements of the mutual water company. If
the mutual water company has not yet commenced operations, a
detailed operating budget for the first six months of operations
should be included as an exhibit to the offering circular. The
operating budget must include estimated monthly fees to be charged to
the water users.
(3) A specimen certificate evidencing the security to be issued
and meeting the requirements of Section 14300.
(f) The Real Estate Commissioner shall prescribe the form and
content of the document required by this section.

14313. The engineer's report prepared pursuant to the document
under Section 14312 shall contain all relevant information pertaining
to the proposed water supply, distribution, and fire protection
system, including, but not limited to, the following:
(a) A system map of the area to be served showing all of the
following:
(1) The total acreage.
(2) The number and location of lots into which the area is or can
be subdivided and the location of the connection for water service.
(3) The location of all sources of supply, principal pumping
stations, diversion works, water treatment and filter plants, and
storage facilities.
(4) The size, character, and location of all mains and ditches.
(5) The location of all valves and gates, gauges, interconnections
with other systems, and fire hydrants.
(6) The location, size, and kind of each service pipe.
(7) The layout of all principal pumping stations and water
treatment and filter plants to show size, location, and character of
all major equipment, pipelines, connections, valves, and other
equipment used in connection therewith.
(8) The date of construction and condition of all principal items
of plant and extensions of all mains.
(b) A description of the sources of supply, including, in the case
of wells, information on the depth, diameter, and casing of the
well, and a statement indicating that the proposed water supply and
distribution system complies with this section, supported by reports
showing the sustained capacity of source of supply, or, if all or
some water is to be obtained from another source, copies of contracts
for obtaining such water, together with estimates of the present and
ultimate water consumption in the area to be served.
(c) A statement indicating in detail the cost of the water supply,
distribution, and fire protection system, and indicating the cost of
any required repairs or replacement.
(d) An opinion by the engineer to the effect that the water
supply, distribution, and fire protection system will adequately,
dependably, and safely meet the total requirements for all water
consumers under maximum consumption and will meet the requirements of
Section 14314. The opinion shall have attached to it the
calculations and data used in estimating the water requirements.
(e) A statement by the engineer of the estimated cost of
maintenance of the system, the estimated useful life of the
components of the system, the estimated cost of replacement of the
system, and the monthly or annual amount which should be charged to
establish a reasonable reserve for maintenance and replacement of the
system based on these estimates.

14314. The water supply and distribution system of a mutual water
company described in Section 14311 that proposes to distribute water
for domestic use pursuant to this chapter shall comply with all of
the following design standards:
(a) The system shall be adequate to maintain normal operating
pressure of not less than 25 pounds per square inch, nor more than
125 pounds per square inch, at the service connection; provided,
however, that during periods of hourly maximum demand, or at the time
of peak seasonal loads, the pressure may be reduced to not less than
20 pounds per square inch, and during periods of hourly minimum
demand the pressure may increase to not more than 150 pounds per
square inch. Variations in pressure under normal operation shall not
exceed 50 percent of the average operating pressure. The average
operating pressure shall be determined by computing the arithmetical
average of at least 24 consecutive hourly pressure readings.
(b) The quantity of water delivered to the distribution system
from all source facilities shall be sufficient to supply adequately,
dependably, and safely the total requirements of all water consumers
under maximum consumption, and shall be sufficient to maintain the
pressure specified by subdivision (a).
(c) The distribution system shall provide at least one connection
per service and, to the extent feasible, shall be designed in a
property segmented grid so as to do both of the following:
(1) Minimize the extent of interruption in water service when
repairs are necessary.
(2) Avoid dead ends in its water mains.

14315. (a) The mutual water company described in Section 14311
shall provide at least a minimum level of water service to its
customers for fire protection purposes as an inherent part of the
water system design in accordance with the standards set forth in
this section. The standards set forth in this section are the minimum
levels of water service that the mutual water company shall provide
and shall not preclude the mutual water company from designing a fire
protection system that meets higher standards, nor preclude any
governmental agency from setting higher standards in any area subject
to its jurisdiction. A mutual water company may request a fire
protection agency to approve a fire protection system that does not
meet the standards set forth in this chapter upon a showing by the
mutual water company that the proposed system is adequate for fire
protection purposes.
(b) In the initial construction, extension, or modification of a
water system, any one of which is required to serve (1) a new user or
(2) a change in use, the facilities constructed, extended, or
modified shall be designed to be capable of providing, for a
sustained period of at least two hours, in addition to the
requirements of the average daily demand within the area to be
served, the minimum flow requirements set forth below opposite the
classification of land use to be served:

Land Use Minimum Flow
1. Rural, residential with a lot
density of two or
fewer units per acre primarily for
recreational and retirement use .. 250 gpm
2. Lot density of less than one
single-family
residential unit per acre......... 500 gpm
3. Lot density of one or two
single-family
residential units per acre........ 750 gpm
4. Lot density of three or more
single-family
residential units per acre........ 1,000 gpm
5. Duplex residential units,
neighborhood
business of one story............. 1,500 gpm
6. Multiple residential, one and
two stories;
light commercial or light 2,000 gpm
industrial........................
7. Multiple residential, three
stories or higher;
heavy commercial or heavy 2,500 gpm
industrial........................

14316. The water supply and distribution system of a mutual water
company described in Section 14311 that proposes to distribute water
for domestic use shall be constructed to conform with currently
accepted engineering practices, and shall comply with the following
construction standards where possible:
(a) Water mains to be installed below the frost level or otherwise
protected to prevent freezing and shall not have less than 30 inches
of cover over the top of the pipe in public streets or alleys except
where such depth is rendered impossible by underground obstructions
or rocky or hardpan conditions.
(b) The size, design, material, and installation of service pipes
shall conform to the reasonable requirements of the mutual water
company; provided, however, that the minimum size of the pipe shall
be 3/4 inch or greater nominal size. Except where services are not
intended for use during freezing weather and arrangements are made to
drain service pipes prior to freezing weather, and except at
terminations in connection with the meter or water consumer's piping,
all service pipes shall be laid at a depth sufficient to prevent
freezing.

14317. The fire protection system of a mutual water company shall
be constructed to conform with currently accepted engineering
practices, and shall comply with the following construction
standards:
(a) The flows set forth in Section 14315 shall be calculated on
the basis of a residual pressure of 20 p.s.i.g. in the distribution
system under flowing conditions.
(b) Fire hydrants shall be attached to the distribution systems at
the locations designated by the entity responsible for their use for
firefighting purposes. Any new mains to which a hydrant may be
attached shall not be less than six inches in diameter.
(c) Each separately operated water system shall not have less than
two independent sources of supply.

14318. The mutual water company shall be financially responsible
for the maintenance, repair, or replacement of fire hydrants. A
mutual water company shall perform and record annual flow tests
pursuant to Section 14317 or, in lieu of the annual flow test under
Section 14317, any test to determine available flow performed by a
fire protection agency. The recorded test results shall become part
of the mutual water company's books and records.