Qualifications of Members

The corporation laws of some States permit the corporations to prescribe the qualifications of persons who may become shareholders. As a general rule the mutual irrigation companies do not have any personal qualifications for the ownership of stock, although some California companies have citizenship requirements.

The ownership of land within a defined area is a prerequisite in various companies. This requirement is logical, inasmuch as the purpose of the irrigation company is to provide water for land, and as there are very definite physical limitations within which such service may be economically rendered. The physical layout of an irrigation company is an expensive thing; when ditches or pipe lines have been constructed from a given source of water supply to a given. area, the service area cannot be greatly altered or extended without the investment of considerable additional capital.

FIGURE 8.-STEEL FLUME ON CANAL OF THE GAGE CANAL CO. IN SOUTHERN CALIFORNIA.

The flume is on the lower slope of the Mockingbird Canyon Lake Dam, the core wall of which may be seen in the background.

Some companies do not make ownership of land a qualification, but they do have a rule providing that water shall be delivered only within a given area. This means that the company will transfer stock on its books to any purchaser, regardless of ownership of land, but will not deliver water to him unless his land is located within the delimited area.

Still other companies make no distinction between purchasers of stock and provide no limitation upon the place where the water may be used, but they do provide that their deliveries of water shall be restricted to those stockholders who build their own private laterals up to the canals of the company as currently constructed. In such

a case a stockholder takes the water to which he is entitled out of the company's canals and carries it to any point he may desire, the only limitation being his own financial and physical ability to get the water to such point.

Service to Nonstockholders

Generally speaking, the mutual irrigation company delivers water only to its own members or stockholders. However, the mutual status of the company is not affected by the delivery of some water to some nonmembers. There are exceptional cases in which surplus waters may be put to good use by temporary sale to outsiders. Furthermore, some companies are in control of water supplies, part of which belong to others, and they are required to make delivery of proper proportions to these other people.

A company that engages in the sale of water to nonstockholders runs the risk of involuntarily assuming the status of a public utility with all the obligations and restrictions involved therein. Such a position is very undesirable to a company which is essentially mutual. For example, a number of years ago some companies in southern California were delivering water for both irrigation and domestic purposes, making irrigation water deliveries only to their own stockholders, but supplying domestic water to nonstockholders as well. The California State Railroad Commission took jurisdiction over these companies on the ground that they were operating, at least in part, as public utilities. However, as their main purpose was mutual, the Commission suggested that they form subsidiary publicutility domestic-water companies. This suggestion was followed. The irrigation companies now hold all the stock of their utility subsidiaries which, in turn, hold stock in the parent companies. Under the present arrangement the Railroad Commission fixes the rates at which these subsidiary companies sell domestic water to consumers, but does not inquire into the finances or in any way regulate the activities of the parent irrigation companies so long as they treat the subsidiaries on the same basis as other stockholders.

A mutual company with surplus water to sell may avoid the implications of public-utility status if, when making such sales, it specifically disavows an intent to acquire public-utility status and makes it clear that the dealings are solely private transactions with contracting parties of its own selection.

Companies as Members of Other Companies

Membership in these mutual companies is not confined to individuals. It is not uncommon to find portions of the capital stock of

mutual companies held by other mutual companies. As mentioned above, certain subsidiary public-utility domestic water companies hold stock in the parent irrigation companies. In other cases, companies, in order to improve their water supplies, have found it desirable to buy stock in neighboring mutual companies which at the time had more water available than land on which it could be profitably used. Likewise, in certain areas, notably northeastern Colorado, there are several mutual companies which are solely reservoir or water storage companies, all the stock being owned by various mutual companies of the usual type or by stockholders in those companies (fig. 4).

Attitude of Members Toward Their Irrigation Company

The greater number of members of most mutual companies depend upon one company for their irrigation water supply. In some sections, however, in southern California particularly, there are various interlocking irrigation systems; in others, where different companies serve contiguous areas, there are some individuals who get water from two companies for the same farm. Likewise, there are companies in which many of the stockholders have private pumping plants to supplement the water supply they receive from the company. Nevertheless, considering all the mutual companies in the West, the percentage of individual members who have access to a water supply other than through the facilities of a single company is undoubtedly very small.

A mutual company is not an organization which a farmer may affiliate with or withdraw from at will. Although there is no legal compulsion upon an individual to join or to remain in a mutual company, such a step is often practically an economic necessity if he is to engage in or to continue in irrigation farming in a community served by such company. In many such service areas there is no practicable means of an individual's securing water other than through the facilities of the company, a matter of vital importance in his farm program. In addition to this consideration, the stockholder has a substantial investment in stock of the company, ranging from a few hundred dollars for a 40-acre tract in some generalfarming areas to as high as $5,000 or $6,000 for a 10-acre tract in some of the high-class citrus areas. If this stock is not appurtenant to the land, the holder may recover his investment through its sale to some other landowner. If the stock is appurtenant, there is no market for its sale, and the only way in which the holder can realize upon it is to make use of the water in irrigation farming.

The difference in personal feeling of members for their mutual company is pronounced. For example, in the larger, more system

atic companies, the average stockholder looks on the mutual company in somewhat the same way as he does on any other organization that renders him an important service. He has an attitude of proprietorship, unquestionably, which would be absent if the company were a public utility, but the idea of intimate association is not pronounced. The company has an office, considerable field and office equipment, and an efficient personnel; it is a very real entity in the mind of the

FIGURE 9 PARSHALL MEASURING FLUME ON COLORADO CANAL, TWIN LAKES RESERVOIR AND CANAL CO., COLO.

This measuring device was developed at the hydraulic laboratories of the Colorado Agricultural Experiment Station, in cooperation with the Division of Irrigation, Bureau of Agricultural Engineering, United States Department of Agriculture. It has many advantages in measuring water under field conditions.

stockholder. At the other extreme may be found certain companies with only flood-water supplies which are quickly gone in an average year, with no office at all, and which hold stockholders' meetings only occasionally. These organizations have little substance in the minds of their members. Contrast the attitudes of members in both of these situations with the close personal attachment that stockholders in many Utah companies feel toward their irrigation organizations. They regard their companies as neighborhood affairs. They are outstandingly community enterprises in which the offices are frequently rotated among members and in which the business of the company is the individual stockholder's business. This is a logical phase of the development of irrigation in Utah.

CAPITAL STOCK

The fact that the share of stock in a mutual irrigation corporation represents both the right to receive water, and a proportionate part of the ownership of the company, has already been indicated.

Ownership of this stock carries with it a corresponding obligation to pay a part of the cost of administering the company's affairs.

Issue of stock of different classes is authorized by the corporation laws of various States. Some mutual companies have accordingly issued stock of various classes, but apparently the practice is not widespread. For example, one purpose of having a stock classification is to segregate the stock in accordance with water rights of different priorities; another is to allocate the stock to areas served by different canals or to areas under different pumping lifts. Division of the stock into classes is sometimes a matter of expediency and may serve a purpose difficult of accomplishment in any other way, but it involves complications in administration and in the delivery of

water.

Values of Stock

Stock of mutual companies is usually given a par value which is arrived at by dividing the total capitalization by the total number of authorized shares. The par value is of secondary importance in mutual-company finance; in fact, stock without par value would be equally useful. The par values range mainly from $1 to $100 per share, the $1 values usually being nominal figures.

The market value is more important to the stockholder. Stock that is appurtenant to land does not have a market value, because it cannot change hands without the land. The value of the stock exists under cover of the land value, just as does the value of a building or other appurtenance. It is the "floating", or nonappurtenant stock, the use of which may be transferred from one tract to another, that acquires a market value. Of course, the first market value of a share is established when it is originally issued. A company is in a position to dominate the market when it has large blocks of stock, including treasury stock, to sell. However, a company selling only a few shares at a time must usually conform to the market. Various States have corporate security acts (blue-sky laws) under which sales of stock by mutual companies are regulated. The most important factors in determining the market value of floating stock at any given time are the net prices which the irrigator receives or expects to receive from the sale of his farm products as a result of irrigating, and the condition of the company's irrigation water supply in relation to the seasonal precipitation. The effect of the farm commodity prices is obvious. The irrigation water supply is a factor in that the farmer in a season of favorable precipitation will not need as much irrigation water as in a short season, while at the same time the company's water supply is apt to be greater; in either case the demand for water is less than in a dry season.