California Mfrs. Assn. v. Public Utilities Com.

• Citation: 157 Cal.Rptr. 676,24 Cal.3d 836,598 P.2d 836
• Decision Date: 15 August 1979
• Docket Number: 23881,S.F. 23823
• Parties: , 598 P.2d 836 CALIFORNIA MANUFACTURERS ASSOCIATION et al., Petitioners, v. PUBLIC UTILITIES COMMISSION et al., Respondents; PACIFIC GAS AND ELECTRIC COMPANY, Real Party in Interest. CALIFORNIA MANUFACTURERS ASSOCIATION et al., Petitioners, v. PUBLIC UTILITIES COMMISSION et al., Respondents; SOUTHERN CALIFORNIA GAS COMPANY, Real Party in Interest.
• Court: California Supreme Court

Page 676

157 Cal.Rptr. 676

24 Cal.3d 836, 598 P.2d 836

CALIFORNIA MANUFACTURERS ASSOCIATION et al., Petitioners, v. PUBLIC UTILITIES COMMISSION et al., Respondents;

PACIFIC GAS AND ELECTRIC COMPANY, Real Party in Interest.

CALIFORNIA MANUFACTURERS ASSOCIATION et al., Petitioners, v. PUBLIC UTILITIES COMMISSION et al., Respondents;

SOUTHERN CALIFORNIA GAS COMPANY, Real Party in Interest.

S.F. 23823, 23881.

Supreme Court of California.

Aug. 15, 1979.

Gordon E. Davis, William H. Booth, Brobeck, Phleger & Harrison, Robert D. Raven, James J. Garrett, Charles R. Farrar, Jr., James P. Bennett, Morrison & Foerster, Robert L. Schmalz, San Francisco, J. Randolph Elliott, John L. Frogge, Jr., Los Angeles, Kenneth M. Robinson, Oakland, Donald H. Ford, Overton, Lyman & Prince and Bill B. Betz, Los Angeles, for petitioners.

Janice E. Kerr, Hector Anninos, Timothy E. Treacy and Walter H. Kessenick, San Francisco, for respondents.

Malcolm H. Furbush, Robert Ohlbach, Shirley A. Woo, San Francisco, Thomas D. Clarke and Leslie E. LoBaugh, Jr., Los Angeles, for real parties in interest.

RICHARDSON, Justice.

Petitioners in these consolidated proceedings challenge certain decisions of the Public Utilities Commission (commission) which purport to dispose of refunds received by Pacific Gas and Electric Company (PG&E) and Southern California Gas Company (SoCal), real parties in interest, from some of their interstate natural gas suppliers, pursuant to orders of the Federal Power Commission (FPC) now the Federal Energy Regulation Commission. We refer to these refunds From suppliers as "rebates" to distinguish them from "refunds" To customers.

In Decision No. 88261 the commission applied rebates received by PG&E to the company's "gas balancing account" thus deferring a prospective rate increase requested by the utility. In Decision No. 88751, as modified by Decision No. 89049, similar treatment was accorded rebates received by SoCal. We agree with petitioners' contention that the rebate funds must instead be returned to current and, insofar as practical, to Prior customers of the utilities, in proportion to the gas usage of such customers During the periods to which the rebates relate. Accordingly, we will annul both decisions in part and remand the cases to the commission for further proceedings.

During the period 1972-1976, when PG&E and SoCal were charged increased natural gas rates by their interstate suppliers, these utilities sought to pass on these higher rates to customers, and obtained from the commission the authority to do so. In each instance, the supplier rate increases to the utilities were approved by the FPC on a contingent basis only, the FPC reserving jurisdiction to determine that the approved supplier rates were "excessive" thus eventually requiring appropriate rebates to the purchasing utilities. Accordingly, the commission-approved tariffs under which these increases were passed through to utility ratepayers consistently provided that any amounts reimbursed to PG&E and SoCal by their suppliers under FPC order would be "refund(ed)" to "customers" of the utilities.

During 1977, rebates were received by both utilities for "excessive" charges paid during the 1972-1976 period, and by October 1 PG&E was holding accumulated rebates approximating $52.4 million, and SoCal held about $75.6 million in similar supplier reimbursements.

In July 1977, PG&E filed with the commission Application No. 57481, requesting a prospective rate increase to offset approximately $75.3 million in anticipated natural gas cost increases during the ensuing year SoCal filed a similar application, No. 57573, in September 1977, citing approximately $21 million in additional revenue which it deemed necessary to meet similar expected cost increases. The concept of the allocation of the accumulated supplier rebates for this purpose originated with the commission staff not the utilities.

Petitioners, except for California Manufacturers Association, are industrial concerns, each of which received substantial gas service from one or both utilities during the 1972-1976 period. Because of the scarcity and generally rising price of natural gas, and because commission-approved rate designs encouraged low priority gas users to switch to the use of less precious alternative fuels, the industrial petitioners sharply curtailed their gas usage since 1976. Accordingly, if the supplier rebates in question are applied against Future rates, as the commission proposes, petitioners, having substantially reduced their gas consumption, will not share in the benefit of the rebates to a degree proportionate to the overcharges to which they were previously subjected during the 1972-1976 period of their heavier gas usage.

In Decision No. 88261, the commission found PG&E's total additional annual gas purchase revenue requirement to be $82.4 million and ordered the $52.4 million in accumulated supplier rebates transferred in their entirety to the utility's "gas balancing account," thus to be credited against the prospective rate increase otherwise necessary. This, together with a $36.9 million credit already in the balancing account, permitted a complete deferral of PG&E's total requested rate hike. The excess credit in the account remains available for future use. The commission announced its intention to treat future supplier rebates in a similar manner.

In Decision No. 88751, as modified, the commission found SoCal's additional annual gas purchase revenue requirement to be $18.5 million which included the effect of a negative balance in the utility's "purchase gas adjustment balancing account." The entire $75.6 million in supplier rebates held by SoCal was ordered transferred to this balancing account as a credit against present and future rate increases.

Petitioners do not challenge the commission's findings and conclusions with respect to the revenue requirements of the utilities. They argue, however, that the commission's disposition of the supplier rebates is improper for several reasons, the first of which is that the placement of the supplier rebates into the utilities' "balancing accounts" violated Public Utilities Code section 453.5. (All statutory references are to that code, unless otherwise cited.)

Section 453.5, enacted in 1977, provides: "Whenever the commission orders rate refunds to be distributed, the commission shall require public utilities to pay refunds to all current utility customers, And, when practicable, to prior customers, on an equitable pro rata basis without regard as to whether or not the customer is classifiable as a residential or commercial tenant, landlord, homeowner, business, industrial, educational, governmental, nonprofit, agricultural, or any other type of entity. (P) For the purposes of this section, 'equitable pro rata basis' shall mean In proportion to the amount originally paid for the utility service involved, or in proportion to the amount of such utility service actually received. (P) Nothing in this section shall prevent the commission from authorizing refunds to residential and other small customers to be based on current usage." (Italics added.)

There is no challenge to the constitutionality of section 453.5. Accordingly, where it applies, "refunds" which are ordered "distributed" by the commission must be allocated according to the statutory formula; Present customers (except for small residential users) must be compensated On the basis of their prior usage to which the refund corresponds, and, where practical, Prior customers must also participate To the extent of the overcharges which they previously paid.

Utility "balancing accounts" have a unique economic purpose and function. These accounts are intended to prevent a utility from accumulating excessive profit or sustaining loss because of abnormal variations in a single item of cost, such as natural gas purchased from suppliers. Rates for a particular test period are set on the basis of the utility's Estimated costs and revenues during that time. The utility then records the difference between the estimate and its actual cost experience. This difference, if in the utility's favor, is credited to the balancing account as an overcollection. If, on the other hand, costs are higher than anticipated, a debit, or undercollection, is recorded in the account. Rates for Subsequent periods are then adjusted to return the balancing account toward zero. The result is that Recent past differences between actual and estimated costs and revenues are reflected in Future rate levels. (See, e. g., Southern Cal. Edison Co. v. Public Utilities Com. (1978) 20 Cal.3d 813, 828, 144 Cal.Rptr. 905, 576 P.2d 945; City of Los Angeles v. Public Utilities Com. (1975) 15 Cal.3d 680, 691-692, 125 Cal.Rptr. 779, 542 P.2d 1371.) Accordingly, any "return" to ratepayers of utility "overcollections" recorded in the "balancing account" inures only to the benefit of Current utility customers, and only in proportion to their Current and future use of utility services. Past ratepayers obtain no benefit at all from the "balancing account" adjustment. (See Kuersteiner & Herbach, The Robin Hood Doctrine: Is It the Official Refund Policy of the Cal. Public Utilities Commission? (1978) 12 U.S.F.L.Rev. 655, 670.)

The use of balancing accounts in appropriate circumstances is specifically mandated by another provision of the code. Section 792.5, adopted in 1976, provides: "Whenever the commission authorizes any change in rates reflecting and passing through to customers specific changes in costs, except rates set for common carriers, the commission shall require as a condition of such order that the public utility establish and maintain a reserve account reflecting the balance, whether positive or negative, between the related costs and revenues, and the commission shall take into account by appropriate adjustment or other action any positive or negative balance remaining in any such...