City of Torrance v. S. Cal. Edison Co.

• Decision Date: 17 March 2021
• Docket Number: B300296
• Citation: 61 Cal.App.5th 1071,276 Cal.Rptr.3d 294
• Court: California Court of Appeals Court of Appeals
• Parties: CITY OF TORRANCE, Plaintiff and Appellant, v. SOUTHERN CALIFORNIA EDISON COMPANY, Defendant and Respondent.

61 Cal.App.5th 1071

276 Cal.Rptr.3d 294

CITY OF TORRANCE, Plaintiff and Appellant,

v.SOUTHERN CALIFORNIA EDISON COMPANY, Defendant and Respondent.

B300296

Court of Appeal, Second District, Division 3, California.

Filed March 17, 2021

Colantuono, Highsmith & Whatley, Michael G. Colantuono, Pasadena, John L. Jones II, Jin Soo Lee, Matthew C. Slentz; Patrick Q. Sullivan, Torrance, and Tatia Y. Strader for Plaintiff and Appellant.

Steptoe & Johnson, Laurie Edelstein, Palo Alto, P. Casey Matthews; Patricia Cirucci, Lisa DeLorme and Mark Rothenberg, Rosemead, for Defendant and Respondent.

LAVIN, Acting P. J.

INTRODUCTION

Southern California Edison Company (Edison) is the exclusive provider of electricity to residents and businesses located in the City of Torrance (Torrance). Pursuant to section 225.1.4 of the Torrance Municipal Code¹ (electricity tax ordinance), consumers of electricity must pay Torrance a tax on the charges for electricity and ancillary services they use (electricity users’ tax). Edison is required to collect this tax from consumers and remit it to Torrance.

Torrance filed this lawsuit against Edison after it discovered that Edison had calculated the electricity users’ tax as a percentage of the net amount Edison was billing its consumers, i.e., the charges for electricity and other services less an annual credit (the IA credit) relating to state-wide greenhouse gas emissions policy.² Torrance, however, contends that the electricity tax ordinance does not permit Edison to apply the IA credit to reduce electricity consumers’ tax base, thereby reducing Torrance's tax revenue. Torrance's complaint seeks declaratory relief concerning the interpretation and application of the electricity tax ordinance and asserts that Edison failed to comply with the ordinance by not collecting the proper amount of electricity users’ tax from consumers. Torrance also seeks to recover the unpaid taxes, together with penalties and interest, from Edison.

The trial court sustained Edison's demurrer to Torrance's original complaint without leave to amend and entered a judgment of dismissal. The court found Edison had calculated the electricity users’ tax properly and, in addition, Torrance's claim to recover unpaid taxes from Edison (as opposed to electricity consumers) failed as a matter of law. We agree with Torrance that the electricity tax ordinance cannot reasonably be construed in the manner proposed by Edison and adopted by the court. We agree with Edison, however, that Torrance cannot recover unpaid taxes from Edison and must instead amend its complaint to include electricity consumers as defendants. Accordingly, we reverse and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND³

1. The Electricity Users’ Tax

Torrance, a charter city, imposes a number of utility-related taxes on its residents including taxes on telephone communication services, natural gas, water, cable television, and electricity. The electricity tax ordinance provides:

"a) There is hereby imposed a tax upon every person in the City using electrical energy in the City. The tax imposed by this Section shall be at the rate of six (6) percent of the charges made for such energy; provided, however, that effective July 1, 1991, the tax imposed by this Section shall be at the rate of six and one-half (6½) percent of the charges made for such energy by an electrical corporation franchised to serve the City and shall be paid by the person using such services. The tax applicable to electrical energy provided by a nonutility supplier shall be determined by applying the tax rate to the equivalent charges the service user would have incurred if the energy used had been provided by the electrical corporation franchised by the City. Nonutility suppliers shall install and maintain an appropriate utility-type metering system which will enable compliance with this Section. Charges as used in this Section shall include charges made for 1) metered energy, and 2) minimum charges for service, including customer charges, service charges, demand charges, standby charges and annual and monthly charges.

"b) As used in this Section, the term ‘using electrical energy’ shall not be construed to apply to the storage of such energy in a battery, or the use thereof in a motor vehicle or other device apart from the premises where the battery was charged; nor shall the term include the mere receiving of such energy by an electric public utility or governmental agency at a point within the City for resale.

"c) There shall be excluded from the base on which the tax imposed in this Section is computed, charges made for electricity used in the production or distribution of water.

"d) There shall be excluded from any tax imposed in this Section, an amount equal to the amount of any Utility User's Tax paid by the nonutility supplier for natural gas used as fuel in the production of electricity.

"e) The tax imposed in this Section shall be collected from the service user by the person supplying such energy. The tax shall be self-imposed by nonutility suppliers as to their own use. The amount of tax collected or self-imposed in one (1) month shall be remitted to the Director on or before the 20th day of the following month."

Edison is the investor-owned utility serving electricity consumers in Torrance under a grant of franchise. As such, it is required to collect the electricity users’ tax and remit all amounts collected to Torrance. (§ 225.1.4, subd. (e).)

2. The Industry Assistance Credit

In September 2006, the Legislature adopted the Global Warming Solutions Act of 2006 ("Act"), now codified at Health and Safety Code section 38500 et seq. To implement the Legislature's stated goal of reducing statewide greenhouse gas emissions, the California Air Resources Board has developed a variety of programs including the Greenhouse Gas Cap-and-Trade program—a regulated marketplace in which greenhouse gas allowances (permits to emit an allotted amount of greenhouse gases) are allocated, sold, and traded. ( Health & Saf. Code, § 38501 ; Cal. Code Regs., tit. 17, § 95801 et seq. )

The Commission has developed financial assistance programs for certain electric utility customers affected by the cap-and-trade program. One of these, the IA credit, is an annual credit designed to incentivize and reward businesses that implement energy-efficient programs that reduce greenhouse gas emissions. The Commission determines on an annual basis which businesses receive an IA credit as well as the amount of the credit. For administrative convenience, the IA credit is passed through investor-owned utilities, including Edison, and applied as a credit against consumers’ electricity bills. (See Cal. P.U.C., Decision No. 14-12-037 (Dec. 18, 2014): Decision Adopting Greenhouse Gas Allowance Revenue Allocation Formulas and Distribution Methodologies for Emissions-Intensive and Trade-Exposed Customers available at [as of Mar. 8, 2021], archived at K7DR> [pp. 66, 101].)

3. Dispute Over Edison's Electricity Users’ Tax Calculation

Torrance and Edison disagree about the method Edison should use to calculate the electricity users’ tax. Specifically, they disagree regarding the proper tax base.⁴

Torrance contends the tax base is equal to the total charge for a user's metered electricity and other services listed in section 225.1.4, subd. (a). Under Torrance's view, a user's IA credit, if any, would not affect the tax base because it is unrelated to the charge for the electricity used by the consumer.

Edison contends the tax base is equal to the net amount it bills electricity consumers. Edison has calculated the tax base by subtracting the IA credit from the total charge for a consumer's metered electricity and other services listed in section 225.1.4, subd. (a). Under Edison's methodology, the consumer's electricity users’ tax base (and, ultimately, the amount of the tax) will necessarily be reduced whenever a consumer receives an IA credit.

A simple example illustrates the point. Assume a consumer incurs a $100 charge for metered electricity and other services and receives a $20 IA credit.

Torrance would use the charged amount of $100 as the tax base and calculate the electricity tax as $6.50 (6½ percent of $100). Edison would calculate the total bill first ($100 charge less the $20 IA credit = $80 bill) and use the $80 billed amount as the tax base to calculate the electricity tax as $5.20 (6½ percent of $80).

4. Torrance's Complaint

In March 2019, Torrance filed its original, and only, complaint containing two causes of action styled as a request for declaratory relief and a request for an order compelling Edison to comply with the electricity tax ordinance. Torrance alleged Edison failed to remit the full amount of tax owed to Torrance under the electricity tax ordinance, noting Edison was required to collect and then remit a tax on "charges" for metered energy, customer charges, services charges, demand charges, and other charges identified in the electricity tax ordinance. Torrance claimed Edison was directly liable for the underpayment of the electricity tax.

In its prayer for relief, Torrance sought a declaration that the electricity tax base is equivalent to the charges made for metered energy and other services listed in the electricity tax ordinance, "with no reduction for credits that may be provided for by the Commission, or otherwise[.]" With respect to the second cause of action, Torrance asked the court to compel Edison to apply the electricity users’ tax to the tax base as noted above and, further, to compel Edison to account for and pay the amounts it failed to collect by using the incorrect tax base in prior years. As to both causes of action, Torrance sought penalties and interest on the outstanding electricity users’ taxes owed to Torrance as well as costs of suit.

5. Edison's Demurrer

Edison demurred to the complaint, asserting that both of Torrance's claims failed to state facts sufficient to constitute a...