County of Inyo v. Public Utilities Com.

• Decision Date: 07 January 1980
• Docket Number: S.F. 23990
• Citation: 604 P.2d 566,161 Cal.Rptr. 172,26 Cal.3d 154
• Court: California Supreme Court
• Parties: , 604 P.2d 566 COUNTY OF INYO, Petitioner, v. PUBLIC UTILITIES COMMISSION, Respondent; LOS ANGELES DEPARTMENT OF WATER AND POWER, Real Party in Interest.

Page 172

161 Cal.Rptr. 172

26 Cal.3d 154, 604 P.2d 566

COUNTY OF INYO, Petitioner, v. PUBLIC UTILITIES COMMISSION, Respondent LOS ANGELES DEPARTMENT OF WATER AND POWER, Real Party in Interest.

S.F. 23990.

Supreme Court of California, In Bank.

Jan. 7, 1980.

L. H. Gibbons, Dist. Atty., Antonio Rossmann, San Francisco and Ann S. Nutt, Berkeley, for petitioner.

Janice E. Kerr, Hector Anninos and Ellen S. LeVine, San Francisco, for respondent.

Burt Pines, City Atty., Edward C. Farrell, Chief Asst. City Atty., and Edward A. Schlotman, Deputy City Atty., for real party in interest.

TOBRINER, Justice.

Petitioner Inyo County seeks review of Public Utilities Commission (hereafter PUC) ruling No. 89576, holding that the PUC lacks jurisdiction over the water rates charged Inyo County and its residents by the Los Angeles Department of Water and Power (hereafter LADWP), a public utility owned and operated by the City of Los Angeles. The county emphasizes the need for PUC regulation because the county's residents, unable to vote in Los Angeles municipal elections, lack any political leverage to prevent exploitation by LADWP. Devoid of political or judicial remedy, petitioner argues, the county's citizens stand exposed to unreasonable water rates.

We point out that the Legislature has the power under article XII, section 5 of the California Constitution to confer authority and jurisdiction upon the commission to regulate the rates charged nonresidents by a municipally owned water system. As we shall explain, however, the PUC can only regulate rates charged by municipally owned public utilities if a specific statute confers such jurisdiction upon the commission. Yet the Legislature apparently has never granted the PUC authority to regulate water rates charged by municipally owned water corporations either to local residents or to customers beyond municipal limits. Consequently we must conclude that we should affirm the ruling of the PUC that it lacks jurisdiction to adjudicate the county's complaint.

A dramatic chapter in California history lies behind the present controversy. ¹ The Owens Valley in Inyo County, situated in the lee of the Sierra Nevada escarpment, receives little rain or snow. The annual snowmelt in the Sierra, however, sends numerous streams into the valley, which flowed through the Owens River into a large lake at the southern end of the valley. During the last decades of the 19th century and the early years of this century, farmers began to divert streams for irrigation, and the valley developed an agricultural economy.

The City of Los Angeles, however, finding its local water supply inadequate for current needs or future growth, also entered into the competition for Owens Valley water. It began to purchase water rights and, in 1913, completed an aqueduct from the valley to Los Angeles. During the 1920s the city continued to acquire water rights, overcoming intense local opposition from valley residents, who dynamited the aqueduct on several occasions and once forceably seized possession of the aqueduct gates.

As the city acquired virtually complete control of valley water, residents pressed damage claims for loss of business and declining value of property. Responding to those claims, the city began to purchase Inyo County land, eventually acquiring 240,000 acres. The city then constructed a second aqueduct, and extended its water rights north, taking in almost all of the Owens Valley watershed and including part of the Mono Lake Basin. Thus, Los Angeles obtained the water essential to its growth; Inyo County, deprived of its water, was transformed from a rich agricultural region to one dependent on tourism; the Owens River and Owens Lake ran dry.

During its acquisition of Inyo County water rights, the city also purchased the water systems of the Towns of Big Pine, Independence, Laws, and Lone Pine, four unincorporated communities in Inyo County. Acting through LADWP, the city administers these water systems, which do not connect with the aqueducts supplying Los Angeles itself.

The city derives authority to own and operate water systems for other communities from article XI, section 9 of the California Constitution, and section 211(j) of the Los Angeles City Charter. The charter further directs LADWP to set water rates: "such rates shall be of uniform operation, as near as may be, and shall be fair and reasonable, taking into consideration, among other things, the nature of the use, the quantity supplied and the value of the service; provided, further, that the rates inside the city may be less, but not greater, than the rates outside the city for the same or similar uses." (L.A. City Charter, § 220(2).) Rates, set by LADWP, must be approved by the Los Angeles City Council.

Until 1973, LADWP charged users in the four Inyo communities, including Inyo County itself, on a flat rate basis even though Los Angeles users paid metered rates. From 1973 to 1978, however, LADWP changed its Inyo rates to the metered rates that were charged city residents. ² Inyo County filed suit in the Fresno County Superior Court to enjoin the increase. When that court denied the county's motion for preliminary injunction, the county filed the present complaint with the PUC.

In a unanimous opinion, the PUC dismissed the complaint for want of jurisdiction. The PUC reasoned that it had no jurisdiction over municipally owned utilities unless expressly provided by statute, and that the Legislature's failure to include municipally owned public utilities within the classes of regulated public utilities in divisions 1 and 2 of the Public Utilities Code ³ demonstrated that the Legislature had not granted the PUC such jurisdiction. The county seeks review of that decision.

The county argues that only regulation by the PUC can prevent abuse of LADWP's monopoly position. The PUC, it observes, was established to "protect the people of the state from the consequences of . . . monopoly in the public service industries." (Sale v. Railroad Commission (1940) 15 Cal.2d 612, 617, 104 P.2d 38, 41.) PUC regulation of rates charged by municipally owned utilities to municipal residents is not compelled because the residents exert political control over the rates. (Cf. McDaniels v. Park-Woods Mutual Water Co. (1971) 72 Cal. P.U.C. 247.) But because "the inhabitants of the outside city . . . have no voice as voters or taxpayers in the shaping of the affairs of the municipality engaged in the business, . . . to deny the power of the commission to intervene is apparently to leave these consumers . . . at the mercy of the other city." (Comment (1921) 9 Cal.L.Rev. 252, 255; see City of Lamar v. Town of Wiley (1926), 80 Colo. 18, 248 P. 1009, 1010.) The county therefore urges that we uphold PUC jurisdiction to prevent municipally owned utilities from charging unfair or discriminatory rates to its nonresident customers.

The county further contends that without PUC review it lacks an adequate remedy to challenge unfair rates. Although the county recognizes that it can institute suit in superior court to attack the LADWP rates (see Elliott v. City of Pacific Grove (1975) 54 Cal.App.3d 53, 126 Cal.Rptr. 371; People ex rel. Pub. Util. Com. v. City of Fresno (1967) 254 Cal.App.2d 76, 62 Cal.Rptr. 79; Durant v. City of Beverly Hills (1940) 39 Cal.App.2d 133, 102 P.2d 759), it urges the inadequacy of that remedy. The county does not deny that decisions discussing judicial review of rates establish that a city which acquires the water system of another community incurs an obligation to deal fairly with its customers in that community and to provide them with reasonable service at reasonable rates. (See South Pasadena v. Pasadena Land, Etc. Co. (1908) 152 Cal. 579, 587-588, 594, 93 P. 490.) Such an acquiring city, as to the water dedicated to the use of the outside community, holds "title as a mere trustee, bound to apply it to the use of those beneficially interested." (Id., at p. 594, 93 P., at p. 496; see Durant v. City of Beverly Hills, supra, 39 Cal.App.2d 133, 138, 102 P.2d 759.) Consequently, the county can sue to enjoin rates which are themselves "unreasonable, unfair, or fraudulently or arbitrarily established" (Durant v. City of Beverly Hills, supra, 39 Cal.App.2d 133, 139, 102 P.2d 759, 763), or which discriminate without a reasonable and proper basis (Elliott v. City of Pacific Grove, supra, 54 Cal.App.3d 53, 59, 126 Cal.Rptr. 371). ⁴

Judicial review of rates, however, does not provide protection comparable to PUC proceedings. The PUC maintains an expert, independent staff to investigate rate requests; it renders an independent decision on each record that it examines. A court, in contrast, must limit its review to the rates established by the involved utility and must depend upon the expert testimony presented by the parties. (See Sale v. Railroad Commission, supra, 15 Cal.2d 612, 617-618, 104 P.2d 38.) Thus while judicial review can protect consumers against plainly unfair rates, that remedy does not offer an opportunity for the detailed analysis and careful structuring of rates possible in a PUC proceeding.

To establish PUC jurisdiction to hear the county's complaint, however, it must do more than present arguments which might persuade the Legislature to confer such jurisdiction. The county must demonstrate both (1) that the California Constitution permits the Legislature to grant the PUC such jurisdiction over municipally owned water corporations and (2) that the Legislature has enacted a statute exercising this authority. We review first the question of constitutional power.

The controlling constitutional provisions, article XII, sections 3 and 5, represent a revision without substantive change of the original 1911 and 1914 amendments. Those amendments had permitted the Legislature to extend the authority of the Railroad Commission to water companies and other PUBLIC UTILITIES. SECTION 3⁵ states in part that "Private...