County of Sacramento v. Pacific Gas & Elec. Co.

• Decision Date: 01 July 1987
• Citation: 238 Cal.Rptr. 305,193 Cal.App.3d 300
• Court: California Court of Appeals
• Parties: COUNTY OF SACRAMENTO, Plaintiff and Appellant, v. PACIFIC GAS AND ELECTRIC CO., Defendant and Appellant. Civ. C000031.

Page 305

238 Cal.Rptr. 305

193 Cal.App.3d 300

COUNTY OF SACRAMENTO, Plaintiff and Appellant, v. PACIFIC GAS AND ELECTRIC CO., Defendant and Appellant.

Civ. C000031.

Court of Appeal, Third District, California.

July 1, 1987.

Review Denied Sept. 23, 1987.

L.B. Elam, Co. Counsel, Monte L. Fuller, Supervising Deputy Co. Counsel, Sacramento, for plaintiff and appellant.

Robert Ohlback, Joseph I. Kelly, Patrick G. Golden, Craig M. Buchsbaum, LeBoeuf, Lamb, Leiby & MacRae, John N. Frye, San Francisco, for respondent and appellant.

C. Edward Gibson, Acting General Counsel, Mary J. Wood and Vincent P. Master, Jr., and Janice E. Kerr, Hector Anninos and Suzanne Engelberg, San Francisco, amicus curiae for appellant Pacific Gas and Elec.Co.

SPARKS, Associate Justice.

Under the Broughton Act (Pub.Util.Code, § 6001 et seq.), a county may grant a franchise to the highest bidder to use its public streets to transmit and distribute gas and electricity. The grantee is statutorily required to pay the county a fee of 2 percent of the "gross annual receipts" derived from the use of the franchise. (Pub.Util. Code, § 6006.) The County of Sacramento (County) granted two such franchises to defendant Pacific Gas and Electric Company (PGandE) to use county streets to supply gas and electricity to the public. PGandE regularly uses its franchise facilities to convey and sell gas and electricity to its customers in Sacramento County and pays the franchise fee to the County on the revenues generated by those sales. In addition to its customers, PGandE also uses the franchise facilities to transmit and distribute gas and electricity to itself for its own internal use. It does not pay itself for that power and consequently did not remit any franchise fee to the County for the use of the franchise for those internal transmissions. The County claims that it is entitled to franchise fees for those transmissions. Predictably, the principal issue in this case is whether, for purposes of calculating the franchise fee, PGandE must add to its gross receipts the value of gas and electricity which it uses internally but does not sell. Our review of the Broughton Act convinces us that the franchise fee was intended to be payable only when revenue is actually received by the franchisee. Since PGandE did not receive any "gross annual receipts" arising from the use of the franchise facilities for its own internal use, it had no obligation to pay the County any fee for that use.

This case began when the County filed a complaint against PGandE for the recovery of franchise fees for the years 1973-1979 for amounts due on what the County described as "interdepartmental sales". It also sought a declaratory judgment determining the meaning, construction and validity of the terms of the franchises and the respective rights and obligations of the parties under them. The trial court ruled that PGandE improperly excluded the value of gas and electricity it consumed or used internally from its gross receipts. It further ruled that investments made by PGandE upon public utility easements granted by parties other than the County did not constitute investments on franchise property for purpose of calculating the fee. Both parties appeal. PGandE contends that the trial court erred in determining that a sum should be included in its gross annual receipts for gas and electricity which is used internally and not sold to the public. The County contends that the trial court erred in concluding that PGandE's use of public utility easements is not a use of franchise property. Because we agree with PGandE's contention and reject the County's, we shall reverse part of the judgment and affirm the remainder.

THE BROUGHTON ACT

By the Broughton Act, the Legislature empowered local governments to grant franchises for the use of public streets and highways for public utility purposes. ¹ "Every franchise.... to lay gas pipes for the purpose of carrying gas for light, heat, or power, to erect poles or wires for transmitting electricity for light, heat, or power, along or upon any public street or highway, or to exercise any other privilege whatever proposed to be granted by the governing or legislative body of any county, city and county, or city shall be granted upon the conditions in this article provided, and not otherwise...." (Pub.Util.Code, § 6001.) ² All franchises must be granted upon an unrestricted "free and open competition" basis, after published advertisements and sealed bids, to the highest cash bidder. (Pub.Util.Code, §§ 6003-6005.) Although the acceptance of a franchise is a matter of contract, the offer of such a contract is on a take-it-or-leave-it basis; a franchisee may only accept a franchise on the terms dictated by the Legislature. "It is purely a matter of contract. While it is true that the payment is required by law as a condition of the franchise grant, it is a matter of option with the applicant whether he will accept the franchise on those terms. His obligation to pay is not imposed by law but by his acceptance of the franchise." (County of Tulare v. City of Dinuba (1922) 188 Cal. 664, 670, 206 P. 983.) But the amount to be paid is fixed by statute and it is that statutory provision which gives rise to this lawsuit. The statute provides that the grantee "shall during the life of the franchise pay to the county or municipality two percent (2%) of the gross annual receipts of the grantee arising from the use, operation, or possession of the franchise." (Pub.Util.Code, § 6006.)

In 1948, in ordinance No. 341, the County granted to PGandE a franchise to place gas pipes, mains and appurtenances in public streets and highways for the purpose of supplying gas to the public. Also in 1948, in ordinance number 342, the County granted PGandE a franchise to place electric lines, poles, conduits and other structures upon the public streets for the purpose of supplying electricity to the public. ³

The fee provisions of the Broughton Act were considered by the Supreme Court in County of Tulare v. City of Dinuba, supra, 188 Cal. 664, 206 P. 983. In that case the utility operated under franchises granted by different municipalities, and the dispute was the manner in which the different municipalities should be compensated. The Supreme Court gave the Act a practical interpretation in order to uphold it against the claim of uncertainty. (Id., at p. 675, 206 P. 983.) The court rejected the idea that the fees payable to a municipality were to be based solely upon receipts collected within the municipality. (Id., [193 Cal.App.3d 306] at p. 674, 206 P. 983.) Instead, the utility should be treated as a single entity and its gross receipts attributable to franchises in all of the municipalities should be apportioned according to mileage. (Id., at pp. 676-678, 206 P. 983.) In this calculation the utility's gross receipts are to be apportioned between those arising from distribution systems and those arising from operation of power plants and other producing agencies. (Id., at p. 681, 206 P. 983.) From the distribution receipts are excluded those attributable to the use of private rights of way, leaving only those receipts attributable to the use of franchise properties. (Ibid.) This sum was then to be divided among the municipalities on the basis of mileage within each municipality. (Ibid.) The court recognized that this method of apportionment was not the exclusive method. In some circumstances it may be possible to differentiate more accurately between receipts arising from different parts of the system. In the absence of such factors, however, the division should be based upon mileage. (Id., at pp. 681-682, 206 P. 983.) ⁴

In County of L.A. v. Southern, etc., Gas Co. (1954) 42 Cal.2d 129, 266 P.2d 27, the Supreme Court again considered the fee provisions of the Broughton Act. In that case the utility had based its calculations upon certain principles which the Supreme Court agreed were consistent with the opinion in the Tulare case. These principles are: (1) A utility's gross receipts arise from all of its operative property, wherever located. (2) Operative property consists of various kinds of real and personal property of which pipe lines and appurtenances on public and private rights of way are but a component part. (3) Since the 2 percent charge applies only to receipts arising from the use of franchises, gross receipts arising from other operative property must be excluded from the base to which the charge applies. (4) Since every dollar invested in operative property earns an equal part of the gross receipts an apportionment of the gross receipts according to dollars invested in various types of property is fair, practical, readily understood and easily verified. (5) Gross receipts that arise from the use of franchises are the gross receipts attributable to that part of the property using the rights of way pursuant to the franchises. (6) Gross receipts attributable to the various rights of way may be apportioned between public and private rights of way on the basis of investment, but otherwise should be apportioned according to mileage. (42 Cal.2d at pp. 133-134, 266 P.2d 27.)

As we have recounted, this action was instituted by the County to recover amounts allegedly owed by PGandE for the years 1973 through 1979. Originally the County disputed PGandE's calculations in numerous respects. However, some of these matters were resolved through agreement by the parties, and others were resolved by the trial court and are not at issue here. In its appeal PGandE disputes the trial court's treatment of so-called interdepartmental sales and intradepartmental use of gas and electricity. In its appeal the County contends that the trial court erred in concluding that investments on public utility easements are not to be included as investments on franchise property. As an additional issue, to be addressed only in the event PGandE fails to prevail in its appeal,...