Wood v. Public Utilities Commission

• Decision Date: 08 March 1971
• Docket Number: S.F. 22715
• Citation: 93 Cal.Rptr. 455,4 Cal.3d 288,481 P.2d 823
• Court: California Supreme Court
• Parties: , 481 P.2d 823, 88 P.U.R.3d 494 Henry WOOD et al., Petitioners, v. PUBLIC UTILITIES COMMISSION, Respondent; PACIFIC GAS AND ELECTRIC COMPANY et al., Real Parties in Interest.

Page 455

93 Cal.Rptr. 455

4 Cal.3d 288, 481 P.2d 823, 88 P.U.R.3d 494

Henry WOOD et al., Petitioners, v. PUBLIC UTILITIES COMMISSION, Respondent PACIFIC GAS AND ELECTRIC COMPANY et al., Real Parties in Interest.

S.F. 22715.

Supreme Court of California In Bank.

March 8, 1971.

Rehearing Denied April 29, 1971.

D'Army Bailey, Michael L. Woods, Michael S. Zola, Gilbert T. Graham, San Francisco, and Edward J. Imwinkelried, for petitioners.

Mary Moran Pajalich, Sheldon Rosenthal, Timothy E. Treacy, San Francisco, and Donald C. Mraney, for respondent.

Robert E. Michalski, F. T. Searls, John C. Morrissey, and J. Bradley Bunnin, San Francisco, for real parties in interest.

WRIGHT, Chief Justice.

Petitioner, Henry Wood and Genevera Gonzales, seek review of decision No. 76065 of the Public Utilities Commission ordering dismissal of cases brought by them against Pacific Telephone and Telegraph Company (hereinafter PT&T) and Pacific Gas and Electric Company (hereinafter PG&E) challenging the validity of the two utilities' credit rules. (See Pub.Util.Code, §§ 1756--1761.) Contrary to petitioners' contentions, we conclude that the rules were validly adopted and that they do not violate the equal protection clause of the Fourteenth Amendment to the United States Constitution.

The challenged rules are set forth in full in an appendix to this opinion. They were adopted as part of the utilities' rate tariffs for the purpose of reducing bad debt losses, and they have resulted in a substantial reduction of such losses. In essence each rule provides that unless credit is established in one or another of several specified ways, an applicant must make a deposit to secure utility service. In the case of domestic service, which is the only service here involved, the PT&T rule for a $25 deposit, and the PG&E rule for a deposit of twice the estimated monthly charge but not less than $5. If service is terminated, the excess, if any, of the amount of the deposit over charges due is refunded to the customer. If service is not terminated, the deposit is retained until credit is otherwise established, as it may be, for example, by the satisfactory payment for service for a period of one year. With some exceptions, the utility pays interest on the deposit.

Although in the past the commission has authorized the adoption of similar credit rules following public hearings (see, e.g., Re Deposits (1915) 7 C.R.C. 830), the rules here challenged were adopted pursuant to advice letters that set forth the justifications for the rules and that were approved without hearings by resolutions of the commission. The adoption of the rules in this way did not violate due process and was authorized by the statutes and regulations governing the commission's procedures.

In adopting rules governing service and in fixing rates, a regulatory commission exercises legislative functions delegated to it and does not, in so doing, adjudicate vested interests or render quasi-judicial decisions which require a public hearing for affected rate-payers. (United States v. Merchants and Manufacturers Asociation of Sacramento (1916) 242 U.S. 178, 37 S.Ct. 24, 61 L.Ed. 233; cf. Koppers Co. v. United States (1955) 132 F.Supp. 159 and Florida Citrus Comm. v. United States (1955) 144 F.Supp. 517, affd. 352 U.S. 1021, 77 S.Ct. 589, 1 L.Ed.2d 595.)

Thus, in Public Utilities Com'n of State of Cal. v. United States (1966) 356 F.2d 236, 241 (9th Cir.), certiorari denied 385 U.S. 816, 87 S.Ct. 35, 17 L.Ed.2d 54, the court rejected the claim of the California commission that due process entitled it to be heard in an informal meeting before the Federal Communications Commission, which later resulted in rate changes. The court stated that 'public utility regulation, historically, has been a function of the legislature; and the prescription of public utility rates by a regulatory commission, as the authorized representative of the legislature, is recognized to be essentially a legislative act. Colorado Interstate Gas Co. v. Federal Power Commission, 324 U.S. 581, 589, 65 S.Ct. 829, 89 L.Ed. 1206 (1945). As a ratepayer would have no constitutional right to participate in a legislative procedure setting rates, this right to be heard in a commission proceeding exists at all only as a statutory and not a constitutional right.'

The Public Utilities Code does not require public hearings before rate increases or rule changes resulting in rate increases may be authorized. Section 454 of that code requires only a showing before the commission and a finding by the commission of justification for such increases. It leaves to the commission the determination of the appropriate procedures to be followed. (See Pub.Util.Code, § 701.) When proposed changes in a utility's rules result in rate increases that are minor in nature, the commission's General Order No. 96--A (formerly No. 96) provides that the commission 'may accept a showing' in an advice letter 'provided justification is fully set forth therein, without the necessity of a formal application.'

It bears emphasis that the fact that ratepayers have no constitutional or statutory right to a hearing before rules such as those before us are adopted in no way means that they are without a remedy to challenge the lawfulness of any such rule or its application by the utility involved. Section 1702 of the Public Utilities Code provides that such challenges may be made by complaint before the commission at any time, and section 1756 provides that the commission's decision thereon is subject to review in this court. It is pursuant to these procedures that petitioners are before us now.

We turn to the question of equal protection.

Rule 6 of the telephone company sets forth seven guidelines for establishing credit, as follows: 'Each applicant for telephone service will be required to establish credit, which will be deemed established upon qualifying under any One of the following:

'1. Applicant is a customer of the utility or any other telephone utility in California, for a similar class of service and has paid all bills for service without having been temporarily or permanently discontinued for nonpayment thereof, for a period of twelve consecutive months immediately prior to the date of the present application.

'2. Applicant has been a customer of the utility or any other telephone utility in California in the last two years and during the last twelve consecutive months that service was provided has paid all bills for such service, without having been temporarily or permanently discontinued for nonpayment thereof.

'3. Applicant is the owner of the premises upon which the utility is requested to furnish service, or is the owner of other local real estate. * * *

'4. Applicant for resident service has been continuously employed by his present employer (including military) for a period of two years or more, or is retired on pension.

'5. Applicant furnishes a guarantor satisfactory to the utility to secure payment of bills of applicant for telephone service requested in the application. * * *

'6. Applicant's credit is otherwise established to the satisfaction of the utility.

'7. Applicant makes the deposit (of $25).'

The establishment of credit rules of PG&E are essentially the same as the foregoing rules, except that they prescribe only six modes of establishing credit and do not include rule 4. ¹ Also, the amount of the PG&E deposit is fixed at twice the amount of an estimated average monthly utility bill, usually $20. Under its flexible category for establishment of credit 'to the satisfaction' of the company, PG&E excepts (a) private pensioners but not social security pensioners, (b) employees of large corporations but not employees of small corporations, and (c) professionals but not nonprofessionals. PT&T likewise excepts professionals under its flexible category.

Petitioners take issue specifically with the three credit rules which except from the requirement of a deposit or other proof of credit (1) persons owning real property, (2) persons continuously employed by the same employer for two years, and (3) other persons able to establish credit 'to the satisfaction' of the company including private pensioners, employees of large corporations, and professionals. They contend that permitting such persons to escape the deposit requirement while compelling others to pay or meet alternative credit conditions (i.e., to obtain a guarantor or show prior uninterrupted service) is a denial of equal protection.

In the field of economic regulation equal protection ordinarily requires only that there be a reasonable relationship between the classifications drawn and the purpose for which they are made. (See, e.g., Rinaldi v. Yeager (1966) 384 U.S. 305, 308--309, 86 S.Ct. 1497, 16 L.Ed.2d 577; Dandridge v. Williams (1970) 97 U.S. 471, 90 S.Ct. 1153, 1161--1163, 25 L.Ed.2d 491.) Since utility service is of vital importance, however, and since the utilities' credit rules impose greater hardship on the poor who must make a deposit to secure service than on those who need not do so, petitioners contend that the classifications set forth in the credit rules can only be justified if they are essential to promote a compelling state interest. (See generally In re Antazo (1970) 3 Cal.3d 100, 110--111, 89 Cal.Rptr. 225, 473 P.2d 999, and cases cited.) In petitioners' view they cannot be so justified. They assert that the objective of reducing bad debt losses could be achieved by classifications more carefully drawn that would not discriminate against the poor merely because they are poor.

We reject the application of the compelling state interest test to determine the validity of the credit rules. They are in effect nothing more than a part of the utilities' rate structures. The commission must fix rates that will provide a reasonable return on the utility's investment, and in doing so it has wide discretion to make rate classifications...