This case was last updated from Los Angeles County Superior Courts on 02/10/2021 at 10:23:24 (UTC).

JUAN SAAVEDRA ET AL VS CITY OF GLENDALE

Case Summary

On 03/12/2014 JUAN SAAVEDRA filed an Other - Other Judicial Review lawsuit against CITY OF GLENDALE. This case was filed in Los Angeles County Superior Courts, Stanley Mosk Courthouse located in Los Angeles, California. The Judges overseeing this case are JAMES C. CHALFANT and ROBERT H. O'BRIEN. The case status is Disposed - Judgment Entered.

Case Details Parties Documents Dockets

 

Case Details

  • Case Number:

    ****9160

  • Filing Date:

    03/12/2014

  • Case Status:

    Disposed - Judgment Entered

  • Case Type:

    Other - Other Judicial Review

  • Court:

    Los Angeles County Superior Courts

  • Courthouse:

    Stanley Mosk Courthouse

  • County, State:

    Los Angeles, California

Judge Details

Presiding Judges

JAMES C. CHALFANT

ROBERT H. O'BRIEN

 

Party Details

Plaintiffs, Petitioners and Appellants

INTERNATIONAL BROTHERHOOD OF ELECTRICAL

SAAVEDRA JUAN

Defendants and Respondents

DOES 1 THROUGH 15

GLENDALE CITY OF

Attorney/Law Firm Details

Plaintiff and Petitioner Attorneys

SCHWARTZ STEINSAPIR DOHRMANN & SOMMERS

CURRY DANIEL E.

Defendant and Respondent Attorneys

GARCIA MICHAEL J.-CITY OF GLENDALE ATTY

COLANTUONO MICHAEL G.

RUDERMAN DAVID JEFFREY

GARCIA MICHAEL JOSEPH

 

Court Documents

Declaration - DECLARATION OF DAVID P. VONDLE IN SUPPORT OF PETITIONERS' RESPONSE BRIEF

4/9/2020: Declaration - DECLARATION OF DAVID P. VONDLE IN SUPPORT OF PETITIONERS' RESPONSE BRIEF

Notice - NOTICE OF ERRATA

4/9/2020: Notice - NOTICE OF ERRATA

NOTICE OF TRIAL SETTING CONFERENCE & ATTACHED ORDERS THEREON

5/6/2014: NOTICE OF TRIAL SETTING CONFERENCE & ATTACHED ORDERS THEREON

1) STATUS CONFERENCE STATEMENT; ETC

11/25/2014: 1) STATUS CONFERENCE STATEMENT; ETC

Minute Order -

12/2/2014: Minute Order -

NOTICE OF ENTRY OF ORDER

12/15/2014: NOTICE OF ENTRY OF ORDER

DECLARATION OF STEVEN M. ZIMMERMAN IN SUPPORT OF MOTION TO DETERMINE NATURE OF WRIT OF MANDATE

1/14/2015: DECLARATION OF STEVEN M. ZIMMERMAN IN SUPPORT OF MOTION TO DETERMINE NATURE OF WRIT OF MANDATE

Minute Order -

12/15/2015: Minute Order -

PLAINTIFFS/PETITIONERS REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF OPENING TRIAL BRIEF

4/13/2016: PLAINTIFFS/PETITIONERS REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF OPENING TRIAL BRIEF

CERTIFICATION OF ADMINISTRATIVE RECORD

5/20/2016: CERTIFICATION OF ADMINISTRATIVE RECORD

TENTATIVE DECISION ON PETITION FOR MANDATE: GRANTED IN PART

6/9/2016: TENTATIVE DECISION ON PETITION FOR MANDATE: GRANTED IN PART

PETITIONERS' OBJECTIONS TO CITY'S NOTICE OF RULING

7/25/2016: PETITIONERS' OBJECTIONS TO CITY'S NOTICE OF RULING

NOTICE OF ERRATA

8/1/2016: NOTICE OF ERRATA

Minute Order -

8/11/2016: Minute Order -

Minute Order -

11/15/2016: Minute Order -

CITY OF GLENDALE'S REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF MOTION FOR NEW TRIAL AND MOTION TO VACATE JUDGMENT; DECLARATION OF MEGAN S. KNIZE IN SUPPORT

11/21/2016: CITY OF GLENDALE'S REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF MOTION FOR NEW TRIAL AND MOTION TO VACATE JUDGMENT; DECLARATION OF MEGAN S. KNIZE IN SUPPORT

PLAINTIFFS/PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR ATTORNEY'S FEES

3/20/2017: PLAINTIFFS/PETITIONERS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR ATTORNEY'S FEES

NOTICE OF FILING OF NOTICE OF APPEAL (UNLIMITED JURISDICTION)

4/17/2017: NOTICE OF FILING OF NOTICE OF APPEAL (UNLIMITED JURISDICTION)

234 More Documents Available

 

Docket Entries

  • 02/04/2021
  • DocketStipulation - No Order (Stipulation Motions Attorney's Fees and Strike or Tax Costs); Filed by Juan Saavedra (Plaintiff); International Brotherhood of Electrical (Plaintiff)

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  • 02/02/2021
  • DocketAppeal - Notice of Filing of Notice of Appeal; Filed by Clerk

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  • 01/20/2021
  • DocketAppeal - Notice of Appeal/Cross Appeal Filed; Filed by Juan Saavedra (Appellant); International Brotherhood of Electrical (Appellant)

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  • 01/19/2021
  • DocketStipulation - No Order (STIPULATION TO EXTEND DEADLINES TO FILE MOTION FOR ATTORNEY?S FEES AND MOTION TO STRIKE OR TAX COSTS); Filed by Juan Saavedra (Plaintiff); International Brotherhood of Electrical (Plaintiff)

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  • 12/30/2020
  • DocketStipulation - No Order (STIPULATION TO EXTEND TIME TO MOVE TO STRIKE OR TAX COSTS); Filed by Juan Saavedra (Plaintiff); International Brotherhood of Electrical (Plaintiff)

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  • 12/22/2020
  • DocketNotice (of February 9, 2017 Memorandum of Costs, or in the Alternative, request for extension to resubmit memorandum of costs); Filed by Juan Saavedra (Plaintiff); International Brotherhood of Electrical (Plaintiff)

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  • 12/22/2020
  • DocketMemorandum of Costs (Summary); Filed by Juan Saavedra (Plaintiff); International Brotherhood of Electrical (Plaintiff)

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  • 12/15/2020
  • DocketMemorandum of Costs (Summary); Filed by Glendale, City of (Defendant)

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  • 12/01/2020
  • Docketat 1:30 PM in Department 85, James C. Chalfant, Presiding; Order to Show Cause Re: (Judgment) - Not Held - Advanced and Vacated

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  • 11/30/2020
  • DocketNotice of Entry of Judgment (Notice of Entry of Judgment); Filed by Glendale, City of (Defendant)

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473 More Docket Entries
  • 03/20/2014
  • DocketProof of Service (not Summons and Complaint)

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  • 03/20/2014
  • DocketPROOF OF SERVICE OF SUMMONS

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  • 03/20/2014
  • DocketPROOF OF SERVICE SUMMONS

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  • 03/19/2014
  • DocketMiscellaneous-Other; Filed by Glendale, City of (Defendant)

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  • 03/19/2014
  • DocketNON-OPPOSITION TO NOTICE OF RELATED CASE

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  • 03/12/2014
  • DocketVERIFIED COMPLAINT FOR DECLARATORY RELIEF AND PETITION FOR WRIT OF MANDATE [CIV. PROC. CODE 1085 ET SEQ.]

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  • 03/12/2014
  • DocketSUMMONS

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  • 03/12/2014
  • DocketNotice of Related Case; Filed by Plaintiff/Petitioner

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  • 03/12/2014
  • DocketNOTICE OF RELATED CASE

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  • 03/12/2014
  • DocketComplaint; Filed by Juan Saavedra (Plaintiff); International Brotherhood of Electrical (Plaintiff)

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Tentative Rulings

Case Number: BC539160    Hearing Date: August 06, 2020    Dept: 85

Glendale Coalition for Better Government v. City of Glendale, et al., BS 147376; Juan Saveedra, et al. v. City of Glendale, BC 539160

Tentative decision on remedy for petition for writ of mandate after remand

Respondent City of Glendale (“City”) seeks a judgment on remand denying Petitioners Glendale Coalition for Better Government (“Coalition”), Juan Saavedra (“Saavedra”) and International Brotherhood of Electrical Workers Local 18, AFL-CIO (“IBEW”) (collectively, (“Saavedra”), the relief requested in Case Nos. BS 147376 and BC 539160, respectively, and limiting them to the relief the City did not appeal.

The court has read and considered the City’s post-remand opening brief, oppositions,[1] and consolidated reply, and renders the following tentative decision on remedy after remand.

A. Statement of the Case

1. BS 147376

Petitioner Coalition commenced this proceeding on February 25, 2014. The operative pleading is the First Amended Petition (“FAP’) filed on August 5, 2014. The FAP alleges in pertinent part as follows.

The City violated the Glendale City Charter (“City Charter” or “Charter”), as well as California Constitution Article XIII C (“Art. XIII C”) (Propositions 218 & 26), by transferring Glendale Water & Power Department (“GWP”) electric works and waterworks revenue funds to the City’s General Fund. Four annual transfers from the electric works revenue fund of $19.1M, $20.1M, $20.8 and $20.6M occurred as part of the budgets for the fiscal years ending June 30, 2011, June 30, 2012, June 30, 2013 and June 30, 2014. Another $20M transfer is anticipated for the fiscal year ending June 30, 2015. Additionally, a transfer of $4.1M was made from the waterworks revenue fund for the fiscal year ending June 30, 2011.

Each of these transfers violated Art. XI, sections 14-15, 17, and 20-22 of the City Charter. Further, two $4.1M transfers from the waterworks revenue fund on or about June 30, 2010 and June 30, 2011 violated California Constitution Article XIII D (“Art. XIII D”), section 6(b).

On August 13, 2013, the City increased the electric rates charged to city rate payers without submitting the increase to a vote of the electorate. This rate increase violated Art. XIII C, section 2(b).

The FAP’s causes of action one to fourth and six are for writs of mandate compelling the City to “return to the electric works revenue fund all monies illegally transferred to the general budget fund” during the fiscal years ending June 30, 2011 (First Causes of Action), June 30, 2012 (Second Cause of Action), June 30, 2013 (Third Cause of Action), and June 30, 2014 (Fourth Cause of Action), and June 30, 2015 (Sixth Cause of Action).

The Fifth Cause of Action is for a writ of mandate and/or prohibition preventing the City from “illegally transferring revenue from electric works revenue fund to the general fund” during the fiscal year ending June 30, 2015.

The Seventh Cause of Action is for a judgment declaring that the City’s August 13, 2013 rate increase for electricity without submitting the increase to a vote of the electorate violated Article XIII C.

The Eighth Cause of Action seeks a writ of mandate and/or prohibition preventing the City from increasing electricity rates without submitting the matter to the electorate in accordance with Article XIII C.

Petitioner’s Ninth and Tenth Causes of Action are for writs of mandate compelling the City to “return to the waterworks revenue fund all monies illegally transferred to the general budget fund” during the fiscal years ending on June 30, 2010 (Ninth Cause of Action) and June 30, 2011 (Tenth Cause of Action).

2. BC 539160

Petitioners IBEW and Saavedra commenced this proceeding on March 12, 2014. The operative pleading is the First Amended Complaint and Petition (“FAP”) filed July 9, 2014. The FAP alleges in pertinent part as follows.

The City Charter establishes several separate and distinct funds for the collection and disbursement of revenue. Article XI, section 14 of the Charter creates a “general budget fund,” which the City commonly refers to as its “General Fund.” Article XI, section 14 also requires annual transfers of money from the general budget fund to a separate general reserve fund.

Article XI, section 20 of the City Charter creates two operating funds for GWP, the “waterworks revenue fund and the “electric works revenue fund.” Article XI, section 20 requires that any net revenue realized by the GWP in a fiscal year be transferred to another separate fund called the GWP ‘surplus fund.” Article XI, section 22 of the Charter creates the GWP surplus fund to hold the net revenue transferred from the GWP operating funds which can be used for waterworks or electric works purposes only. The exception to this rule is an annual transfer from the GWP surplus fund to the City’s general reserve fund (the revolving fund used to keep the City’s finances on a cash basis) in an amount that the City Council determines will not undermine “the sound financial position” of the GWP.

On June 26, 2012, the City adopted its budget for fiscal year 2012-2013 and, purporting to act pursuant to Article XI, section 22 of the City Charter, authorized the transfer of $20,857,000 from the GWP’s electric works revenue fund to the City’s general budget fund. A little more than three months later, in a letter dated October 3, 2012, the City notified the Union that it would implement layoffs affecting approximately 28 GWP employees represented by the Union. The letter explained that the reduction-in-force was necessary due to a $10.8 million shortfall in the electric fund for the 2012/2013 fiscal year. This shortfall in the GWP budget was approximately one-half of the amount of the transfer the City Council had authorized from GWFs electric works revenue fund to the City’s general budget fund in fiscal year 2012-2013. Had the City not transferred these funds out of the electric works revenue fund, these employees would not have been laid off or had their pay and benefits reduced.

On June 25, 2013, the City Council approved a resolution authorizing the actual transfer from the GWP electric works revenue fund to the City’s general budget fund for fiscal year 2012-2013 in the amount previously budgeted, $20,857,000. The resolution declared that this amount was 12.7% of the GWP’s operating revenues in fiscal year 2012-2013, rather than 25% provided in the Charter, and that “such reduction is necessary to insure the sound financial position of the Glendale Water and Power Department.”

On June 25, 2013, the City adopted its budget for fiscal year 2013-2014 and, purporting to act pursuant to Article XI, section 22 of the City Charter, authorized the transfer of $20,607,000 from the GWFs electric works revenue fund to the City’s general budget fund. On June 3, 2014, the City Council approved a resolution authorizing the actual transfer from the GWP electric works revenue fund to the City’s general budget fund for fiscal year 2013-2014 in the amount previously budgeted, $20,607,000. The resolution declared that this amount was 12.2% of the GWP’s operating revenues in fiscal year 2013-2014, rather than 25% provided in the Charter, and that such reduction is necessary to insure the sound financial position of the Glendale Water and Power Department.”

On August 13, 2013, the City adopted a resolution increasing the electrical rates charged to City ratepayers without submitting the increase to a vote of the Glendale electorate.

On June 3, 2014, the City adopted its budget for fiscal year 2014-2015 and, purporting to act pursuant to Article XI, section 22 6f the City Charter, set the amount to be transferred from the GWP to the City’s general budget fund at $20,357,000.

The City transferred amounts in excess of the maximum permitted under Article XI, section 22 of the City Charter from the electric works revenue fund to the City’s general budget fund for the 2012-2013 and 2013-2014 fiscal years. As a result of these transfers the City brought about a $10,800,000 shortfall in the electric works revenue fund for the 2012-2013 fiscal year. That shortfall caused more than 20 GWP employees to lose their jobs or suffer a reduction in wages and benefits.

The City has a present legal duty to abide by its Charter. Its transfer of funds in an amount that endangers the sound financial position of the GWP and precipitated a financial emergency that has required the layoff of significant numbers of GWP employees, affecting the operation and maintenance of those utility systems, violates that duty and abused the discretion conferred upon the City.

The City has a present legal duty to abide by Art. XIII C of the Constitution. Its transfer of funds from the electric works revenue fund to the general reserve fund in the 2012-2013 fiscal year and the 2013-2014 fiscal year without the approval of two thirds of the electorate violated Art. XIII C. Those workers who lost their jobs or lost wages and benefits as a result of the layoffs caused by the funding shortfall created by these improper transfers of funds are entitled to reinstatement in their former positions and restoration of the backpay and benefits they have lost as a result. The City is moreover obligated to refund any funds improperly transferred to the electric works revenue fund and/or rebate such improperly transferred funds to ratepayers.

B. Governing Law

1. Prop 218

Proposition 218 (“Prop 218’) was enacted by the electorate in 1996, and in effect extended the voter approval requirements for the enactment of a local tax to cities operating under a “home rule” charter, and also imposed voter approval requirements for property-related fees, charges, and assessments. Howard Jarvis Taxpayers’ Assn. v. City of L.A., (2000) 85 Cal.App.4th 79, 82-83.

Prop 218 added Art. XIII C and D to the State Constitution. “Ail taxes imposed by any local government shall be deemed to be either general taxes or special taxes.” Art. XIII C §2(a). A “general tax” is “any tax imposed for general governmental purposes.” Art. XIII C §1(a). A “special tax” is “any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund.” Art. XIII C §1(d). Prop 218 forbade any local general tax from being imposed without approval by a majority vote of the electorate in the affected jurisdiction, and any local special tax from being imposed without approval by a two-thirds vote of the electorate.

The Ballot Argument in support of Prop 218 stated that its provisions were intended to “guarantee” Californians the “right to vote on local tax increases—even when they are called something else, like ‘assessments’ or fees’.” These restrictions were required because local politicians sought to exploit an apparent loophole in the law “that allow[ed] them to raise taxes without voter approval by calling taxes ‘assessments’ and ‘fees’.”

2. Prop 26

In Sinclair Faints v. SBE, (“Sinclair”) (1997) 15 Cal.4th 866, the California Supreme Court held that a regulation with the primary purpose of a fee was not a tax. The Sinclair decision had the effect of making it significantly easier for state and local government to impose a fee for the regulation of a service which may result in incidental revenue to the government.

In November 2010, Proposition 26 (“Prop 26”) was enacted by initiative to amend Art. XIII C, and XIII D to address “hidden taxes” and overturn the Sinclair case. Prop 26 overturned Sinclair by requiring with respect to Legislature-imposed fees that any change in state statute which results “in any taxpayer paying a higher tax” must be enacted with two-thirds approval of the Legislature. Voter Information Guide, p. 59.

With regard to fees imposed by local government, Prop 26 amended Art. XIII C (Prop 218) to broaden the definition of “tax” “as used in this article,” to mean “any levy, charge, or exaction of any kind imposed by a local government” unless the charge qualifies for one of seven exceptions. Art. XIII C §1(e).

Prop 26’s definition of a “tax” now applies to all levies, charges or exactions of any kind except the following:

(1) A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege to the payor.

(2) A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product.

(3) A charge imposed for the reasonable regulatory costs to the local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof

(4) A charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property, except charges governed by Section 15 of Article XI.

(5) A fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law.

(6) A charge imposed as a condition of properly development.

(7) Assessments and property-related fees imposed in accordance with the provisions of Article XIII D.

Prop 26 also changed the law to require that a local government has the burden of proof by a preponderance of the evidence to establish it is not a tax. Art. XIII C § 1(e).

3. Redding

In Citizens for Fair REU Rates v. City of Redding, (“Redding”) (2018) 6 Cal.5th 1, the plaintiffs claimed that a city's annual transfer from its electric utility to the city's general fund ("PILOT") was a tax. The city’s the five-year plan projecting rate revenues and costs of service (including the cost of PILOT) showed that projected rate revenues were substantially less than the projected costs. The gap between rate revenues and costs was to be bridged with the surplus in the enterprise fund and revenues from a variety of non-rate sources. Id. at 17. The city argued that its utility's rate revenues were not used to cover the PILOT amount because it had sufficient non-rate revenue to fund the transfer. Id. at 17.

The California Supreme Court held: (1) the PILOT transfer itself was not a tax and (2) the proper test for determining whether a public utility's charge included a tax is "whether the rates paid by [the utility's] customers exceeded the reasonable costs of providing electrical service." Id. at 15. The court held that the rates charged may be lower than the reasonable costs of providing the service if the agency has sources of revenue other than the rates it imposes. Id. The court concluded that, even after the PILOT was excluded from cost, the rate charged to the ratepayers did not exceed the reasonable costs of providing electric service. Id. All rate revenues went to cover the utility's uncontested operating costs and the remaining unpaid shortfall as well as the PILOT were satisfied from the utility’s other sources of income. Because the PILOT was not paid out of rate revenues, it was not part of a charge imposed on ratepayers. Id. at 18-19.

C. Course of Proceedings

The court issued separate decisions for the two related cases.

1. BC 539160 (Saveedra)

On June 9, 2016, the court granted Saveedra’s FAP in part. The court ruled that the City’s fund structure is cash-based and its change to GAAP funds was not permitted by the City Charter. Dec. pp. 19-21. These accounting failures did not have an adequate nexus to the City Council’s decision to make the annual GFT and Petitioners had not shown that the City abused its discretion in making the GFT for fiscal years 2013-14. Dec., pp. 23-24. Petitioners were entitled to a judgment that the 2012-15 fiscal year GFTs were made from the GWP Surplus Fund to the General Reserve Fund in violation of Charter Section 22, and an injunction barring such future transfers. Dec., p. 30. Petitioners claim that that the City must return the GFT to the GWP Surplus Fund and to restore laid off GWP employees were denied. Dec., p. 30.

With respect to Prop 26, the court ruled that the City’s inclusion of the GFT in the 2013 electric rates as a cost of service to customers for fiscal years beginning 2014 violated Prop 26 unless the GFT was a reasonable cost of electric service. Dec., p. 28. The City argued that the GFT was a reasonable cost of service because it was a voter-approved tax, but the voters approved a transfer of funds between City accounts, not a tax. Dec., p. 28. The City argued that the GFT approximates what a private utility would pay in property taxes and franchise fees, but this was a fiction; GWP, which is a City department, is not obligated to pay property taxes or franchise fees to the City. Dec., p. 29. The City’s argument that utilities are entitled to make a reasonable profit was untenable under Prop 26. Dec., p. 29. Finally, the City’s argument that the GFT is funded by wholesale revenues was unsupported by the evidence and ignored the cost of providing wholesale electric service. Dec., pp. 29-30.

The court concluded that the City violated Prop 26 by including the GFT in the 2013 electric rates and charges to customers for fiscal year 2014 and Petitioners were entitled to a declaration to this effect. Petitioners sought mandamus directing the City to restore the GFT for fiscal year 2014 to the Electric Works Revenue Fund or else rebate these funds to GWP ratepayers. The court continued this issue to a separate remedy hearing set for August 11, 2016. Dec., p. 30.

On August 11, 2016, the court ruled that a writ of mandate would issue directing the City to (1) establish and maintain the funds mandated by the City Charter; (2) comply with City Charter Sections 17, 20, and 22; and (3) comply with Prop 26 (Art. XIII C) by ceasing to include the GFT in the electric rates charged to consumers unless and until a majority of the Glendale electorate approves the hidden tax in those rates.

A permanent injunction would issue enjoining the City from (1) merging some City Charter mandated funds and splitting up others; (2) converting the Electric Works Revenue Fund into an “income statement fund” and the GWP Surplus Fund into a “balance sheet fund”; (3) transferring funds from the Electric Fund to the General Fund, thereby bypassing the Electric Works Depreciation Fund and rendering it a mere budgeting tool for capital expenditures; and (4) charging customers the electric rates adopted on August 13, 2013 that include the GFT.

A declaratory judgment would issue that the City has a duty to comply with Charter sections 17, 20, and 22, and to comply with Prop 26. Finally, a writ of mandate would issue providing for rebates or restitution to the ratepayers in the amount of the GFT collected. The amount of the remedy as of June 30, 2017 was $61,071,000.

2. BS 147376 (Coalition)

At the June 9, 2016 merits hearing, the court granted Petitioner Coalition’s FAP in part. Similar to BC 539160, the court found that the City’s funding and accounting practices do not comply with its Charter, but these accounting failures did not have an adequate nexus to the City Council’s decision to make the annual GFT and Coalition had not shown that the City abused its discretion in making the GFT for fiscal years 2011-15. Dec., pp. 19-21. Coalition’s Charter claims (first through sixth causes of action) also did not seek to compel compliance. Instead, Petitioner sought mandamus to compel the City to return the GFT to the GWP Surplus Fund for fiscal years 2011-15. Dec., p. 25.

Coalition’s claims (ninth and tenth causes of action) concerning the transfer of funds from the Waterworks Revenue Fund to the City’s General Fund in fiscal years 2010 and 2011 were denied as procedurally defective in that the City’s demurrer to these claims had been sustained without leave to amend. The court indicated that Coalition could re-raise this matter at the remedy hearing. Dec., pp. 24-25.

The court granted the seventh and eighth causes of action, finding that the City violated Prop 26 by including the GFT in the 2013 electric rates and charges to customers for fiscal years 2014 to date. Coalition was entitled to a declaration that the City’s 2013 electric rate increase violated Prop 26 and an injunction preventing the City from increasing electric rates in the future based on the GFT without submitting the increase to a vote.

At the August 11, 2016 hearing on the remedies, the court ruled that Coalition was entitled to a declaratory judgment that the City has a duty to comply with Charter Sections 17, 20, and 22. Dec. p. 25. On the seventh and eighth causes of action, Coalition was entitled to a declaration that the City’s 2013 electric rate increase violated Prop 26 and an injunction preventing the City from applying the 2013 electric rates in the future based on the GFT without submitting the increase to a vote. Coalition also was entitled to a writ of mandate compelling City to credit ratepayers with the amount of the GFT paid from August 2013. Coalition was further entitled to a writ of mandate on the tenth cause of action compelling the City to return a total of $1,733,333.35 transferred from the Waterworks Fund to the City’s General Fund after February 2011.

3. The Glendale Decision

On December 27, 2018, the Second District Court of Appeal affirmed in part and reversed in part the trial court’s judgment in Case No. BS 147376. Glendale Coalition for Better Government v. City of Glendale, (“Glendale”) (2018) WL6804333 at 1. The appellate court affirmed the trial court’s decision on the City Charter accounting claim. Id. at 1. It also affirmed the trial court’s remedy for the accounting violations and that the City did not need to return the GFT transfers to GWP. Id.

The Glendale court agreed with the trial court that the electric rates set in 2013 exceeded the City’s reasonable costs in providing electric services and that the amount exceeding reasonable costs was a tax. Id. The trial court did not, however, determine whether the amount of tax in the 2013 increased from the tax imposed under prior rates. Id. Voter approval was not required if the tax previously imposed was not increased. Id. The appellate court remanded the remedy portion of the case for further proceedings to determine whether the electric rates imposed in 2013 increased the tax, requiring voter approval. Id.[2]

For the pertinent facts, the appellate court noted that the City increased electric rates in May 2006 using a base rate that would yield a “reasonable rate of return on investment” to effectuate the GFT. Id. at 3. At the beginning of the 2013 fiscal year, a credit rating agency lowered the GWP’s credit rating. Id. at 4. The City hired Borismetrics to conduct a cost of service analysis for GWP. Id. Borismetrics concluded that the City’s current rates did not recover GWP’s costs and relied on cash reserves. Id. The new rates proposed by Borismetrics included a charge to fund the annual transfer of GFT to the general fund. Id. The City’s general manager submitted a report to the City Council recommending a rate increase which would increase GWP’s reserves closer to the goal of $124 million and reduce operating costs. Id. On August 13, 2013, the City adopted a rate ordinance to raise electric rates. Id.

The court noted that voter approval was not required before 2010 for the City to impose a charge on consumers to generate revenue for the GFT. Id. at 9. After Prop 26, the amount of the 2013 rates in excess of reasonable costs of providing service was a tax under art. XIII C. Id. at 11. The amount of such excess must be determined by the trial court based on a resolution of conflicting evidence in the record. Id. The trial court must determine whether the amount of tax increased with the rates were amended in 2013, triggering the need for voter approval. Id. The court rejected the City’s claim that the GFT is a cost of service. Id. at 12.

In calculating the City’s reasonable costs, the court noted that the costs of service are based on the City’s projections when the rates were adopted. Id. Projected rates do not become unconstitutional because actual costs vary from projections. Id. The amount of reasonable costs includes the total costs for service projected when the rates were adopted even if the utility intends to pay a portion of the costs with non-rate revenue. Id. Contrary to the City’s argument, the reasonable cost of service may not include an amount necessary to fully replenish cash reserves because the City did not intend pay the unfunded portion of the cash reserves at the time the rates were adopted. Id.

Citing Redding, supra, 6 Cal.5th at 1, and Webb v. City of Riverside, (2018) 23 Cal.App.5th 244, the Glendale court held that ratepayers must bear the burden of covering the costs of service and have no right to benefit from a utility’s non-rate revenue. Id. at 13. The City contended that its rate calculations relied on non-rate revenues, most particularly wholesale revenue. Id. Coalition disputed that any non-rate revenue was included in the 2013 rate calculations. Id. The parties also disputed whether gross or net wholesale revenue (deducting the cost of generating the wholesale revenue) should be the pertinent number. Id. The trial court declined to resolve these issues because it took the City’s admission that the GFT was included in the rate calculation as binding that rate revenue funded the GFT. Id. Redding shows, however, that the City is not limited to the costs used to calculate rates in proving the total reasonable costs of service at the time rates were set. Id. The factual dispute whether non-rate revenue subsidized the retail rates must be remanded to the trial court for determination. Id.

Under either party’s calculation, the projected non-rate revenue did not fully cover the projected expense of the GFT; the City conceded that its wholesale revenue projection for 2013 was less than the GFT. The appellate court provided guidance to the trial court to resolve whether the amount of the rate in excess of the costs of service was a tax requiring voter approval. Id. A portion of the charge for electricity exceeded GWP’s reasonable costs of service. The amount in excess of costs, rather than the entire charge, is a tax under Prop 26. Id. at 14. The trial court’s task is to determine whether the tax increased under the 2013 rates. Id.

In an “Additional Facts” section, the court noted that a May 2006 staff report (“May 2006 Report”) to the City Council included an amount not attributable to cost of service, and rather was designed to provide a reasonable rate of return to GWP. Id. at 15. The rates were based on projected operating expenses and projected retail rate revenue with an annual GFT included. Id. Subtracting the GFT, projected rate revenue exceeded cost of service by $12,600,000, which was 13.66% of the projected rate revenue. Id.

GWP provided financial projections to Borismetrics which provided retail rate revenues of $170,690,622 for fiscal year 2014 and retail operating expenses of $164,897,661, not including a GFT of $20,607,000. Id. The excess amount charged to ratepayers based on GWP’s projections was projected to be approximately 3.51% of the operating expenses for fiscal year 2014. Id. It was not clear whether GWP’s forecast included the cost of funding cash reserves in the retail operating expenses. Id.

Increasing rates were projected for fiscal years 2015-18, with rate revenue gradually funding all but $9.6 million of GWP’s cash reserve requirement. Id. at 16. For fiscal year 2018, the projection was that operating revenue would exceed expense by 19.58% without considering contribution to cash reserves. Id. If GWP intended to contribute net retail income of $14,569,759 to cash reserves, revenue exceeded the total reasonable costs of service by 11.02%. Id. Borismetrics may have interpreted the data independently of GWP’s projections. Id. at 16-17.

In analyzing these Additional Facts, the court noted that the City has to comply with Prop 26’s voter approval requirements if it wanted to extend or increase the charges imposed in the 2006 rates. Id. at 16. Since the excess charge imposed in 2006 had no termination date, the 2013 rates did not “extend” the charge. Id. The trial court did not determine from the conflicting evidence about revenues and costs whether the excess charge was increased from the 2006 rates to the 2013 rates. The case must be remanded for the trial court to determine whether the amount of tax charged increased under the 2013 rates. Id. If so, the City would be entitled to present evidence of the actual costs of service during the fiscal years, including contributions to cash reserves and use of non-retail resources (wholesale revenue) to pay the annual GFT. Id.

The Court of Appeal issued the remittitur to the trial court on February 26, 2019.

C. Standard of Review

“A writ of mandate may be issued by any court to any inferior tribunal, corporation, board, or person, to compel the performance of an act which the law specially enjoins, as a duty resulting from an office, trust, or station, or to compel the admission of a party to the use and enjoyment of a right or office to which the party is entitled, and from which the party is unlawfully precluded by such inferior tribunal, corporation, board, or person.” CCP §1085(a).

A traditional writ of mandate under CCP section 1085 is the method of compelling the performance of a legal, ministerial duty. Pomona Police Officers’ Assn. v. City of Pomona, (1997) 58 Cal.App.4th 578, 583-84. Generally, mandamus will lie when (1) there is no plain, speedy, and adequate alternative remedy, (2) the respondent has a duty to perform, and (3) the petitioner has a clear and beneficial right to performance. Id. at 584 (internal citations omitted). Whether a statute imposes a ministerial duty for which mandamus is available, or a mere obligation to perform a discretionary function, is a question of statutory interpretation. AIDS Healthcare Foundation v. Los Angeles County Dept. of Public Health, (2011) 197 Cal.App.4th 693, 701.

A ministerial act is one that is performed by a public officer “without regard to his or her own judgment or opinion concerning the propriety of such act.” Ellena v. Department of Insurance, (2014) 230 Cal.App.4th 198, 205. It is “essentially automatic based on whether certain fixed standards and objective measures have been met.” Sustainability of Parks, Recycling & Wildlife Legal Defense Fund v. County of Solano Dept. of Resource Mgmt., (2008) 167 Cal.App.4th 1350, 1359. By contrast, a discretionary act involves the exercise of judgment by a public officer. County of Los Angeles v. City of Los Angeles, (2013) 214 Cal.App.4th 643, 653-54.

Where a duty is not ministerial and the agency has discretion, mandamus relief is unavailable unless the petitioner can demonstrate an abuse of that discretion. Mandamus will not lie to compel the exercise of a public agency’s discretion in a particular manner. American Federation of State, County and Municipal Employees v. Metropolitan Water District of Southern California, (2005) 126 Cal.App.4th 247, 261. It is available to compel an agency to exercise discretion where it has not done so (Los Angeles County Employees Assn. v. County of Los Angeles, (1973) 33 Cal.App.3d 1, 8), and to correct an abuse of discretion actually exercised. Manjares v. Newton, (1966) 64 Cal.2d 365, 370-71. In making this determination, the court may not substitute its judgment for that of the agency, whose decision must be upheld if reasonable minds may disagree as to its wisdom. Id. at 371. An agency decision is an abuse of discretion only if it is “arbitrary, capricious, entirely lacking in evidentiary support, unlawful, or procedurally unfair.” Kahn v. Los Angeles City Employees’ Retirement System, (2010) 187 Cal.App.4th 98, 106. A writ will lie where the agency’s discretion can be exercised only in one way. Hurtado v. Superior Court, (1974) 11 Cal.3d 574, 579.

No administrative record is required for traditional mandamus to compel performance of a ministerial duty or as an abuse of discretion.

D. Analysis[3]

The City seeks a judgment on remand denying the remedies requested by Petitioners in BS 147376 and BC 539160 and limiting Petitioners to the relief not appealed by the City. The City asserts that the 2013 rates did not increase the grandfathered tax from the 2006 rates. Petitioners oppose.

1. The Estoppel/Waiver Issue

The City argues that the maximum excess revenue the 2013 rates were projected to achieve cannot exceed the 2013 Rate Study GFT ($21,107,000) because Petitioners only challenged the GFT in their pleadings and may not belatedly challenge any other aspect of the 2013 rates. See Jackson v. County of Los Angeles, (“Jackson”) (1997) 60 Cal.App.4th 171, 183 (setting forth elements of judicial and equitable estoppel). The excess revenue is at most equal to the amount of the GFT, and could be less. Petitioners are estopped from challenging any excess revenue that exceeds the $21,107,000 GFT. City Op. Br. at 13; Reply at 8-9.

The City does not specify what type of estoppel it alleges, merely citing the elements of both equitable and judicial estoppel. Equitable estoppel may be invoked by a party to prevent his opponent from changing positions from those taken in a prior proceeding, if the party meets three requirements, "he was an adverse party in the prior proceeding; (2) he detrimentally relied upon his opponent's prior position; and (3) he would now be prejudiced if a court permitted his opponent to change positions. Jackson v. County of Los Angeles, (1997) 60 Cal.App.41, 171.

Judicial estoppel is an equitable doctrine aimed at preventing fraud on the courts. Thomas v. Gordon, (2000) 85 Cal.App.4th 113. The focus is on whether a party has taken totally inconsistent positions in judicial proceedings where the prior position was successfully asserted, and the inconsistency is not the result of ignorance, fraud or mistake. Aguilar v. Lerner, (2004) 32 Cal.4th 974, 986-97. The doctrine should apply when: (1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud or mistake. International Engine Parts, Inc. v. Feddersen & Co., (1998) 64 Cal.App.4th 345, 350-51.

Petitioners respond that the amount of the tax based on excess revenue is not limited to the amount of the GFT. They point out that the City has the burden to prove that rate revenue does not exceed the cost of service. Art. XIII C, §1(e).[4] Thus, it is the City’s burden to prove any specific expense is a valid cost of service. Unlike the petitioners in Redding who conceded that every expense other than the PILOT was a reasonable cost, Petitioners make no such concession.

Petitioners argue that it is not “apparent how the scope of Petitioners’ pleadings can determine City’s funding intentions.” Opp. at 18. The doctrine of judicial estoppel is invoked to prevent a party from changing its position over the course of judicial proceedings when such positional changes have an adverse impact on the judicial process.” Jackson, supra, 60 Cal.App.4th at 181. The doctrine applies, only if “the seemingly conflicting positions [are] clearly inconsistent so that one necessarily excludes the other.” Id. at 182. Equitable estoppel may be invoked by a party to prevent his opponent from changing positions from those taken in a prior proceeding. Jackson, supra, 60 Cal.App.4th at 181. Opp. at 19.

According to Petitioners, neither judicial estoppel nor equitable estoppel prevents petitioners from asserting and the court from finding that, for any given year, the entire amount of projected excess rate revenue is the tax, even if that amount exceeds the GFT. Saavedra’s FAP alleged that the City transferred funds “in excess of the reasonable costs of any services.” AA 207 (¶78). The Coalition’s FAP did not even mention the GFT when it alleged that “the City increased electric rates charged to city rate payers without submitting the increase to a vote of the electorate in violation of Article XIIIC.” JA 280 (¶48). Opp. at 20.

The parties’ dispute is framed by Redding. Shortly before the date set for appellate oral argument in Glendale, the Supreme Court in Redding held that the PILOT transfer itself was not the tax, and not necessarily the measure of the tax. The court held that the proper test for determining the tax is whether the revenue produced by the rates exceeds the reasonable costs of providing the service. As Petitioners argue, nothing in Redding or Glendale even suggests that the amount of the transfer is the upper limit of the amount of excess revenue that constitutes the tax. Opp. at 20-21.

Redding explains why Petitioners now want to contend that a greater amount than the GFT is the tax, but the fact remains that only the GFT has been at issue in this case. The legal issue from Petitioners’ assertion that the GFT is unlawful is not estoppel, but rather waiver. The pleadings define the issues to be tried. If a party offers evidence at trial on an issue not pleaded, the opposing party may object for lack of relevance. Weil & Brown, Civil Proceedings Before Trial, ¶6:8, 6-8 (1998). In addition, the matters presented govern the scope of the trial and any appeal.

As the City persuasively argues, Petitioners never put the City on notice of any challenge to the 2013 rates other than the GFT. Reply at 8-9. Petitioners’ pleadings alleged that the GFT was a tax requiring voter approval. AA 204-08 (Saveedra FAP); JA 275-76 (Coalition FAP). Petitioners argued to both the trial court and the Glendale court that the GFT was a tax; Petitioners never argued that any amount of excess revenue was a tax other than the GFT. AA 2632 (trial court Saveedra decision); JA 2798 (trial court Coalition decision); Glendale, supra, 2018 WL 6804333 at 1. As a result, Petitioners have waived any contention that any excess revenue greater than the GFT was a tax.

Petitioners note that a variance between the pleading and the proof will not be deemed material unless it has actually misled the adverse party to his prejudice, and the variance may be disregarded when action has been as fully and fairly tried on the merits as though the variance had not existed. Cooper v. Board of Medical Examiners, (1975) 49 Cal.App.3d 931, 942. Opp. at 20. They also contend that the City failed to object at trial or on appeal to a variance between petitioners’ pleadings and the evidence at trial, thereby waiving this contention. See Petaluma Bldg. Materials, Inc. v. Foremost Properties, Inc., (1960) 180 Cal.App.2d 83, 86-87. Opp. at 21.

This argument is untenable. The issue is not whether there is a variance between pleading and proof, but a change in legal theory based on Redding and the outcome of Glendale. Petitioners never alleged before Glendale that any amount of excess revenue other than the GFT was a tax, never amended their pleadings even post-Glendale, and it is too late to do so now. Petitioners cannot blame the City for failing to object to an issue not raised until the post-Glendale briefing.

Petitioners have waived any challenge that excess revenue exceeding the amount of the GFT is a tax. The test for a tax is governed by Redding, but in this case the GFT is the upper limit on that tax.

2. Projected Reserves as Part of Reasonable Cost

The amount in excess of reasonable costs is a tax under Prop 26. Glendale, supra, 2018 WL 6804333 at 13. The amount of reasonable costs includes the total costs for service projected when the rates were adopted, including projected reserves. Id. at 14.

Apart from legal waiver, the City argues that Petitioners are limited to challenging the GFT because the facts show that any excess rate revenue other than the GFT was intended to fund reserves. City Op. Br. at 16.

Petitioners note that the City has the burden to prove that rate revenue does not exceed the cost of service, including reserves as a valid cost of service. Art. XIII C, §1(e). The City claims the record shows it intended to fund reserves with any excess revenue greater than the amount of funding needed to pay for the GFT, but it cites the Glendale decision’s calculations based on the pro forma model, not the rate-making record. See City Op. Br. at 17. In the passage cited by the City, the Glendale court stated: “It is not clear from [GWP’s] forecast [in the pro forma model] if the cost of funding cash reserves was included in the retail operating expenses or was considered a separate cost.” 2018 WL 6804333 at 15. In discussing the excess revenue in fiscal year 2018, the court said “if [GWP] intended to contribute net retail income of $14,569,759 to its cash reserve requirement,” the total reasonable costs of service would be greater than the amount projected in the pro forma model. Id. (emphasis added).

Petitioners correctly note that the Glendale court never found that the City in fact intended to fund reserves with a portion of the excess retail revenue, and the City admitted as much in its opening brief. City Op. Br. at 18 (the appellate court “was unsure whether or to what extent record data showed intent in 2013 to fund reserves….”). Opp. at 18-19.

However, the City cites the evidence concerning projected reserves as a cost of service. Borismetrics’ Cost of Service Report (“Rate Study”) explained that currently retail revenues were not covering all of GWP’s costs and its cash reserves were being used instead. AR 342. Cash balances were unsustainably low and cash reserves would continue to fall unless rate increases were put in place. AR 342. The 2013 rate increase was meant to restore $114.4 million of the City Council’s policy target of $124 million in reserves. AR 374, 378–79, 444–45. The Rate Study indicated that rate revenues would generate approximately $67 million in reserves over five years from fiscal years 2013–2014 through 2017–2018. See AR 342, 355.

Reserves do not appear as a line item in the Rate Study or the pro forma model. AR 364–67, 2131–78. Instead, “Cash Generated from Operations” generally is used to increase reserves. AR 2179–81. The pro forma model provided by GWP staff to Borismetrics shows that GWP expected to generate approximately $39 million above costs other than reserves, from FY 2013–2014 through FY 2017–2018. See AR 2133 (total of “net income from retail operations” from fiscal year 2014 to 2018). City Op. Br. at 16.[5]

Any revenue the 2013 rates were projected to generate in excess of costs, beyond the challenged GFT, was earmarked for reserves. The City’s rates consultant explained the 2013 rates were meant to fund reserves: “With the proposed series of annual rate increases, … [c]ash reserves approach but do not reach the City Council’s policy target of $124 million.” AR 342. The City’s staff report also explained: “For purposes of the revenue requirement and the GWP rate design, GWP focused its effort on restoring the level of reserves to the $124M amount established by City Council policy.” AR 266; see also AR 268. Reply at 7.

The City’s evidence shows that excess revenue was intended to fund the City’s required reserves, albeit not to the policy target of $124 million. AR 378-79, 444-45. Petitioners cite no evidence to disprove the City’s intent for reserves. Accordingly, any excess revenue the 2013 rates projected above the GFT was intended to fund reserves. Reply at 7-8.

Petitioners also argue that the court’s remand instructions are clear: “[I]f ratepayers are entitled to recover the amount of a tax increase as a remedy, the City may show that the actual costs of service paid by [GWP] were greater than the projected costs, including contributions to cash reserves….” Glendale, supra, 2018 WL 6804333 at 16 (emphasis added). Opp. at 21. Petitioners note that the City has not attempted to make a showing of actual contributions to reserves and argue that it could not do so. This is because the actual revenue generated by the rate increase was far greater than the amount needed to fund the cash reserve target. Vondle Decl. ¶30; PEX 8. By the end of fiscal year 2018, the final year of the rate increase, the City had accumulated a staggering $242.3 million in cash and cash equivalents. PEX 6, p. 137; PEX 8. This number increased to $270.8 million at the end of fiscal year 2019. PEX 7, p. 142. Thus, even after designating $124.1 million as the target for cash reserves, the City had amassed $146.7 million in excess cash as a result of the tax charged to ratepayers.  Opp. at 21.

The short answer is that the City does not rely on actual costs of service; it is relying on the projected costs, including projected reserves, to show that no excess revenue was projected beyond the GFT. The Glendale court stated that the calculation of reasonable costs is the total costs projected to provide service when the rates are adopted. 2018 WL 6804333 at 12. If excess revenue actually was obtained because projected costs were overestimated or because either rate or non-rate revenue exceeded projections, that does not affect the tax determination.

Because the City intended to fund reserves with all excess revenue beyond the GFT, the GFT is the only amount at issue for purposes of a tax increase in the 2013 rates.

3. The 2006 Tax

a. The Glendale Decision’s Factual Determination Is Not Binding

The City notes that the Glendale court instructed this court “to determine whether the amount of the tax charged by the City increased under the 2013 rates, such that the City was required to obtain voter approval to impose the increase.” 2018 WL 6804333 at 16. According to the City, the appellate court found conflicting evidence for the 2013 rate-making because it was unsure whether or to what extent the record showed the City’s intent in 2013 to fund reserves, or to use non-rate revenue to fund the GFT. Yet, the court had no such difficulty for the 2006 rates. The appellate court determined that 2006 rates yielded 13.66% more than projected costs of service, excluding the GFT:

“The rates that became effective in 2007 were based on projected operating expenses of $104,847,000, and retail rate expenses of $110,501,000, a sum that included $18,254,000 for the annual transfer to the general fund. After subtracting the amount of the annual transfer, the costs of service recovered from retail rate revenue were therefore $92,247,000. Rate revenue exceeded the costs of service by $12,600,000.” Glendale, supra, 2018 WL 6804333 at 15. City Op. Br. at 18.

The City contends that the Glendale decision consistently limited its remand for the trial court to review the events of 2013:

a. “[T]he portion of the judgment that ordered remedies for tax violations must be reversed and the case remanded for the trial court to determine whether the 2013 rates increased the tax, requiring voter approval.” 2018 WL 6804333 at 1;

b. “The trial court, however, will have to resolve conflicting evidence in the record to determine whether the amount of the tax increased when the rates were amended in 2013, triggering the need for voter approval.” Id. at 11;

c. “The judgments must be reversed for the trial court to determine whether the tax increased under the 2013 rates.” Id. at 14; and

d. “The trial court did not determine from the conflicting evidence about revenues and costs employed in the rate setting process whether the excess amount of the charge was increased in the 2013 rates from the amount of the charge under the 2006 rates. The portions of the judgment declaring the 2013 rates invalid and requiring rebates to ratepayers based on the amount of the annual transfers under the 2013 rates must be reversed. The cases must be remanded for the trial court to determine whether the amount of the tax charged by the City increased under the 2013 rates, such that the City was required to obtain voter approval to impose the increase.” Id. at 16. Reply at 15.

The City notes that an appellate court’s instructions on remand are binding. Ayyad v. Sprint Spectrum, L.P., (2012) 210 Cal.App.4th 851, 859–60 (“if the reviewing court does not direct the trial court to take a particular action or make a particular determination, the trial court is not authorized to do so”); Karlsen v. Superior Court, (2006) 139 Cal.App.4th 1526, 1530 (same). The City concludes that the Glendale court was confident of the evidence concerning the City’s 2006 ratemaking, and it simply did not conclude whether the 2013 rates set the tax rate above or below the 2006 baseline. See Glendale, supra, 2018 WL 6804333 at 16. The City argues that the Glendale court decided that the grandfathered tax implicit in the 2006 rates was 13.66% of lawful service costs, and nothing in Glendale’s remand directed this court to investigate the events of 2006. City Op. Br. at 18.

Additionally, the City notes that the law of the case doctrine provides that “the decision of an appellate court, stating a rule of law necessary to the decision of the case, conclusively establishes that rule and makes it determinative of the rights of the same parties in any subsequent retrial or appeal in the same case.” Sargon Enterprises, Inc. v. University of Southern California, (“Sargon”) (2013) 215 Cal.App.4th 1495, 1505. This doctrine “promotes finality by preventing relitigation of issues previously decided,” and it applies both to questions the appellate court squarely decided and “to questions that were implicitly determined because they were essential to the prior decision.” Ibid. The law of the case doctrine applies “even if the court that issued the opinion becomes convinced in a subsequent consideration that the former opinion is erroneous.” Santa Clarita Organization for Planning the Environment v. County of Los Angeles, (2007) 157 Cal.App.4th 149, 156. The City argues that the Glendale court’s finding of a 13.66% grandfathered tax in 2006 was necessary to its decision. Because it also constitutes a decision about whether a charge is a tax under Prop 26, it is a binding decision of law. See California Cannabis Coalition v. City of Upland, (2017) 3 Cal.5th 924, 934 (courts “apply independent judgment when construing constitutional and statutory provisions,”). City Op. Br. at 19.

The City concludes that, whether the 13.66% tax in the 2006 rates is a pure finding of fact or a necessary result of the Glendale court’s legal conclusion about how Redding requires the 2006 record to be interpreted, this court is not tasked to review the City’s 2006 rates. Absent language in the remand, the court has no jurisdiction to revisit that issue and the 2006 tax issue is settled. City Op. Br. at 19; Reply at 15-16.

The court does not agree. As Petitioners argue, this court is not bound by Glendale’s analysis of the May 2006 Report. Opp. at 16. The appellate court remanded the case “for the trial court to determine whether the amount of the tax charged by the City increased under the 2013 rates, such that voter approval was required.” Glendale, supra, 2018 WL 6804333 at 16. In order to make that determination, this court is within the scope of the remand directions to consider whether the “Additional Facts” discussed by the appellate court state the full picture.

Nothing in the City’s quotations from the Glendale decision limits the trial court’s determination of the tax in 2006. While the appellate court expressed uncertainty with respect to the 2013 rates -- inter alia, the projection of cash reserves and Borismetrics’ independent interpretation of GWP’s data -- and it did not do so concerning 2006 (Id. at 12-13), that fact does not mean that the court purported to provide a definitive conclusion about the 2006 grandfathered tax. This is particularly true because neither party briefed the May 2006 Report for the appellate court, and it only was discussed at oral argument. PEX 1, p. 53. Opp. at 9.

Nor is the Glendale decision’s discussion of the May 2006 Report and its conclusion about a 13.66% tax the law of the case. Under the law of the case doctrine, “‘the decision of an appellate court, stating a rule of law necessary to the decision of the case, conclusively establishes that rule and makes it determinative of the rights of the same parties in any subsequent retrial or appeal in the same case.’” Sargon, supra, 215 Cal.App.4th at 1505 (citation omitted). The Glendale court’s calculation of the 13.66% ratio of tax for 2006 is not a rule of law determinative of the parties’ rights. “It is settled beyond controversy that a decision of [the] court on appeal, as to a question of fact, does not become the law of the case.” Erlin v. National Union Fire Insurance Co., (1936) 7 Cal. 2d 547, 549 (citation omitted); Selby Constructors v. McCarthy, (1979) 91 Cal. App. 3d 517, 522 (law of the case “is exclusively concerned with issues of law and not fact.”). The 13.66% tax determination also was not “necessary to the decision of the case.” As Petitioners argue, it is difficult to see how the calculation of the 2006 rates, revenues, and service costs was necessary to the Glendale decision since the calculation of the tax increase is precisely what was remanded to the trial court. Opp. at 16-17.

The Glendale court’s determination of the 2006 grandfathered tax as 13.66% is not binding for this court’s determination on remand.

b. The Correct 2006 Grandfathered Tax

Petitioners note that the May 2006 Report was the only evidence in the appellate record that pertained to the City’s 2006 rate increase. Analyzing the numbers in the report, the Glendale court attempted to provide some guidance to the parties and the trial court. The May 2006 Report expressly stated that “there are two components in the GWP electric rate structure: a base rate component and a fuel adjustment component.” Vondle Decl., ¶25.[6] Because the parties never analyzed the May 2006 Report in their appellate briefs, the appellate court only examined the base rate chart and failed to include the second component, a fuel adjustment charge (“FAC”). Vondle Decl. ¶24, 28. Opp. at 15.

The City replies that the appellate court correctly ignored the FAC because in 2006 the base rate and FAC existed as different charges to cover different costs. The base rate in the May 2006 Report was the only charge that recovered the GFT. AA 1173 (city services included as “cost driver” for base rate). The FAC captures the volatile costs of “fuel and purchased power.” AA 1175. The FAC was designed as a pass-through charge “to recover the costs of fuel and purchased power.” AA 1175. It had no connection to the GFT and it does not make sense to include costs known to fluctuate rapidly in base rates expected to be stable. The base rate alone was set to “include a reasonable rate of return on investments to effectuate the transfer to the City’s General Fund.” AA 1172, 1173. It was therefore appropriate to limit analysis of the 2006 rate to the base rate, and to find a preexisting tax of 13.66%. City Op. Br. at 20; Reply at 16.

Petitioners correctly respond that the City’s argument -- that the appellate court “correctly ignored the FAC” because the base rate was used to fund the GFT -- is a non-sequitur. The focus of the Glendale decision’s inquiry was not how the GFT was funded, but rather whether the rate revenue exceeded the costs of service in fiscal year 2006-07 and, if so, in what amount. The City provides no legitimate reason to exclude the FAC as a charge. Moreover, if the Glendale court correctly ignored the FAC for 2006, it should have ignored the FAC for 2014 and 2018 in order to compare “apples to apples”. Vondle Decl., ¶24.

The 2006 tax must be calculated by using both the base rate and the FAC. According to Petitioners, when the FAC is added to the base rate, the result is decidedly different than found by the appellate court. Vondle Decl., ¶¶ 25, 27; PEX 5. However, Petitioners use Vondle to project expense numbers from 2009 to 2011. These numbers are not included the City’s 2006 projections. Independent expert review is not permitted in evaluating the City’s 2006 ratemaking; only which the City Council relied may be reviewed to project rates. Nor was this court directed to conduct such an evaluation. Reply at 16.

As the City shows, the use of the FAC with the base rate in the May 2006 Report reduces the 2006 grandfathered tax to 9.42%:

Table 7: 2006 Tax with Base Rate and FAC for FY 2008[7]

Base Rate Revenue

$104,847,000

+ FAC Revenue

+ $57,938,000

= Total Rate Revenue

= $162,785,000

Base Rate Expenses w/o GFT

$92,247,000

+ FAC Expenses

+ $56,530,000

= Total Permitted Costs

= $148,777,000

Excess: Rate Revenue – Permitted Costs

$14,008,000

Tax = Excess ÷ Total Permitted Costs

9.42%

Petitioners argue that the tax is the amount of excess revenue over reasonable cost of service, not a ratio. Petitioners acknowledge that the Glendale court compared the numbers by creating ratios, but argue that the appellate court did not hold that the ratios determined the tax. They contend that doing so would contradict the court’s holding that the formula for determining the tax is whether the rate revenues exceed the cost of service. Prop 26 does not support the use of a formula to determine whether a tax increased from one year to another and would hide a gross tax increase if both revenue and costs doubled from year to year. Opp. at 13-15.

As the City replies, Glendale used the May 2006 Report to calculate the grandfathered tax through a percentage. 2018 WL 6804333 at 12. The Glendale court’s analysis is law of the case and is all the authority this court needs. Moreover, the nature of this case requires use of a percentage. The court is not simply determining whether the 2013 rates contain a tax due to retail rates exceeding the reasonable cost of service. The court instead must determine whether the tax in the 2006 rates increased in the 2013 rates. This requires a comparison of percentages, not gross numbers. Once the increase is determined by percentage, that number can be converted to an actual number for purposes of a remedy. The City also points out that taxes are commonly stated as percentages. See, e.g., Cal. Const. art. XIII A, §1(a) (1% property tax); Rev. & Tax. Code §6051 (4.75% sales tax). Even the GFT is calculated as a percentage. AA 383. Reply at 14-15.

The 2006 grandfathered tax was 9.42%.

4. The Relevance of Fiscal Year 2011

Prop 26 for the first time defined a “tax” as any “levy, charge, or exaction imposed by a local government” except a charge that “does not exceed the reasonable costs to the local government of providing the service or product.” Art. XIII C, §1(e). “No local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote.” Art. XIII C, §2(b). Prop 26 became effective on November 3, 2010. Prior to Prop 26’s effective date, local governments could lawfully impose electric rates that exceeded the costs of service. Redding, supra, 6 Cal.5th at 18 (citation omitted).

Petitioners rely on Prop 26’s effective date and contend that the critical question is: Did the 2006 rates result in excess revenue in fiscal year 2011? While the rate revenue may have remained the same as fiscal year 2007, the costs of providing the electric service doubtlessly went up, reducing the amount of the excess. Because Prop 26 took effect in fiscal year 2011, Petitioners argue that this court must compare fiscal year 2014 to fiscal year 2011 to determine whether the tax increased. Any excess revenue produced by the City’s 2006 rates in the fiscal years before Prop 26’s effective date was not, by definition, a tax. Therefore, to determine whether the tax increased in fiscal year 2014, this court must compare the tax in fiscal year 2010-11 to the amount of the tax in fiscal year 2014. Opp. at 10.[8]

Fiscal year 2011 does not have any bearing on this court’s calculation of the tax increase from 2006 to 2013; Prop 26’s effective date bears only on the date on which the tax increase would be illegal. As the City correctly notes (Reply at 10), the Glendale court held that the relevant comparison is between the tax in the City’s 2006 rates and that in the 2013 rates. 2018 WL 6804333 at 13. The court found that the tax implicit in the 2006 rates has never been “extended”. Id. Therefore, the issue was whether the excess amount of the charge was “increased” in the 2013 rates from the amount charged under the 2006 rates. Id.

Thus, the tax implicit in the City’s 2006 rates was imposed when those rates were legislated in 2006, has never been extended, and could not have been increased until the City adopted the 2013 rates. The Glendale decision’s legal determination is law of the case and fiscal year 2011 is irrelevant to the tax increase calculation. Reply at 10-11.

Nor could there be competent evidence from GWP’s actual finances in fiscal year 2011. Analysis of the tax is governed by projections when the City set rates, not subsequent history. “Common sense dictates that the reasonable costs of service are measured by the amount of costs that the utility projected it would need to pay when the rates were adopted.” Glendale, supra, 2018 WL 6804333 at 12. The May 2006 Report on which the Court of Appeal relied projects no data for fiscal year 2011 (AA 1170–79), and the May 2006 Report is the only known record that was before the City Council when it adopted the 2006 rates. Kuennen Decl., ¶6. This is because in 2006 the City had no duty to prepare a rate study or make a record comparable to Borismetrics’ Rate Study prepared in 2013. Reply at 11.[9]

Fiscal year 2011 is irrelevant to the court’s calculation of tax increase from the 2006 rates to the 2013 rates.

5. The June 2006 Performance Report

a. Relevance

Petitioners rely on a June 2006 “Monthly Financial Performance Report” (“June 2006 Performance Report”) prepared in the same format as the GWP staff’s five-year pro forma model relied on by the Glendale court. PEX 3, p. 95; Vondle Decl., ¶¶ 22-23. The June 2006 Performance Report projected that the City would receive $163,347,000 in retail revenue and would incur $169,863,000 in operating expenses during fiscal year 2011, meaning the rate revenue would be $6,516,000 short of covering the costs of service. PEX 3. p. 96. Thus, the 2006 retail rates did not produce a tax in the year in which Prop 26 took effect and the 2014 retail rates produced an increase in the tax from $0 to $5,792,961 in fiscal year 2014, and even larger sums in the other four fiscal years of the 2013 rate increase. PEX 2, Vondle Decl. ¶ 23. Opp. at 11-12.

Petitioners argue that the June 2006 Performance Report is the most reliable evidence available to determine what the City projected the excess to be in fiscal year 2010-11 when Prop 26 took effect. Vondle Decl., ¶22. An April 25, 2006 draft of the June 2006 Performance Report projects the same $6,516,000 operating loss as the final June 2006 Performance Report. PEX 10-11; Curry Decl., ¶¶ 11-12. When the City produced the June 2006 Performance Report in discovery, its attorney stated that the City was “unaware whether the [the Report was] used to develop the 2006/2007 rates, or whether the numbers included are accurate or match the adopted rates” and “it does appear that none of these documents were provided to the City Council when it adopted the 2006/2007 electric rates.” PEX 29, 31 (emphasis added). Opp. at 12.

Petitioners argue that the City does not dispute the authenticity of the June 2006 Performance Report and it has not presented any evidence to suggest that the report does not accurately reflect projections made around the time the City set the 2006 rates. PEX 4, pp. 125-32. The City’s claimed lack of knowledge about the purpose or accuracy of report does nothing to undermine the projections of revenues and costs it makes. The projections are consistent with those in the May 2006 Report which, however, only projected rate revenue and costs through fiscal year 2008. AA 1170-117; Vondle Dec., ¶ 21; PEX 5. Any doubts about the accuracy or significance of the June 2006 Performance Report’s projections should be resolved in Petitioners’ favor. See Declaration of D. William Heine. Petitioners submit that June 2006 Performance Report conclusively shows, when compared to the pro forma model’s projections, that the City increased the tax in fiscal year 2014 and the four subsequent fiscal years. PEX 2. Opp. at 12.

The June 2006 Performance Report is irrelevant, no matter how close in proximity it was to the May 2006 Report. The City did not create a rate study in 2006 and had no duty to do so. There is no evidence that the City Council relied on projections other than those contained in the May 2006 Report for fiscal years 2007 and 2008. The June 2006 Performance Report is irrelevant because it was not before the City Council when it set the 2006 rates.

Nor do Petitioners cite any authority for their claim that the court must presume that the June 2006 Performance Report is both accurate and relevant. The court agrees that the City bears the burden of proof -- including that the rates are no more than necessary to cover the reasonable costs of service. Because it has the burden of proof, the City also has the burden of producing the evidence that was before the City Council in 2006. See Evid. Code §550.[10] But the City’s burden does not mean that the June 2006 Performance Report, or any of the information in it, must be presumed to have been part of a May 2006 rate-making proceeding.

In response to Petitioners’ requests for “projections the City developed, consulted or used to forecast financial results”, the City produced documents whether or not the information was used in the 2006 ratemaking. Heine Decl., Ex. 28, p. 9 (RFP No. 3). The City explained that it could not verify the data in the reports -- including the June 2006 Performance Report – because the reports were drafts prepared from unaudited financials. Heine Decl., Ex. 29, pp. 15–16. Therefore, the June 2006 Performance Report’s accuracy is unverified.

More important, the City’s evidence supports a conclusion that the information in the June 2006 Performance Report was not before the City Council. GWP prepared and used the monthly reports to develop financial ratios for ‘trend analysis” and comparison to other utilities. Kuennen Decl. ¶4. GWP generated these monthly reports for internal use only. Based on the GWP deputy general manager’s knowledge, GWP never distributed these reports to the City Council. Kuennen Decl. ¶6. Disagreements over their data and usefulness led GWP to discontinue these monthly reports in approximately fiscal year 2013-2014. Kuennen Decl. ¶7. Reply at 11.

In sum, Petitioners have not demonstrated that the information in the June 2006 Performance Report was relied upon for 2006 rate-making, and the City’s evidence is otherwise. Therefore, the June 2006 Performance Report is irrelevant. Reply at 12.

b. Significance

The City also suggests that the June 2006 Performance Report supports the City’s position. Redding requires comparison of rate revenue to all service costs, not just operating costs. “Of course, what it costs to provide such services includes all the required costs of providing service, short-term and long-term, including operation, maintenance, financial, and capital expenditures.” Howard Jarvis Taxpayers Ass’n v. City of Roseville, (2002) 97 Cal.App.4th 637, 647–48 (applying Prop 218). Glendale followed Redding in concluding that ratepayers bear the burden of covering the costs of service and have no right to benefit from a utility’s receipt of non-rate revenue in calculating rates. 2018 WL 6804333 at 10.

The City argues that Petitioners err under Redding in deducting projected non-operating costs from non-operating revenues to calculate the tax in the 2013 rates. Reply at 9 (citing Opp. at 18). Rather, the City may recover all of its utility costs through rates, even if the City planned to offset those costs with non-rate revenue. Reply at 10 (citing Redding, supra, 6 Cal.5th at 17). Accordingly, this court must calculate the tax implicit in the 2013 rates by comparing projected rates to total service costs, including non-operating costs but without non-operating revenues. The non-operating costs include planned reserves. Reply at 10.

The City notes that Redding reviewed data regarding non-retail rate revenues for Redding’s electric utility (wholesale sales and a general fund payback) and described Redding’s retail rates as “operating revenues”. 6 Cal.5th at 20 (Appx. A). However, when it compared revenues to costs for purposes of identifying any tax, the Redding decision cited only retail rate revenues and all expenses (not just operating expenses) which those rates might lawfully recover. Thus, it compared $102.1 million in rate revenue to expenses for “power supply ($82.3 million); operations and maintenance ($28.5 million); debt service ($13.9 million); revenue-funded capital projects ($5.2 million); rolling stock and major plant maintenance ($0.8 million); and the PILOT ($6.0 million).” Id. at 17, 20. Accordingly, even omitting the challenged PILOT (a GFT-like transfer), ratepayers were charged less than the cost to serve them, and there was no tax. City Op. Br. at 15.

According to the City, Redding explained that utilities are not required to subsidize service with non-rate revenues, so ratepayers may be charged the total costs of service. 6 Cal.5th at 18 (“Article XIII C does not compel a local government utility to use other non-rate revenues to lower its customers’ rates”). The Glendale court so applied Redding. 2018 WL 6804333 at p. 10 (“ratepayers bear the burden of covering the costs of their service, and have no right to benefit from a utility’s receipts of non-rate revenue in the calculation of rates”). The City concludes that the court must compare the proceeds of retail rates to all costs of service to determine if utility rates constitute a tax. City Op. Br. at 15-16.

The City prepares a table (Table 8) which includes the costs of wholesale operations (but not its revenues) and argues that Petitioners miscalculated the grandfathered tax. For fiscal year 2011, even without accounting for reserves, the table reveals $215,522,900 in expenses, or $195,696,900 when the GFT is subtracted. PEX 3; di Cristina Decl. Ex. A. This $195,696,900 exceeds the $163,347,000 in retail revenue by $32,349,900, showing that the fiscal year 2011 rates did not exceed costs. The City performs a similar analysis in Table 8 for fiscal years 2015-2018 using the June 2014 Performance Report. Reply at 12-13.

The City’s interpretation of Redding and Glendale is overbroad. Redding held that Prop 26 requires that the charge imposed on ratepayers not exceed the reasonable cost of providing the service, but Prop 26 does not require a city to subsidize rates with non-operating revenues. 1 Cal.5th at 18. Redding did not hold the converse -- that a city may use retail rate revenue to subsidize non-operating revenues.

Under Redding and Glendale, the City may include all costs of service in its rates, but it may not include costs unrelated to service. In particular, the City may not include costs associated with generating non-operating revenues, at least unless there is a nexus between the service and those non-operating revenues. Under Prop 26, rates must be supported by the reasonable cost of service. Redding does not permit a city to impose its wholesale costs on ratepayers in determining the reasonable costs of retail service under Prop 26, at least unless there is a nexus between the wholesale costs and some benefit to ratepayers. See post.

This conclusion does not affect the fact that the May 2006 Report did not project data for fiscal year 2011 and the June 2006 Performance Report that did so is irrelevant.

6. The Borismetrics Rate Study

The question is whether the 2013 rates increased the 9.42% grandfathered tax in the 2006 rates. The parties dispute whether Borismetrics cost-of-service analysis (Rate Study) or GWP staff’s pro forma model should be used to determine the tax rate for fiscal year 2013.

To set the 2013 electric rates, the City commissioned Borismetrics to prepare the Rate Study. AR 338-79. The City Council relied on that Rate Study to approve those rates. AR 680. The Rate Study calculated GWP’s “revenue requirement”, which is the total revenue the utility needs to provide electric service. The revenue requirement for the 2013 rates was $197,764,000 per year. AR 353, 364–65. The Rate Study also projected a GFT of $21,107,000 per year. AR 365. The Rate Study does not include the GFT in the $197,764,000 revenue requirement; the GFT is separately listed as “Transfers to Other Funds”. AR 365. Accordingly, the entire $197,764,000 revenue requirement constitutes the permitted annual costs the City projected it would need to recover through the 2013 rates. City Op. Br. at 10-13.

The Rate Study did not project retail rate revenue as the City had done in 2006. Hence, an excess revenue calculation cannot be performed directly. The City relies on the fact that the maximum excess revenue cannot exceed the GFT ($21,107,000) as discussed ante. Thus, the excess revenue is limited to the amount of the GFT.[11]

The Rate Study identified $25,089,000 in non-operating expenses related to power management ($5,946,000) and electric services ($19,143,000). Omitting these from the $197,764,000 revenue requirement leaves $172,675,000 in permitted costs, resulting in a maximum tax of 12.22%:

Table 5: 2013 Tax w/o Non-Operating Expenses

Max Excess Revenue (GFT)

$21,107,000

Permitted Costs (Operating Expenses)

÷ $172,675,000

Tax: Excess Revenue ÷ Permitted Costs

= 12.22%

City Op. Br. at 13 (Table 5).

Applying the Rate Study’s data on which the City Council relied to set the 2013 rates, the City projected a 2.8% increase in the 2006 tax (12.22%-9.42%), and violated Prop 26 by adopting new rates in 2013 which increased the tax embedded in the GFT without voter approval.

7. The Pro Forma Model

a. Relevance

Petitioners note that the Rate Study did not project the rate revenue and costs for fiscal year 2013-14, but the pro forma model did. AR 2131-78. The Rate Study says as much. AR 354 (Borismetrics reviewed pro forma financial model provided by GWP staff which projected future expenses and revenues). Petitioners assert that the City’s argument that the Rate Study reached its own conclusion for GWP’s revenue needs is unsupported by evidence. Instead, the Rate Study’s revenue requirement for 2011-12 was used exclusively to determine the allocation of costs among the four classes of retail customers and not, as the City contends, to determine the amount of the 2013 rate increases. AR 353; Vondle Decl. ¶¶ 14, 16-19. The Rate Study states that “the functionalization, classification, and allocation factors developed from the test period FY 2011-12 were applied to the projected revenue requirements (from the pro forma model) to determine the rate increases for each customer class.” AR 354; Vondle Decl. ¶16. The 2013 rate increases were calculated in the pro forma model’s “Revenue and Rate Analysis” (AR 2132), which Borismetrics simply accepted for its cost allocation. Vondle Decl. ¶¶ 17-18. Opp. at 13.

The evidence supports the City’s contention that the Rate Study, not the pro forma model, is the applicable report. The City Council cited the Rate Study in adopting the 2013 rates. AR 680-81. In turn, Borismetrics used GWP’s pro forma model in preparing the Rate Study. However, the Rate Study and pro forma model differ. The Rate Study based its revenue requirement (and its subsequent projection of rates) on audited data from a test year, fiscal year 2011–2012. AR 351. The Rate Study and the pro forma model organize that data differently and draw different conclusions. The Rate Study breaks out fiscal year 2011–2012 cost data into three categories (Power & Transmission, Distribution, and Customer Service) to calculate a revenue requirement of $197,764,000. The pro forma model uses different categories (Operating Expenses, Non-Operating Expenses, Wholesale Expenses, and Customer Funded Capital) to calculate a revenue requirement of $201,554,100. AR 2153.

The Rate Study references the pro forma model only to note that “GWP staff provided a pro forma financial model which Borismetrics reviewed as part of the COSA study. … The result of this modeling is that in order to restore and maintain financial stability, debt service coverage and cash reserve margins, average annual retail rate adjustments of 8%, 8%, 5%, 2% and 2% are required for FY 2013–2014 through FY 2017–2018.” AR 354. These percentage increases were recommended by both the pro forma model (AR 2132) and the Rate Study. AR 344.

Hence, Borismetrics presented its own evaluation of GWP’s needs in the Rate Study using, but not limiting itself to, the GWP staff-generated pro forma model. The pro forma model was part of the Rate Study, but it did not represent Borismetrics’ final conclusions as to GWP’s revenue requirements and the rates needed to fund them. City Op. Br. at 14-15.[12]

The City Council cited the Rate Study to make the 2013 rates, but there is no evidence that the City Council relied on the pro forma model. The court will only look to the evidence before the City Council when it took the challenged action; it will not look to evidence on which the City Council might have relied. See Santa Clarita Organization for Planning & Environment v. Castaic Lake Water Agency, (2016) 1 Cal.App.5th 1084, 1103 (“Judicial review of quasi-legislative agency actions is generally confined to the record that was before the agency”); City of San Buenaventura v. United Water Conservation Dist., (2017) 3 Cal.5th 1191, 1214 (remanding to consider whether record demonstrates rates comply with Prop. 26). The court might have reached a different conclusion if the Rate Study incorporated any specific conclusions from the pro forma model.

b. Calculation from the Pro Forma Model

If arguendo the pro forma model should be used, Petitioners contend that the model shows that the City projected a greater amount of “total operating revenues” than projected “total operating costs” to arrive at “total operating income” of $5,792,961 for fiscal year 2014 and $33,325,682 for fiscal year 2018. AR 2133; Vondle Decl. ¶32; PEX 2. According to Petitioners, the Glendale court ruled that that this projected excess revenue was a tax. Opp. at 18.

The City argues that the pro forma model shows no tax increase from the grandfathered 2006 tax. From the pro forma model, the City argues that the City Council must have intended any income shown to restore depleted reserves, which are a valid cost of service. Glendale, supra, 2018 WL 6804333 at 12 (City may include projected funding of cash reserves in cost of service). City Op. Br. at 16-17. Looking at fiscal year 2017–2018 as an example, the pro forma model projects $203,546,257 in “retail sales” (i.e., rate revenue) and $193,051,140 in operating expenses, non-operating expenses, and income to be set aside for reserves after funding the GFT. AR 2133. This results in “excess revenue” from rates to fund the GFT of $10,495,117 — 5.44% of permitted costs – which is lower than the 9.42% grandfathered tax. City Op. Br. at 18 (Table 6). Pro forma model data for other years lead to similar results. City Op. Br. at 17-18, 20-21.

Petitioners argue that the pro forma model shows that the City did not project to incur any net non-operating expenses in the fiscal years at issue. Opp. at 18. Table 6 of the City’s Opening Brief inaccurately counts non-operating expenses as “permitted” costs while ignoring offsetting non-operating revenues. Either the non-operating revenue should be added to the total retail revenue shown in the table or the non-operating expenses should be reduced to zero. Either way, the operating revenues do not reduce the amount of the tax found by the appellate court. (Vondle Decl., ¶ 29). Opp. at 18.

Petitioners are correct. The City may not rely on non-operating expenses in evaluating this tax. The court previously rejected the City’s argument that Redding requires a court to compare retail-rate revenue (and only such revenue) to the utility’s total costs (including wholesale revenue costs) to determine if there is excess revenue which may be a tax under Prop 26 unless there is a nexus between non-operating costs and service.

The City’s calculations of the 2013 tax using the pro forma model is irrelevant, and the court need not correct it using no non-operating revenue or expenses.

8. Wholesale Revenues

The City is entitled to use non-operating revenue (wholesale sales revenue) to pay the GFT. See Redding, supra, 6 Cal.5th at 18.

The Glendale decision stated that, under either party’s calculation, the projected non-rate revenue (wholesale revenue) did not fully cover the projected expense of the GFT; the City conceded that its wholesale revenue projection for 2013 was less than the GFT. 2018 WL 6804333 at 13. As Redding shows, the City is not limited to the costs used to calculate rates in proving the total reasonable costs of service at the time rates were set. Id. at 13. The City contended that its rate calculations relied on wholesale revenue. Id. Coalition disputed that any non-rate revenue was included in the 2013 rate calculations. Id. The parties also disputed whether gross or net wholesale revenue (deducting the cost of generating the wholesale revenue) should be the pertinent number. Id. The factual dispute whether non-rate revenue subsidized the retail rates must be remanded to the trial court for determination. Id.

The City notes that the Rate Study calculates $18,811,000 in revenue from wholesale sales for the test year of fiscal year 2011-12. AR 367. The City argues that this $18.8 million more than offsets any increase in any tax imposed by the 2013 rates. The court has found that the City’s 2013 rates projected a 2.8% increase in the 2006 tax. Using this number, 2.8% of the $197,764,000 revenue requirement in the Rate Study is $5,537,392 — less than the projected $18,811,000 in wholesale revenue. The City argues that the court must reduce any 2013 tax increase by the available wholesale revenues reflected in the Rate Study because non-rate revenues are presumed to be used for expenditures other than lawful service costs. See Northern California Water Assn. v. State Water Resources Control Bd., (2018) 20 Cal.App.5th 1204, 1221. Thus, Petitioners cannot show the 2013 rates increased the grandfathered tax implicit in 2006 rates. City Op. Br. at 21-22.

Petitioners respond that the City may not simply show that it received sufficient wholesale revenue to pay for the GFT, in whole or in part, in each of the five years at issue to obtain a reduction in the amount of the remedy. Glendale found that ratepayers were charged a tax. Whether the City could have paid for the GFT with other funds now is irrelevant. The rate the City charged the ratepayers included a tax, and if the court finds the tax increased under the 2013 rates, the tax must be refunded. The pro forma model shows that the City did not even try to project wholesale revenues for fiscal years 2014 through 2018. AR 2133. Instead, the City set its revenue requirement, and the 2013 electric rates were set high enough to cover operating costs and the GFT, plus additional excess. As soon as the 2013 rates went into effect, the ratepayers’ bills included an unlawful tax, which now must be refunded. Opp. at 21-22.

Petitioners are correct that the City may not simply rely on the fact that the actual wholesale revenue proved to be larger than the 2.8% tax of $5,537,392 without discussing actual costs of service during the relevant fiscal years.[13] In Redding, all rate revenue paid the city’s uncontested operating costs and the unpaid shortfall and PILOT were paid from “other sources of income.” 6 Cal.5th at 20. “Because the budgetary transfer was not paid out of rate revenues, it was not part of a charge imposed on ratepayers.” Ibid. The Glendale court relied on this situation in remanding for the court to determine wither the tax charged increased under the 2013 rates. 2018 WL 6804333 at 16. Thus, the 2013 projections must provide for the exhaustion of all rate revenue to pay for operating expenses in order for the court to conclude that wholesale revenue was used to pay for the 2.8% tax.

The City correctly argues that this is in fact what was projected. The Rate Study applied a $18,811,000 “Wholesale Revenue Credit” to reduce required rate revenue from $197,764,000 to $178,937,000. AR 367. That $178,937,000 number is comparable to the $170.7 million retail sales projection the pro forma model shows for fiscal year 2014, to rise with inflation in subsequent years. AR 362, 2133. The record demonstrates that Borismetrics recommended use of wholesale revenues to decrease rates and the City Council did so. Reply at 16-17. The use of wholesale revenue to decrease the rates is the equivalent of exhausting operating expenses with rate revenue and then paying the GFT with wholesale revenue. Thus, the 2.8% tax of $5,537,392 was projected to be paid with non-rate revenue.

Petitioners argue that, if wholesale revenue can be used to reduce the amount of credits given to ratepayers, only net wholesale revenue can be used for that purpose. Vondle Decl. ¶¶ 36-43; PEX 9. Opp. at 22.

According to the City, Petitioners wrongly assume that its wholesale operations are disconnected from its retail service such that retail ratepayers may not be asked to cover costs to generate power later sold in wholesale markets. The City argues that it buys power on the wholesale market when needed to serve its retail customers. The City’s cost to generate power that is later sold wholesale is properly charged to retail customers because the City generated that power to ensure it could serve them, with a cushion for unpredictable changes in demand to ensure no brownouts. As such, it is a cost of reliable service. The sale of excess power at wholesale, which the City could waste to ground, is a windfall that Redding permits to fund transfers like the GFT. Redding held that ratepayers may be asked to cover all costs to serve them, making no distinction of costs as wholesale or retail, operating or non-operating. 6 Cal.5th at 17, 20. Reply at 17.

This is a good argument, and one which if proved would support a nexus between reasonable cost of service and wholesale costs. Unfortunately, the argument is inadequately supported by evidence. The City shows that its budget estimates for power purchased wholesale exceeds expected wholesale revenue by tens of millions of dollars.[14] The City’s Comprehensive Annual Financial Reports show that the City purchases about one-third more power than it needs, selling any excess.[15] Reply at 17-18. However, the factual support that the City purchases power beyond what it generates to ensure reliable service to retail customers is lacking. By themselves, the City’s budget estimates and financial reports are insufficient to establish the required nexus.

Nonetheless, Petitioners’ argument about net wholesale revenue ignores Redding. It is one matter to conclude -- as the court has -- that Redding held only that a city is not required to subsidize ratepayers by reducing their rates with non-rate revenue. 6 Cal.5th at 17. Redding did not authorize a city to require ratepayers to subsidize the city’s non-retail utility business by comparing only retail rate revenue (without wholesale revenue) to the utility’s total costs (including wholesale revenue costs) in calculating the reasonable cost of service in setting retail rates. That is, Redding does not permit a city to impose its wholesale costs on ratepayers without benefiting them with wholesale revenue in determining the reasonable costs of retail service under Prop 26, at least unless there is a nexus between the wholesale costs and a benefit to the ratepayer (as the City suggests).[16]

It is another matter to conclude that a city may not pay a non-operating expense (GFT) with non-rate revenue (wholesale revenue) without netting out the non-rate revenue’s costs. Unlike the converse issue of ratepayers subsidizing a city’s wholesale utility business, Redding expressly held that a city is not required to subsidize retail rates with non-rate revenues. 6 Cal.5th at 18. The Redding court stated that all rate revenue paid the city’s uncontested operating costs, and the unpaid shortfall and PILOT were paid from “other sources of income.” Id. at 20. “Because the budgetary transfer was not paid out of rate revenues, it was not part of a charge imposed on ratepayers.” Ibid. Nothing in Redding suggests that non-rate revenues must first be netted from non-rate costs to make such payments.

Therefore, the City may pay GFT from wholesale revenue without regard to expenses. The court will apply gross, not net, wholesale revenues to decrease the tax in the City’s 2013 rates. Petitioners do not dispute that the 2.8% tax increase, which is less than the projected wholesale revenue in the test year of fiscal 2011-2012, also is less than the projected wholesale revenue for each of the five fiscal years of 2014 through 2018. Therefore, no remedy of refund is required.

E. Conclusion

The City’s counsel is ordered to prepare a proposed revised judgment, serve it on Petitioners’ counsel for approval as to form, wait ten days after service for any objections, meet and confer if there are objections, and then submit the proposed judgment along with a declaration stating the existence/non-existence of any unresolved objections. An OSC re: judgment is set for July 16, 2020 at 9:30 a.m.


[1] The opposition briefs of Coalition and Saavedra are identical except for the caption.

[2] The appellate court remanded Saveedra for the same determination whether the amount of the tax charged by the City increased under the 2013 rates such that the City was required to obtain voter approval. Saveedra v. City of Glendale, B281991 (Dec. 27, 2018) 2018 WL6904332.

[3] Citations to “AR” are to the Administrative Record lodged on May 19, 2016. Citations to “JA” are to the Joint Appendix on appeal in the Coalition case. Citations to “AA” are to the Appellants’ Appendix on appeal in the Saveedra case. Citations to “PEX” are to Petitioners’ exhibits attached to the Curry declaration.

[4] Unlike the petitioners in Redding, Petitioners do not concede that every expense other than the GFT was a reasonable cost. Opp. at 18. Perhaps not, but Petitioners point to no expense other than GFT that is unreasonable.

[5] The City notes that the large gap between the pro forma model’s $39 million in income and the Rate Study’s $67 million target for reserves underscores why it is inappropriate to look to data sources other than the Rate Study. Borismetrics’ Rate Study was more ambitious in restoring reserves than the staff-generated pro forma model.

[6] The Vondle declaration is not made under penalty of perjury under the laws of the State of California as required by CCP section 2015.5 and is inadmissible. The City’s written objections to the entire Vondle declaration and the exhibits upon which he relies upon are sustained. The decision cites the Vondle declaration only for completeness, and not as evidence. The City’s objections to the Heinke declaration, including under Western States Petroleum Assn. v. Superior Court, (1995) 9 Cal.4th 559, are overruled.

[7] AA 1173, 1175, 1177.

[8] Petitioners conclude that an extension of the projections in the May 2006 Report to fiscal year 2011 reveals a negative excess of $9,000,500, a number a consistent with the projections made in the June 2006 Performance Report. Vondle Decl., ¶27; PEX 5. Opp. at 15-16.

[9] Petitioners cite only a question at the appellate oral argument to suggest that fiscal year 2011 is relevant. During the argument, one justice asked Coalition’s attorney: “[W]hat in the record shows us the action taken in 2013 resulted in a tax that increased over the tax that . . . existed in 2010?” After referring to the May 2006 Report (AA 1170-79), counsel noted: “I don’t think we have all the data on revenues and costs going back that far.” PEX 1, p. 55. Opp. at 11.

[10] The City suggests that the burden of proof for remedy lies with Petitioners, but the court need not address that issue. Reply at 12.

[11] The City finds a tax of 10.67% when non-operating costs are included, but the court ruled ante that rates may not subsidize non-operating costs without a nexus between them and service. City Op. Br. at 13.

[12] The City also argues that Petitioners confuse the Rate Study’s use of the pro forma’s model’s average annual retail rate adjustments (8%, 7%, 5%, 2%, 2%), with the $197,764,000 revenue requirement found by the Rate Study. Reply at 14.

[13] The Glendale court also held that the City could show that the actual costs of service paid by GWP were greater than the projected costs, and that it used non-retail sources (wholesale revenue) to pay the GFT. 2018 WL 6804333 at 16. The City does not purport to do so.

[14] See di Cristina Decl., Ex. B at pp. 3–4, 6, 9, 12, 16, 19, 22, 25, 29, 33.

[15] See di Cristina Decl., Ex. C at pp. 35, 37, 39, 41, 43.

[16] The City’s reliance on Appendix A to the Supreme Court’s Redding decision – which cites “Wholesale Electric Sales” without a specific offset heading for wholesale costs) is hardly the support the City needs. 6 Cal.5th at 20. Reply at 18.

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