A Long-Lasting Legal Dispute Can End-Up Costing Millions to the City of Glendale, CA
By Frank Gallo
On Feb.25/2014, the Glendale Coalition for Better Government (a non-profit pro-citizen advocacy group) sued Glendale for the violation of its City Charter as well as the violation of propositions 26 (Article XIIIC of the State Constitution) by transferring Electric fees to the City’s General Fund. The Electric revenue transfer amounted to $80.6 million for the years 2011-2014 and was anticipated to continue at about $20 million per year for the following years.
The lawsuit was the result of a 2013 electric rate increase to city ratepayers beyond the cost of providing electric service. Under Prop. 26, a charge imposed for a specific government service or product cannot exceed the reasonable cost of providing the product or service, as that excess charge would become an illegal tax. Furthermore, “the local government should proof that the levy, extraction or fee is not a tax.”
In February 2017, three years after the filling of the law suit, the Los Angeles Superior Court issued a ruling in favor of the Coalition, mandating the return to Glendale Water & Power (GWP) rate-payers of about $57 million dollars (not including interest) for years 2013-2016.
The City immediately filed an appeal to the California Court of Appeals, which resulted in that court remanding the case to the Superior Court for a revision of the amount to be returned to the rate-payers.
Back at the Superior Court, the City argued that it was entitled to include the General Fund Transfer (GFT) in the 2013 electric rates because the GFT had been included in GWP’s electric rates prior to Prop 26’s enactment. The City alleged that as long as there was no increase in the percentage of transferred excess revenue there was no tax, but the text of Prop. 26 did not say that, consequently the rate increase could not be Grandfathered in. It would be up to the Court to accurately interpret the law.
The second argument used by the City was, that while the 2013 rate increase was for retail sales, and millions of dollars of it went through a Transfer to the General Fund, the intended source of revenue to fund the transfer was electric power wholesales. For the upcoming hearing, the Superior Court requested the City proof that it effectively budgeted electric power wholesale as the source of the GFT.
Finally, the City had always stated that a document made available to the ratepayers called Cost of Service Analysis (COSA) was the one used to determine the amount of the rate increases in 2014-2018; but those rates were actually adopted from the “Pro Forma Model,” another document that only came out to light during the Court of Appeals hearing.
The discovery of this document invalidated the City’s argument that “the Coalition was estopped by its own pleadings from challenging any aspects of the 2013 rates beyond the GFT.” In legal terms an estoppel prevents a party from changing its position in a judicial proceeding; unless the party relied on its opponents incomplete or false information; which happens to be the case here, where the City failed to disclose the existence of the ‘Pro Forma Model,” to calculate the rate increases.
According to this newly disclosed information the ratepayers should be refunded the amount of the tax as follows: $5,792,900 for FY 2014, $23,558,00 for FY 2015, $31,887,100 for FY 2016, $33,692,200 and FY 2017, $33,325,700 for FY 2018. These were the amounts that City exceeded revenue over the cost of providing electric service during those years.
The Los Angeles Superior Court has scheduled a hearing for October 8/2020 at 9:30 a.m., in which both the City and the Coalition would be arguing their cases. The hearing would be preceded by the presentation of the evidence requested by the Court and a rebuttal by the parties.