Lawsuit over Public Utility Charges Settled
On Monday, October 27, 2008, California Attorney General Edmund G. (Jerry) Brown (AG) announced the settlement of a lawsuit brought by the state and various local governmental agencies against the Los Angeles Department of Water and Power (LADWP) for allegedly overcharging public agencies during the years between 1997 and 2007.
The lawsuit involved the imposition of “capital facilities fees” on public agencies. Since enactment of a 1988 law, public agency utilities have been required to negotiate their capital facilities fees with school districts, community college districts, the California State University, the University of California, and state agencies. Under subsequently enacted state law (Chapter 146/2000), in order to impose a new capital facilities fee for electrical utility service, a local publicly owned electric utility must show that the fee is nondiscriminatory and does not exceed the amount needed to provide the capital facilities for which the fee is charged. Some governmental agencies said that the publicly owned utilities had improperly included capital costs in their service rates, burying the charges in monthly bills. The Superior Court agreed that LADWP had overcharged the state and local governmental agencies and buried the charges in monthly bills, in violation of state statute and the State Constitution.
The $160 million in cash and energy credits that the AG won comes from that lawsuit filed against LADWP in 2000. The settlement was $64 million less than the damages the Superior Court judge had ordered LADWP to pay when he issued a tentative decision in June 2007, but avoids what was expected to be a lengthy appeal.
The settlement award will go in part to local governmental agencies in Los Angeles, including the Los Angeles Unified School District (LAUSD), which will immediately receive $25.38 million, and the Los Angeles Community College District (LACCD), which will immediately get a little less than $1.3 million in cash. In addition, LADWP will deposit monies to a restricted account that will fund projects to lower energy demand or consumption. Again, local educational agencies in Los Angeles will benefit, with $28 million going to LAUSD and $4 million going to LACCD. Local governmental agencies will also receive three annual payments from LADWP, with the annual $4,177,419 divided among the local government plaintiffs in the same proportion as the initial cash payments. The settlement further provides for LADWP’s issuance of bill credits to be applied to some plaintiffs’ utility bills; LAUSD will receive a little over $8 million in bill credits. The settlement also gives LAUSD a 5% discount, pursuant to a 1998 agreement between LAUSD and LADWP.
State agencies benefiting from the settlement include the State Teachers’ Retirement System (STRS). STRS will receive $488,709 in cash immediately, and will also see a little more than $2 million deposited to the restricted account. STRS will also receive three annual payments of $123,806.
As a result of litigation filed against LADWP and other public utilities over the capital facilities fees, legislative clarification of the law was sought. Then-Governor Davis vetoed AB 1051 (Goldberg) in 2003, which would have allowed public utilities to charge other public agencies nondiscriminatory utility service rates; the veto message cited the potentially significant fiscal impacts on educational institutions.
However, AB 2951 (Chapter 866/2006), did become law, and should help avoid future litigation over capital facilities fees by adding or clarifying definitions; specifying that the notice be given prior to establishing or increasing rates, charges, surcharges, or fees; and setting a 120-day deadline for a public agency seeking a refund or challenging the validity of charges (the latter provision sunsets January 1, 2010). The bill was opposed by many K-14 districts out of concern that it could increase costs for local educational agencies. We are not aware of any large cost increases since the bill’s enactment, but a provision in the new law requiring a public utility providing public utility service to complete a cost of service study at least once every ten years that addresses the cost of providing public utility service to public schools may eventually confirm whether or not the law has resulted in increased costs.
—Deborah Harmon