COUNTY OF SAN DIEGO v. SAN DIEGO GAS ELECTRIC COMPANY

Reset A A Font size: Print

District Court of Appeal, Fourth District, California.

COUNTY OF SAN DIEGO, Plaintiff and Appellant, v. SAN DIEGO GAS & ELECTRIC COMPANY, a Corporation, Defendant and Respondent.*

Civ. 5145.

Decided: July 11, 1956

James Don Keller, Dist. Atty., Duane J. Carnes, Deputy Dist. Atty., San Diego, for appellant. Luce, Forward, Kunzel & Scripps, Edgar A. Luce, James L. Focht, Jr., San Diego, Chickering & Gregory, San Francisco, for respondent.

This is an action for declaratory relief and an accounting for monies claimed to be due for the years 1947 to 1951, inclusive, as compensation under franchises granted by the county to the company under the Broughton Act, Stats.1905, p. 777, Public Utilities Code, §§ 6001–6006. Two franchises are involved, one for electric lines and one for gas lines. There is no dispute as to the material facts. The cities of San Diego, Coronado and National City are all contiguous, and so far as material here may be considered as one city. The electricity and gas supplied to consumers in what may be called this metropolitan area was produced in San Diego, and the lines carrying the same to these three cities do not pass over any county road and merely pass from city to city without any intervening property of any kind.

The company, according to its computation, made all payments due to the county for these years. In this action, filed November 28, 1952, the county relies on a different computation, claiming that the entire gross receipts of the company on a systemwide basis should be taken as the starting point for computing the payments due. The entire amount thus in dispute amounts to $91,045.95. Both methods of computation used the same investment factor and the same mileage of lines on county roads, but the county's computation starts with the gross receipts of the entire system while the company's computation starts with its gross receipts exclusive of the receipts from this metropolitan area. The court found that the method of computation used by the company is correct and in accordance with law; that the franchise requirements have been fully complied with; that the situation here involved varies substantially from the situation existing in other counties where the method of computing such franchise payments has been judicially determined; and that the exclusion of the revenue from these three cities from the computation is justified by the unique situation disclosed by the evidence. A judgment was entered declaring that the company's method of computing the compensation due to the county is correct and in accordance with the law and the terms of the franchises, and that all amounts due to the county as such compensation have been correctly calculated, accounted for and paid to the county. It was further ordered that the county take nothing by reason of this action. The county has appealed from this judgment.

The question presented is whether the receipts from gas or electricity which is both produced and sold ‘within an incorporated city’ may be excluded from the gross receipts, upon the basis of which the two per cent franchise payments are to be computed, on the ground that such receipts within the city do not arise from the use, operation or possession of any county franchises. The appellant argues that the delivery lines in this metropolitan area serve to carry these products to unincorporated areas and other cities in the county on a system-wide basis; that the court's holding that the receipts from this metropolitan area may be excluded from the computation is contrary to settled law as decided in County of Tulare v. City of Dinuba, 188 Cal. 664, 206 P. 983, County of Tulare v. Dinuba, 87 Cal.App. 744, 263 P. 249, and County of Los Angeles v. Southern Counties Gas Co., 42 Cal.2d 129, 266 P.2d 27; that the trial court thus refused to follow the formula established by those cases; and that under the formula so established the county has a right to use as a basis for the computation all of the gross receipts of the company arising within the county.

The trial court followed the formula approved in the cases heretofore decided, including the investment factor, except that it took as the gross receipts (to be considered as a basis for the tax) the total receipts of the company's system after excluding therefrom the receipts from this metropolitan area, in which in serving the consumers no use was made of the franchises granted by the county. In other words, in applying the established formula the court excluded from consideration the receipts from this metropolitan area which were in no way dependent upon the franchises granted by the county, and which cannot logically or fairly be said to have arisen from the use, operation or possession of those franchises.

The Broughton Act does not purport to require a payment of compensation based on the gross receipts in any area on a system-wide basis. It provides for the payment of two per cent of the gross receipts ‘arising from (the) use, operation or possession’ of the franchise granted. In the first Tulare case, 188 Cal. 664, 206 P. 983, 986, involving a dispute over the amount of franchise payments due to a city and a county, respectively, the court pointed out that such a payment is neither a tax nor a license charge, and said ‘It is a compensation for the use of the portions of the highway covered by the franchise easement, and it is limited to such percentage of the total gross receipts as can be shown to have arisen from the use of the franchise.’ Also, ‘In other words, the obvious policy of this law is to treat the public utility in the entire territory occupied as a single entity, and to distribute to each franchise wherever situated its two per cent. of whatever portion of the gross receipts can be traced to its exclusive use, and as to all receipts arising from the indistinguishable use of all rights of way in the system, making the division in proportion to the respective mileage of the various parts.’ It was there pointed out that allowance should be made for receipts attributable to such things as powerhouses and private rights of way which did not arise from the use of a franchise, and further suggested that where receipts were attributable to more than one franchise a practical solution was to divide the payment on a proportionate mileage basis. On a second appeal in that case, 87 Cal.App. 744, 263 P. 249, 250, a division between the county and the city on a mileage basis was affirmed, the court pointing out that ‘* * * the franchise lines in the county are helping to earn the receipts collected from the city consumers.’ These principles were recognized and followed in City of Monrovia v. Southern Counties Gas Co., 111 Cal.App. 659, 296 P. 117, 119, where the court said: ‘The receipts collected for the sale of gas within the city of Monrovia arose in part from appellant's franchise within the city and in part from its properties and rights of way outside the city.’

These principles were also recognized in the cases of City of San Diego v. Southern etc. Tel. Corp., 42 Cal.2d 110, 266 P.2d 14 and County of Los Angeles v. Southern etc. Gas Co., 42 Cal.2d 129, 266 P.2d 27, 30, although other questions were there decided. In the telephone case, where two areas were involved and because the receipts collected in one of them were partly earned by the company's facilities in the other area, the court approved the use of an additional element in the formula for determining what receipts were to be considered as attributable to the franchises, consisting of an allocation of the gross receipts based upon the ratio that the company's investment in its distributing system in the area bears to its total plant investment therein. In the gas case, where the company produced only a small amount of the gas it sold, and operated under franchises granted by six counties and many cities, the question involved was the amount due under four franchises granted by the plaintiff county. The court followed the principles and formula suggested in the Tulare case as augmented by those suggested in the telephone case. In approving the use of that formula the court pointed out that gross receipts which did not arise from the use of a franchise must be excluded from the base to which the two per cent charge applies. In discussing the county franchises there involved, the court said:

‘Gross receipts that arise from the use of the franchises are the gross receipts attributable to that part of the property using the public rights of way pursuant to the franchises.’

‘It is clear from the opinion in the Tulare case that the principle that this court there enunciated was that the county was not entitled to any part of the gross receipts from utility property not subject to franchise charges.’

‘For the same reason [as the exclusion in the Tulare case of gross receipts attributable to property on private rights of way] gross receipts from other parts of the distribution system that are not subject to franchise charges are not subject to the 2% charge.’

‘It is not 2% of its total gross receipts but only 2% of its gross receipts ‘arising from the use’ of the franchises that is exacted as a payment for the use of such franchises.'

None of these cases involved such a situation as that here appearing, where a large part of the total receipts from the company's operations arose from selling and distributing the products in the same area in which they were produced, and without the use of any property or franchise rights outside of that area. The statute imposes the payment only on that part of the gross receipts which arise from the use and operation of a particular franchise, and the Tulare case clearly points out that the obvious policy of this law is to give to the franchise grantor only its two per cent of such portion of the gross receipts as can be shown to have arisen from the use of the franchise thus granted. While the only receipts material to that case which were pointed out as being not subject to the franchise charge were the portions of the receipts which were attributable to the use of powerhouses and private rights of way, the governing principle was clearly set forth and it was recognized in the case as a whole that under other circumstances other exceptions should be made.

The effect of the court's findings here is that the receipts from the gas and electricity produced and sold within these three cities did not arise from the use or operation of the county franchises and should, therefore, be excluded from the gross receipts to be used in computing the amount to be paid as compensation for the use of county roads. These conclusions are correct since it clearly appears from the language of the statute and from all of the decisions that such compensation is to be based solely upon such receipts as can be shown to have arisen from the use and operation of the county franchise. The fact that this was a ‘unified system’, in which the gas and electric lines also extended to other parts of the county outside this metropolitan area is not controlling. The facts which here appear are different from those in the telephone case, where the receipts in one part of the area involved were necessarily tied up with and affected by the use of facilities in both parts of that area. Here, the receipts in the metropolitan area were dependent only on the facilities within that area and involved no use of the county roads or the county's franchises. The receipts in these three cities arose from the use of other franchises granted therein. While no allocation as between franchises is involved here, the court held in the first Tulare case that even where such a division is called for the obvious policy of the law is ‘to distribute to each franchise wherever situated its 2 per cent. of whatever portion of the gross receipts can be traced to its exclusive use.’ The same reasoning is applicable here, and the county's present contention that the company is not justified in deducting ‘any part of its gross revenue from the computation’ cannot be sustained. With the intention and purpose of the law in mind, the only logical and practical conclusion is that no use of the franchises granted by the county was here made insofar as the receipts from consumers in these three cities are concerned.

There is no dispute here as to the gas revenues since November 1, 1949, when the company discontinued the manufacture of gas and began the use of natural gas brought in from outside the county. The company has admittedly treated all subsequent receipts from gas as arising from the use and operation of the county franchises. A portion of the amount here claimed, however, relates to receipts for gas during 1947, 1948, and a part of 1949. The facts in that regard are exactly the same as those involving the distribution of electricity during the period in question, and no distinction in that regard is justified.

In view of our holding on the main point presented, certain other points incidentally raised by the appellant require no consideration.

The judgment is affirmed.

BARNARD, Presiding Justice.

GRIFFIN, J., concurs. MUSSELL, J., being disqualified, takes no part in this decision.

Copied to clipboard