Filed 11/20/20

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

JESS WILLARD MAHON, JR., et al.,

Plaintiffs and Appellants,

v.

CITY OF SAN DIEGO,

Defendant and Respondent.

 D074877

 (Super. Ct. No. 37-2015-00014540-

 CU-MC-CTL)

APPEAL from a judgment of the Superior Court of San Diego County, 

Judith F. Hayes, Judge. Affirmed.

Krause Kalfayan Benink & Slavens, Vincent D. Slavens, Eric J. Benink; 

Huskinson Brown & Heidenreich, Paul E. Heidenreich and David W.T. Brown for 

Plaintiffs and Appellants.

Mara W. Elliott, City Attorney, George F. Schaefer, Assistant City Attorney, and 

Meghan Ashley Wharton, Deputy City Attorney, for Defendant and Respondent.
2

I.

INTRODUCTION

Proposition 218, the Right to Vote on Taxes Act, generally requires that local 

governments obtain voter approval prior to imposing taxes, as its name suggests. 

(Prop. 218, § 3, approved Nov. 5, 1996; Cal. Const., art. 13C, § 2.) Plaintiffs Jess 

Willard Mahon, Jr. and Allan Randall brought this certified class action against the City 

of San Diego (City) claiming that the City violated Proposition 218 by imposing an 

illegal tax to fund the City’s undergrounding1 program.

In the operative complaint, plaintiffs contend that the City violated Proposition 

218 through the adoption of an ordinance that amended a franchise agreement between 

the City and the San Diego Gas & Electric Company (SDG&E). The ordinance provides 

generally that SDG&E will budget 4.5 percent of its “gross receipts”2 from the sale of 

electricity in the City to pay for undergrounding. The ordinance, together with a related 

memorandum of understanding, further specifies that part of the money to fund the 

undergrounding budget will be collected by SDG&E through a 3.53 percent surcharge on 

ratepayers in the City that will be remitted to the City for use on undergrounding 

(Undergrounding Surcharge). Plaintiffs claim that the surcharge is a tax. Plaintiffs 

further claim that the surcharge violates Proposition 218 because it was never approved 

1 Undergrounding refers to the process of removing existing overhead electric and 

communications facilities and placing them underground.

2 As discussed in part II.A.5.c, post, the term “gross receipts” is defined in the 

ordinance.
3

by the electorate. Plaintiffs note that the City has imposed more than 200 million dollars 

in charges pursuant to the Undergrounding Surcharge during the class period. Through 

this action, plaintiffs seek a refund of those amounts, among other forms of relief.

The City filed a motion for summary judgment, which the trial court granted on 

two independent grounds. First, the trial court concluded that the Undergrounding 

Surcharge constitutes compensation for franchise rights and thus is not a tax under Jacks 

v. City of Santa Barbara (2017) 3 Cal.5th 248 (Jacks), which held that “a charge imposed 

in exchange for franchise rights is a valid fee rather than a tax . . . if the amount of the 

charge is reasonably related to the value of the franchise.” (Id. at p. 257.) Alternatively, 

the trial court concluded that the Undergrounding Surcharge is a valid regulatory fee and 

not a tax.

On appeal, plaintiffs contend that the Undergrounding Surcharge is neither a 

franchise fee nor a regulatory fee, but is instead an illegally imposed tax. As to the

franchise fee issue, plaintiffs’ primary contention is that the Undergrounding Surcharge is 

not a franchise fee under Jacks because it does not constitute compensation for franchise 

rights. Accordingly, plaintiffs maintain that the trial court erred in granting the City’s 

motion for summary judgment.

We conclude that the trial court properly granted the City’s motion for summary 

on the ground that the Undergrounding Surcharge is compensation validly given in 
4

exchange for franchise rights under Jacks and thus, is not a tax subject to voter approval 

under Proposition 218. Accordingly, we affirm the judgment.3

II.

FACTUAL AND PROCEDURAL BACKGROUND

A. Factual background

1. The 1920 Franchise Agreement

In 1920, the City granted SDG&E4 an electric franchise for a period of 50 years.

The 1920 Franchise Agreement granted SDG&E the “ ‘franchise and authority to . . . 

erect and maintain poles, wires, conduits and pipes for wires for transmitting electricity 

for heat and power purposes along and upon all of the public streets, alleys, highways and 

public places in [the City of San Diego].’ ”

2. Rule 20A

In 1965, the Public Utilities Commission (PUC) instituted an investigation with 

respect to the undergrounding of electric and communications lines. Two years later, as 

part of this investigation, the PUC, through Decision No. 73078, accepted a commitment 

by SDG&E to conduct an undergrounding program paid for with SDG&E’s funds. The 

PUC required SDG&E to adopt a new rule regulating the undergrounding that became 

known as Rule 20A. Rule 20A limited both the locations at which undergrounding 

3 In light of our conclusion, we need not consider the plaintiffs’ contention that the 

trial court erred in determining, in the alternative, that the Undergrounding Surcharge is a 

regulatory fee rather than a tax.

4 At the time, SDG&E was named the San Diego Consolidated Gas and Electric 

Company. The company changed its name to SDG&E around 1939.
5

projects could be performed and the types of undergrounding related expenses for which 

SDG&E could pay.

3. The 1970 Electric Franchise Agreement (Ordinance 10466)

a. Events leading to the 1970 Electric Franchise Agreement

In April 1969, the City Council adopted a resolution authorizing the City Manager 

and the City Attorney to commence discussions with SDG&E pertaining to the adoption 

of a new franchise agreement in light of the impending expiration of the 1920 Franchise 

Agreement.

The City hired a consulting firm to advise it with respect to the negotiations. In 

June 1970, the firm prepared a report that analyzed potential franchise terms, among 

other topics.5 The report recommended that a new franchise agreement provide that a

“franchise payment be established at 2 1⁄2 percent of all gross revenues from customers 

within the city with no adjustments of any kind;” and that “the revised franchise 

agreement provide for [an] additional 2 1⁄2 percent, or a total of 4 1⁄2 percent of the utility’s 

electric revenues from San Diego city operations be allocated for undergrounding 

purposes.”

The City Manager submitted a report to the Mayor and the City Council 

concerning the proposed franchise agreement in July 1970. The report included 

recommendations as to the term of the franchise agreement, payments to be made by 

5 The report is more than 60 pages in length and is titled, “Concerning Franchises 

for the Distribution and Sale of Gas and Electricity.” (Some capitalization omitted.)
6

SDG&E under the proposed agreement, and proposed obligations to be imposed on 

SDG&E related to undergrounding.

That same month, the City advertised bids for the new electric franchise with 

proposed terms. The City conducted several rounds of bidding, and engaged in extensive 

negotiations with SDG&E pertaining to the franchise agreement. During these 

negotiations, the City adopted a resolution outlining a proposed franchise agreement 

ordinance for a 50-year term that required that the grantee of the franchise pay the City 

3 percent of the grantee’s gross receipts for the first 30 years of the franchise.

In October 1970, SDG&E applied to the PUC for an order permitting SDG&E 

“ ‘to add to the bills of its customers within the City of San Diego a separately stated 

surcharge equal to the difference between . . . 1.1% of gross receipts in the case of the 

electric franchise and the new fee of 3% of gross receipts for each of the franchises.’ ”

The application requested that a surcharge of 1.9 percent (“1.9 Percent 1970 Surcharge”) 

be “ ‘added as a separate item to bills rendered to such customers.’ ” The PUC gave its 

preliminary approval of the 1.9 Percent 1970 Surcharge that same month.6

6 In Jacks, the Supreme Court described the rationale for the PUC’s approval of 

such surcharges. (See Jacks, supra, 3 Cal.5th at pp. 263–267.) As the Jacks court 

explained, the Legislature has enacted a series of laws that limit the compensation that 

general law municipalities may charge for a franchise. (Id. at pp. 263–265.) However, 

these limitations do not apply to charter cities. (Id. at p. 265.) Accordingly, “the PUC 

has concluded that it is not fair or reasonable to allow a utility to recoup from all of its 

utility customers charges imposed by a jurisdiction whose charges exceed the average 

amount of charges imposed by other local governments. Therefore, the PUC has 

established a procedure by which a utility may obtain approval to impose a surcharge on 

the bills of only those customers within the particular jurisdiction that imposes higherthan-average charges.” (Id. at pp. 265–266.)
7

b. The 1970 Electric Franchise Agreement (Ordinance 10466)

In December 1970, the City Council enacted Ordinance No. 10466 (“Ordinance 

10446” or “1970 Electric Franchise Agreement”) granting SDG&E a franchise for 

distributing electricity in the City. Ordinance 10446, section 2 defined the purpose of the 

franchise as follows:

“Section 2. PURPOSE

“The franchise (1) to use, for transmitting and distributing electricity 

suited for lighting but for use by consumers for any and all lawful 

purposes other than lighting, all poles, wires, conduits and 

appurtenances which are now or may hereafter be lawfully placed 

and maintained in the streets within City under the constitutional 

franchise[7] of Grantee, (2) to construct, maintain and use in said 

streets all poles, wires, conduits and appurtenances whenever and 

wherever the constitutional franchise of Grantee is not now nor shall 

hereafter be available therefor, necessary to transmit and distribute 

electricity suited for, and for use by consumers for, any and all 

lawful purposes, and (3) to utilize said poles, wires, conduits and 

appurtenances in said streets for transmitting electricity for use 

outside the boundaries of City for any and all lawful purposes is

hereby granted to [SDG&E], its successors and assigns.”

Section 3 of the ordinance established a 50-year term for the franchise.

The City is a charter city. In the 2001 Memorandum of Understanding (see pt. 

II.A.5.b, post), the City stated that the 1.9 Percent 1970 Surcharge was approved by the 

PUC in order “to capture the difference between the City Franchise Fee and the average 

franchise fee within . . . SDG&E service territory.”

7 Ordinance 10466, section 1(f) defined “constitutional franchise” as follows: 

“[T]he right acquired through acceptance by Grantee or its predecessor in estate of the 

offer contained in the provisions of Section 19 of Article XI of the Constitution of the 

State of California, as said Section existed prior to its amendment on October 10, 1911.” 

Prior to 1911, the California Constitution prohibited municipalities from charging 

franchise fees. (Jacks, supra, 3 Cal.5th at p. 263.)
8

Ordinance 10466, section 4 is titled “Consideration.” Section 4(a) established that 

SDG&E was required to pay the City 3 percent of its gross receipts each year during the 

first 30 years of the franchise as follows:

“Section 4. CONSIDERATION

“(a) The rights and privileges herein granted are upon the express 

condition that Grantee, as consideration therefor and as 

compensation for the use of the streets of the City as herein 

authorized and permitted, shall pay each year to City in lawful

money of the United States, a sum equal to three per[ ]cent (3%) of 

Grantee’s gross receipts[8] during the pre[ ]ceding calendar year, or 

a fractional year, commencing with the date of adoption of this 

ordinance by the City Council, for the first thirty (30) years of the 

term of this franchise by the dates, in the manner, and on the

conditions as set forth in Section 5[9] hereof.”

Ordinance 10466, section 4, subdivisions (b) and (c), outlined the process by 

which the City and SDG&E would determine the amount to be paid for the remainder of 

the term and provided in relevant part:

“(b) For the last twenty (20) years of the term of this franchise 

Grantee, as consideration and compensation for the rights and 

privileges herein granted and for the use of the streets of the City as 

herein authorized and permitted, shall pay each year to City in 

lawful money of the United States a sum equal to an amount to be

determined as set forth below of Grantee’s gross receipts during the 

8 Ordinance 10466, section 1(g) defined “gross receipts” as follows: “All gross 

operating revenues received by Grantee from the sale of electricity to Grantee’s 

customers with points of service within the corporate limits of the City (including, but not 

limited to, sales to military reservations with points of service within the City’s corporate 

limits) which are credited in [certain specified accounts], less uncollectible amounts and 

less any refunds or rebates made by Grantee to such customers pursuant to [PUC] orders 

or decisions.”

9 Ordinance 10466, section 5 specified a payment schedule for SDG&E and 

established various reporting and auditing requirements.
9

preceding calendar year, or a fractional year, for the remainder of the 

term of this franchise by the dates, in the manner and on the 

conditions as set forth in Section 5 hereof.

“(c) Determination of the amount to be paid as set forth in Section 

4(b) above shall be made by good faith negotiation between City and 

Grantee commencing not less than six (6) months prior to the 

expiration of the first thirty (30) year period.”

The remaining subdivisions in section 4 of Ordinance 10466 outlined the process 

by which the City and SDG&E would conduct such negotiations and provided that if they 

were unable to agree as to the amount to be paid for the remaining term, the issue would 

be resolved by way of arbitration.

Section 9, subdivisions (a) and (b) outlined SDG&E’s Undergrounding Obligation 

(Undergrounding Obligation) under the ordinance, as follows:

“(a) Presently, Grantee is engaged in a program of converting to 

underground certain of its facilities in accordance with Decision No. 

73078[10] of the [PUC]. At this time, said decision requires Grantee 

to budget prior to the end of each calendar year certain sums of 

money for said program for the next succeeding year and allocate 

these sums to undergrounding projects in the various governmental

jurisdictions throughout Grantee’s entire electric service territory on 

the basis of the number of electric customers in each governmental 

jurisdiction. Grantee is willing to increase the amounts of money 

budgeted for said program and as a portion of the consideration for

the granting of the rights and privileges contained in this franchise 

shall accomplish this in the following manner.

“(b) Grantee shall apply annually to the [PUC] for authority to 

budget amounts of money for the undergrounding of existing

overhead facilities in the City. In its application for calendar year 

1971 Grantee shall apply to increase the amounts of money to be 

10 As noted in part II.A.2, ante, Decision No. 73078 is the 1967 PUC decision that 

established Rule 20A.
10

budgeted for such undergrounding in the City from the amount 

budgeted for 1970 by an amount equivalent to one-half of one 

percent (l/2%) of its total system gross receipts for the calendar year

preceding the year of application (i.e., 1969) multiplied by the 

allocation ratio.[11] Thereafter Grantee shall increase each year the 

amount so applied for by one-half percent (1/2%) of its total system 

gross receipts for the calendar year preceding the year of application

multiplied by the allocation ratio until such budgeted amounts of 

money for undergrounding in the City reach a sum which is equal to 

four and one-half percent (4 1/2%) of said total system gross receipts 

multiplied by the allocation ratio. Thereafter Grantee shall continue 

to apply to budget an amount of money equal to four and one-half

percent (4 1/2%) of said total system gross receipts multiplied by the 

allocation ratio for such under-grounding conversion.” (Ord. 10466, 

§ 9(a), (b).)

Subdivisions (c) and (d) specified circumstances under which SDG&E might have 

a reduced Undergrounding Obligation:

“(c) If the amounts so budgeted for any calendar year are not 

expended in that calendar year or the next two succeeding calendar 

years following the budgeting thereof because of forces beyond the 

control of Grantee, then in that event and that event only Grantee 

may reallocate the unexpended amounts of money, in its discretion, 

for any other lawful purpose.

11 Ordinance 10466, section 1(h) and (i) defined “total system gross receipts,” and 

“allocation ratio” as follows:

“(h) The phrase ‘total system gross receipts’ shall mean all gross

operating revenues received by Grantee from the sale of electricity 

to Grantee’s customers within its entire service territory which are 

credited in [certain specified accounts], less uncollectible amounts 

and less any refunds or rebates made by Grantee to such customers 

pursuant to [PUC] orders or decisions;

“(i) The phrase ‘allocation ratio’ shall, unless and until otherwise 

modified by the [PUC], mean a numerical ratio determined by the 

proportion which the number of Grantee’s electric customers in the 

City bears to all of Grantee’s electric customers throughout its entire 

electric service territory.”
11

“(d) This section shall not be deemed in any way to be an 

impairment of City’s rights as more particularly set forth in Section 

8[12] of this ordinance. Nothing contained herein is intended to 

prevent Grantee from informing City and the [PUC] of then existing 

or foreseeable economic conditions or other factors which in the 

opinion of Grantee make unwise the granting in whole or in part, of 

the particular annual application.” (Ord. 10466, § 9(c), (d).)

Subdivision (e) provided: “This section is intended only to be a measure of a 

portion of the consideration to be paid by Grantee to City for the rights and privileges 

granted herein and therefore it does not create or confer any rights or obligations to 

any[ ]one other than City or Grantee.” (Ord. 10466, § 9(e).)

Ordinance 10466 contained numerous other provisions outlining SDG&E’s 

franchise relationship with the City (e.g., Section 6: “Compliance with laws”; Section 7:

“Administrative Practices”; Section 14: “Publication Expense”; Section 18: “Performance 

Bond”).

c. PUC’s approval of the 1.9 Percent 1970 Surcharge

The PUC gave its final approval of the 1.9 Percent 1970 Surcharge in July 1972. 

In its decision, the PUC explained that surcharges are necessary to avoid situations where

“ ‘charter cities in the State [e.g. the City] increase franchise fees to gas and electric 

utility companies in anticipation that the utilities will increase their rates throughout their

service territories and recoup these expenses from ratepayers in general law cities and 

12 Ordinance 10466, section 8 specified certain powers reserved to the City, 

including the right to exercise its police power to “require the removal or relocation, to 

either overhead or underground locations, of said poles, wires, conduits and 

appurtenances thereto at the sole cost and expense of Grantee.”
12

unincorporated territory, thus transferring a large portion of the increased burden of 

charter city levies to customers of the utility residing outside the charter cities.’ ”

4. Implementation of the 1970 Electric Franchise Agreement

Between 1970 and 2000, undergrounding in the City was severely limited by 

restrictions placed on SDG&E’s use of the Rule 20A funds. Rule 20A restricted the

types of streets that could be part of undergrounding projects. Rule 20A also restricted,

by voltage carried, the types of lines that could be placed underground. Disputes 

frequently arose between the City and SDG&E regarding whether a street or line voltage 

qualified to be placed underground using Rule 20A funds. Additionally, during this time, 

property owners were generally required to arrange for, and pay the cost of, the lateral 

conversion of the underground lines, and property owners’ failure to do so often caused 

long delays.

In addition, between 1979 and 2001, through various agreements between the City 

and SDG&E as well as PUC actions, SDG&E was permitted to reduce its Rule 20A 

undergrounding budget as provided for in section 9 of Ordinance 10466 far below the 

level specified in the ordinance.

5. The 2002 Electric Franchise Amendment (Ordinance O-19030)

a. Negotiations pertaining to the 2002 Electric Franchise Amendment

Between mid-1999 and early 2002, the City and SDG&E engaged in negotiations 

to reach an agreement that would establish SDG&E’s obligations for the remaining 20 

years of the 1970 Electric Franchise Agreement. The City hired a consulting firm that 
13

advised the City throughout the course of the negotiations. The firm provided the City 

with an extensive memorandum covering numerous topics related to the negotiations.

SDG&E proposed a reduction in its obligation to pay the City 3 percent of gross 

receipts in exchange for increased spending by SDG&E on undergrounding. The City, in 

turn, proposed: increasing the 3 percent payment obligation to 6 percent; revising the 

Undergrounding Obligation to require that SDG&E expend, rather than merely allocate,

4.5 percent of gross receipts on undergrounding; and requiring that SDG&E’s 

shareholders absorb the increased costs associated with such changes.

The City also desired to remove restrictions on funds used for undergrounding.

However, during the negotiations, through its participation in proceedings before the 

PUC, the City learned that the PUC’s restrictions on SDG&E’s use of Rule 20A funds 

would, for the most part, remain in place. Therefore, SDG&E would be unable to expend 

Rule 20A funds in the manner that the City thought was in the best interest of its 

residents.

Representatives from the City and SDG&E met face to face more than 30 times 

throughout the course of the negotiations. SDG&E and the City exchanged numerous 

draft ordinances and memoranda of understanding related to the proposed amendment of 

the 1970 Electric Franchise Agreement during these negotiations.

b. The December 2001 Memorandum of Understanding

In December 2001, the City and SDG&E entered into a Memorandum of 

Understanding (2001 MOU) that outlined the terms of an amendment to the 1970 Electric 
14

Franchise Agreement and SDG&E’s revised Undergrounding Obligation, including the 

enactment of the Undergrounding Surcharge.

Section 2 of the 2001 MOU summarized the Undergrounding Surcharge as 

follows:

“In order to meet the City’s objectives of increasing the current 

amount of undergrounding being done in the City above what was 

previously agreed to by [SDG&E and the City] and satisfy any 

obligation of SDG&E to apply to the [PUC] to underground electric 

facilities in an amount provided in Section 9 of the [1970 Electric 

Franchise Agreement] and changing the definition of [g]ross

[r]eceipts,[13] SDG&E will support the City by submitting an 

Advice Letter to the [PUC] asking to increase the [1.9 Percent 1970 

Surcharge] on the residents of the City from 1.9% to 5.78% 

conditioned upon the City using 3.53% of the [additional surcharge] 

solely for undergrounding projects within its geographic territory in 

conformance with the terms herein with the remainder of .35% to be 

an increase to the [1.9 Percent 1970 Surcharge].”

Section 6 of the 2001 MOU states, “The franchise fee[ ] percentage[ ] for . . . 

the . . . [e]lectric [f]ranchise[ ] shall remain at 3% for the remaining term[ ] of the 

[f]ranchise[ ].” Section 8 specified that “[a]ll surcharge revenues will be paid directly to 

the City . . . .”

Finally, section 16 of the 2001 MOU provided that, if the PUC were to fail to 

timely approve the surcharge increase, the City and SDG&E would either resume 

negotiations or submit the matter to arbitration:

13 As explained in part II.A.5.c, post, in the 2002 Electric Franchise Amendment, the 

City and SDG&E agreed to change the definition of “gross receipts” in the 1970 Electric 

Franchise Agreement to include SDG&E’s revenues obtained from PUC approved 

surcharges in the City.
15

“In the event the [PUC] does not approve the Advice Letter filing in 

a manner acceptable to each [p]arty or does not act on the Advice 

Letter filing on or before December 31, 2002, the [p]arties will 

mutually agree to either extend the negotiating period, or in the 

alternative either [p]arty can require arbitration as provided in 

Section 4 of the Franchises. The [p]arties agree that SDG&E shall 

continue payment of [f]ranchise [f]ees in the same amount and 

manner as calculated and paid in calendar year 2000 until the 

effective date of such acceptable [PUC] approval or other finally 

agreed upon negotiated or arbitrated decision.”

c. The 2002 Electric Franchise Amendment (Ordinance O-19030)

In January 2002, the City Council enacted Ordinance No. O-19030 (“Ordinance 

O-19030” or “2002 Electric Franchise Amendment”), amending the 1970 Electric 

Franchise Agreement.14 The introductory portion of Ordinance O-19030 summarized 

the key provisions of the 1970 Electric Franchise Agreement and explained that the City 

and SDG&E had reached an agreement to amend that agreement. The introduction 

summarized the relevant key provisions of the amendment as follows:

“WHEREAS, [SDG&E and the City] have agreed that, subject to 

[PUC] approval, gross receipts as defined in Section 1 of the [1970 

Electric Franchise Agreement] shall include revenues from [the 1.9 

Percent 1970 Surcharge], as well as other statutory or [PUC]

approved surcharges solely [sic] on the City ratepayers and as a 

result of such changes, the [1.9 Percent 1970 Surcharge] will be 

increased by .35%; and

“WHEREAS, [SDG&E and the City] have agreed that the funding 

for the obligations of SDG&E to underground its facilities as set 

forth in Section 9 . . . of the [1970 Electric Franchise Agreement] 

shall be structured as follows after the effective date of this 

Ordinance:

14 We refer to the 1970 Electric Franchise Agreement, as amended by the 2002 

Electric Franchise Amendment, as the “Electric Franchise.”
16

“(a) collecting a portion of the funds from ratepayers in base rates 

(1.15%) approved by the [PUC];

“(b) with the remainder to be collected from ratepayers in the City 

through a [PUC] approved surcharge (3.53%) which will be paid 

directly to the City, as set forth herein;

“(c) for a total obligation of four and one-half percent (4.5%) of 

gross receipts, plus .18% for 1/19th of 2001 allocation (which 

amount is included within the 3.53%).”15

Ordinance O-19030, section 1 revised the definition of “gross receipts” in section 

1(g) of the 1970 Electric Franchise Agreement in the manner outlined in the introductory 

section of Ordinance O-19030.

Section 2 of Ordinance O-19030 amended section 4 of the 1970 Electric Franchise 

Agreement by deleting subdivisions 4(b) through (h), all of which pertained to the 

determination of SDG&E’s payment obligation in the final 20 years of the franchise, and 

replacing those subdivisions with a new subdivision 4(b) that provides in relevant part:

“(b) For the remaining years of the term of the [1970 Electric 

Franchise Agreement], Grantee, as consideration and compensation 

for the rights and privileges herein granted and for the use of the 

streets of the City as herein authorized and permitted, shall pay each 

year to City in lawful money of the United States, a sum equal to 

three percent (3%) of Grantee’s gross receipts during the preceding 

calendar year, or a fractional year, commencing with the effective 

date of this ordinance adopted by the City Council, for the remaining 

years of the term of this franchise by the dates, in the manner, and on 

15 Stated differently, the City and SDG&E agreed that SDG&E would meet its 

obligation to budget 4.5% of its gross receipts for undergrounding by: 1) budgeting

1.15% of its gross receipts from its base rates; and 2) collecting the balance from its 

ratepayers in the City as a 3.35% surcharge (4.5% - 1.15%). The 2002 Electric Franchise 

Amendment also included an additional 0.18% surcharge (a one year payment of 3.35% 

spread over the remaining 19 years of the franchise) to recover surcharges uncollected in 

2001, resulting in a total surcharge on SDG&E ratepayers for undergrounding of 3.53%.
17

the conditions as set forth in Section 5[16] hereof.” (Ord. O-19030, 

§ 2.)

Ordinance O-19030, section 3 adopted the changes to SDG&E’s Undergrounding 

Obligation referenced in the introduction to the ordinance and the 2001 MOU by 

amending sections 9(b), and (c) of the 1970 Electric Franchise Agreement to enact the 

Undergrounding Surcharge by stating:

“(b) Grantee shall apply to the [PUC] for authority to budget 

amounts of money for the undergrounding of existing overhead 

facilities in the City to reach a sum which is equal to four and onehalf percent (4.5%) of said gross receipts as defined in Section 1(g), 

with 1.15 % of gross receipts to be included within the base rates, 

and 3.88 % to be collected through an increase in the current [1.9 

percent 1970 Surcharge] to the ratepayers in the City. Of the 3.88%, 

3.53% will be allocated to undergrounding projects and .35% will be 

an increase to the original [1.9 Percent 1970 Surcharge].[17]

“(c) Until and unless Grantor elects to assume the obligation, 

Grantee shall be responsible, to the extent within the reasonable 

control of Grantee, for ensuring that all funds allocated for any 

calendar year, are expended by the end of the succeeding calendar

year, provided that Grantee and Grantor may agree in writing 

otherwise.” (Ord. O-19030, § 3.)

d. The PUC’s approval of the 3.88 Percent 2002 Surcharge

The PUC approved the additional 3.88 Percent 2002 Surcharge, bringing the total 

surcharge to 5.78 percent.

16 As noted in footnote 9, ante, Ordinance 10466, section 5 outlined SDG&E’s 

payment schedule.

17 We refer to the 3.88 percent surcharge as the “3.88 Percent 2002 Surcharge.” The 

Undergrounding Surcharge is a component of the 3.88 Percent 2002 Surcharge.
18

B. Procedural background

1. The initial complaint, first amended complaint and the trial court’s class 

certification order

In April 2015, Mahon filed the initial putative class action complaint in this 

matter. In his complaint, Mahon claimed that the entire 3.88 Percent 2002 Surcharge, as 

well as a gas franchise surcharge contained in a separate franchise agreement between the 

City and SDG&E, were illegal taxes. Mahon, Allan Randall, and Randy Oathes filed a 

first amended complaint in May 2015, which challenged the 3.88 Percent 2002 Surcharge 

and the gas franchise surcharge challenged in the initial complaint.18 The trial court 

certified a class in October 2016 consisting of all SDG&E customers in the City who paid 

for gas and / or electricity service during the class period (i.e., from March 9, 2014 

through entry of a final judgment).19

18 Oathes is no longer a plaintiff.

19 The class certification order states in relevant part:

“1. The class is certified and defined as:

All San Diego Gas & Electric Co. customers (including natural 

persons, organizations, corporations, associations, or any other legal 

entity of any kind) who paid for gas and/or electric utility service at 

service locations within the boundaries of the City of San Diego, 

California during the Class Period. Expressly excluded from the 

class definition are government agency utility customers and any 

judicial officers assigned to this action. (the ‘Class’).

“[¶] . . . [¶]

“3. The ‘Class Period’ is the period on and after March 9, 2014 

through and including the date of entry of final judgment in this 

action.”
19

2. The trial court’s stay of all proceedings pending the issuance of Jacks

In November 2016, the City moved to continue the matter pending the Supreme 

Court’s issuing of its opinion in Jacks. The trial court stayed the matter for a period of 90 

days. The Supreme Court issued its opinion in Jacks in June 2017, and the trial court 

lifted its stay of the proceedings the following month.20

3. The parties’ stipulation to permit the filing of a second amended complaint 

and to modify the class

Shortly after the Supreme Court issued its opinion in Jacks, the parties entered into 

a stipulation to permit the plaintiffs to file an amended complaint and to modify the class 

definition. The stipulation explained that “following the issuance of the California 

Supreme Court’s ruling in Jacks . . . , the [p]arties met and conferred and agreed to 

narrow the issues presented in this action by way of an amended complaint.” The parties 

agreed that plaintiffs would be granted leave to file a second amended complaint and that 

the order certifying the class would be modified to exclude SDG&E gas customers from 

the class definition. The trial court subsequently entered an order granting plaintiffs 

leave to file a second amended complaint, and modifying the class definition in a manner 

consistent with the parties’ stipulation.

20 Although it is not entirely clear from the record, it appears that the trial court 

continued to stay the proceedings beyond the initial 90-day period pending the Supreme 

Court’s issuance of Jacks.
20

4. The operative second amended complaint

Plaintiffs filed the operative second amended class action complaint in September 

2017. In their complaint, plaintiffs explained that their causes of action are premised on 

the City’s 2002 adoption of “Ordinance O-19030 which imposed, and continues to 

impose, a 3.53% undergrounding surcharge (‘Undergrounding Surcharge’) upon 

[SDG&E] customers with electric utility service at locations within the City’s 

boundaries.” Plaintiffs alleged that the City’s imposition of the Undergrounding 

Surcharge on SDG&E customers within the City is “an illegal tax enacted by the City and 

imposed upon utility users in violation of Proposition 218.”

As relevant to the franchise fee issue raised in this appeal, plaintiffs alleged that 

“[t]he Undergrounding Surcharge is not a franchise fee and there is no nexus between the 

Undergrounding Surcharge and the value of the [f]ranchise the City granted to SDG&E.”

The second amended class action complaint contains four causes of action styled 

as: “Violation of Proposition 218,” “Declaratory Relief,” “Injunctive Relief,” and “Tax 

Refund.” Plaintiffs sought a declaration that the City violated Proposition 218 and that 

the Undergrounding Surcharge was an unconstitutional tax. In addition, plaintiffs 

requested an injunction to prevent the City from continuing to collect the 

Undergrounding Surcharge, and to be awarded a refund of the taxes illegally imposed 

through the Undergrounding Surcharge.21

21 Plaintiffs claimed that “[d]uring the Class Period to date, the City has imposed 

upon Plaintiffs and Class members estimated Undergrounding Surcharges totaling more 

than $205,000,000.”
21

5. The City’s motion for summary judgment or, in the alternative, summary 

adjudication

The City filed a motion for summary judgment or, in the alternative, summary 

adjudication in February 2018.22

As a threshold argument, the City argued that plaintiffs lacked standing to bring 

their challenge.23 On the merits, the City argued that plaintiffs could not establish that 

the Undergrounding Surcharge24 was an illegal tax, both because it was lawful 

22 Plaintiffs filed a cross-motion for summary judgment. As noted in footnote 30,

post, in its order granting the City’s motion for summary judgment, the trial court ruled 

that plaintiffs’ motion for summary judgment was moot.

23 In its order granting the City’s motion for summary judgment, the trial court 

rejected the City’s contention that plaintiffs lacked standing. The City does not raise its

standing argument as an alternative ground for affirmance on appeal.

24 To be precise, the City argued that SDG&E’s “UG [Undergrounding] Obligation,” 

was lawful consideration offered in exchange for franchise rights and a legitimate 

regulatory fee. (Italics added.) In its briefing, the City drew a distinction between the 

Undergrounding Surcharge (i.e., the 3.53 percent surcharge on ratepayers’ bills) and 

SDG&E’S “UG [Undergrounding] Obligation,” to budget 4.5 percent of its gross receipts 

for undergrounding. (Italics added.)

The distinction between the Undergrounding Obligation and the Undergrounding 

Surcharge was important in presenting the City’s standing argument. Specifically, the 

City argued that plaintiffs lacked standing to challenge the Undergrounding Surcharge, 

because, according to the City, ratepayers such as plaintiffs paid the Undergrounding 

Surcharge to SDG&E and not to the City. In addition, the City argued that plaintiffs 

lacked standing to challenge SDG&E’s [Undergrounding] Obligation because the “fact 

that SDG&E passes on the burden and expense of the UG [Undergrounding] Obligation 

to the ratepayers is not sufficient to make the ratepayers the payers of the UG 

[Undergrounding] Obligation to the City.” However, as noted in footnote 23, ante, the 

trial court rejected the City’s standing argument, and the City does not raise a standing 

argument on appeal.

In addition, the distinction between the Undergrounding Obligation and the 

Undergrounding Surcharge was relevant to the City’s other alternative contention that, if 

the trial court were to determine that the Undergrounding Obligation was a tax, it was a 
22

consideration paid in exchange for franchise rights and because it was a legitimate 

regulatory fee.

With respect to the former argument, the City argued that the Undergrounding 

Surcharge constituted compensation for franchise rights and therefore was not a tax under 

Jacks:

“The Court in Jacks ruled that the surcharge revenue collected by 

[the utility] and then paid over to [the municipality] is an item of 

compensation that [the utility] pays to [the municipality] in exchange 

for the [f]ranchise [r]ights. Jacks, [supra,] 3 Cal.5th at 269 (noting

that the surcharge revenue ‘is a payment made in exchange for a 

property interest that is needed to provide electricity to City 

residents’). Similarly, the surcharge revenue collected by SDG&E

and then paid over to the City to satisfy the UG [Undergrounding] 

Obligation is an item of compensation that SDG&E pays to the City 

in exchange for the Franchise Rights.”

The City argued further:

“All consideration that [a local government entity] receives from a

[u]tility in exchange for the [f]ranchise [r]ights comes under the 

definition of ‘compensation’ or ‘franchise fee’ as those term are used 

in Jacks, [supra,] 3 Cal.5th at 254, 267 (holding that all ‘sums paid

for the right to use a jurisdiction’s rights-of-way are fees rather than 

lawful tax, because the Undergrounding Obligation was initially imposed in 1970, prior 

to the passage of Proposition 218, and no “rate increase occurred,” with the enactment of 

the Undergrounding Surcharge in 2002. This distinction was also relevant to the City’s 

arguments with respect to the City’s contention that SDG&E’s Undergrounding 

Obligation is a valid regulatory fee.

The City continues to use this terminology in its briefing on appeal in arguing that 

the “UG [Undergrounding] Obligation” is lawful. (Italics added.) Since we need not 

address the City’s standing argument or its alternative contentions with respect to either 

the regulatory fee issue or the timing of the adoption of the Undergrounding Obligation, 

and given that the plaintiffs have argued that the Undergrounding Surcharge is unlawful, 

for purposes of clarity, we refer to the City’s arguments as to the lawfulness of the “UG 

[Undergrounding] Obligation” both in the trial court and on appeal, as pertaining to the 

Undergrounding Surcharge, which is a component of the Undergrounding Obligation 

contained in section 9 of the Electric Franchise.
23

taxes’) (emphasis added); . . . . Also, if [p]laintiffs argument is 

accepted, then the only consideration SDG&E pledges to the City is 

the 3% Payment Obligation, and SDG&E could refuse to perform 

every other obligation set forth in the Electric Franchise and still 

possess the grant of the [f]ranchise [r]ights. This interpretation of 

the Electric Franchise is not only nonsensical, but contrary to the 

express language of the Electric Franchise stating that all SDG&E 

obligations set forth in the Electric Franchise are given in exchange 

for the [f]ranchise [r]ights.”

The City also argued that the franchise compensation that SDG&E pays the City 

does not exceed the value of the franchise rights at the time that the City and SDG&E 

entered into the 2002 Electric Franchise Amendment. The City argued in relevant part, 

“[I]t is undisputed that from mid-1999 through 2001, the City and SDG&E engaged in 

good faith arm’s length negotiations resulting in the [2002] Electric Franchise 

Amendment. [Citations.]” After describing the evidence of such negotiations, the City 

contended that “[t]he City and SDG&E engaged in the type of negotiations that the Jacks 

[c]ourt considered reflective of the market value of the [f]ranchise [r]ights,” and 

maintained that “[p]laintiffs can bring forth no admissible evidence disproving the City’s 

showing on this point.” The City also argued that the reasonableness of the value of the 

franchise compensation provisions in the 2002 Electric Franchise Amendment was 

further demonstrated by the fact that the final compensation provisions in the 2002 

Electric Franchise Amendment were similar to the compensation recommended by the 

City’s consultants.

The City supported its motion with numerous documents detailing the history of 

the relationship between SDG&E and the City. The documents included exhibits 

containing the relevant City ordinances and related documents; declarations and 
24

deposition testimony pertaining to the negotiations between the City and SDG&E;

declarations and deposition testimony pertaining to the implementation of the City’s 

undergrounding program; documents from the City’s consultants; and PUC decisions and 

related documents.25

6. Plaintiffs’ opposition

Plaintiffs filed an opposition to the City’s motion for summary judgment or 

adjudication. In their opposition, plaintiffs argued that the “[Undergrounding] Surcharge 

is not a franchise fee.” (Boldface & some capitalization omitted.) In support of this 

argument, plaintiffs drew a distinction between consideration for franchise rights and 

compensation for franchise rights. Plaintiffs maintained that “nothing in Jacks suggests 

that any form of ‘consideration’ in a franchise agreement is ‘compensation’ for use of 

public property and not a tax.” (Boldface omitted; italics added.) Plaintiffs argued that 

the only “compensation SDG&E pays to the City for use of streets,” is the 3 percent of 

gross receipts payment obligation contained in the Electric Franchise. (Boldface 

omitted.) Plaintiffs also noted that while the 3 percent obligation is referred to as a 

“franchise fee” and “compensation” in Ordinance O-19030, section 9 of the Electric 

Franchise refers to SDG&E’s “obligation to budget for undergrounding,” as 

“ ‘consideration,’ ” and section 9 does not use the term “compensation.”

25 During the summary judgment proceedings, the City requested that the trial court 

take judicial notice of various City ordinances, resolutions and other provisions of the 

City’s law.
25

Plaintiffs also argued that interpreting SDG&E’s Undergrounding Obligation 

under section 9 of the Electric Franchise as compensation under Jacks would be 

inconsistent with City Charter provisions related to franchise ordinances and the use of 

franchise revenues. In addition, plaintiffs maintained that the conclusion that the 

Undergrounding Surcharge is not a franchise fee was supported by the fact that, 

according to plaintiffs, the purpose of the surcharge was to fund the undergrounding 

program rather than “compensate” the City for the franchise. Finally, plaintiffs claimed 

that the legislative history of the 2002 Electric Franchise Amendment further 

demonstrated that the Undergrounding Surcharge was not a valid franchise fee.26

Plaintiffs’ opposition did not address the City’s argument that the franchise 

compensation that SDG&E pays to the City does not exceed the reasonable value of the 

franchise rights, other than to assert that the City had “offered no evidence” on this issue.

Plaintiffs supported their opposition with various exhibits, including deposition 

testimony from City employees and consultants, discovery responses and documents 

related to the enactment of Ordinance O-19030.

26 Plaintiffs reiterate these arguments on appeal. Accordingly, we describe in detail 

plaintiffs’ arguments with respect to the City Charter, the purpose of the Undergrounding 

Surcharge and the legislative history of the 2002 Electric Franchise Amendment in part 

III.D.1.a–c, post.
26

7. The trial court’s ruling

After further briefing, and a hearing, the trial court granted the City’s motion for 

summary judgment in August 2018.27 In its order, the trial court concluded that the 

Undergrounding Surcharge is not a tax subject to voter approval for two independent 

reasons. First, the trial court concluded that the Undergrounding Surcharge is a valid 

franchise fee under Jacks and therefore, is not a tax. In reaching this conclusion, the trial 

court interpreted Ordinance O-19030, and noted that it expressly provided that SDG&E’s 

allocation of funds for undergrounding as mandated in the ordinance constituted a 

“portion of the consideration,” for the franchise.

The court also ruled that, while the City may not charge a franchise fee that 

exceeds the reasonable value of the franchise rights, the Jacks court did not narrowly 

circumscribe how a franchise fee is to be “calculated and charged.” Accordingly, the trial 

court ruled that SDG&E’s obligation to allocate funds for undergrounding in Ordinance 

O-19030 “may properly constitute compensation,” under Jacks, even if such obligation 

did not constitute “actual payment.” In addition, consistent with its conclusion that Jacks

does not circumscribe “how” a franchise fee is “calculated and charged,” the trial court 

also rejected plaintiffs’ attribution of legal significance to the fact that Ordinance O19030 in Section 9 referred to the Undergrounding Obligation as “consideration” and 

27 In its order, the trial court granted the City’s request for judicial notice and 

overruled nearly all of the parties’ evidentiary objections. We discuss plaintiffs’ claim 

that the trial court erred in sustaining the City’s objection to plaintiffs lodging a portion 

of the legislative history pertaining to the adoption of Ordinance O-19030 in footnote 51, 

post.
27

referred to the 3 percent payment of gross receipts in Section 4 as “compensation.” The 

trial court determined that there is “no legal difference between the terms consideration 

and compensation,” for purposes of determining whether the Undergrounding Surcharge 

was a valid franchise fee.

The trial court also ruled that plaintiffs had not contended that the compensation 

specified in Ordinance O-19030 exceeded the reasonable value of the franchise. The trial 

court reasoned:

“The Court in Jacks recognized ‘that determining the value of a 

franchise may present difficulties.’ (Jacks, supra, 3 Cal.5th at 269.) 

‘Where a utility has an incentive to negotiate a lower fee, the 

negotiated fee may reflect the value of the franchise rights, just as 

the negotiated rent paid by the lessor [sic] of a publicly owned 

building reflects its market value, despite the fact that a different 

lessor [sic] might have negotiated a different rental rate.’ (Id. at 

269–270.)[28] If there is an absence of ‘bona fide negotiations,’ or

in addition to such negotiations, ‘an agency may look to other 

indicia of value to establish a reasonable value of franchise rights.’

(Id. at 270.) Plaintiffs do not dispute that bona fide negotiations 

took place or that the value of the compensation in Ordinance No. 

10466 or Ordinance O-19030 exceed[s] the reasonable value of the 

franchise rights.[29] Plaintiffs merely assert it is not compensation.”

In the alternative, the trial court concluded that the Undergrounding Surcharge is a 

regulatory fee.

28 We infer from the context that the Jacks court intended these references to 

“lessor,” to instead be, “lessee.”

29 By this sentence, we understand the court to have meant that plaintiffs did not 

dispute that bona fide negotiations had taken place and that plaintiffs did not contend that 

the value of the compensation in Ordinance 10466 or Ordinance O-19030 exceeded the

reasonable value of the franchise rights.
28

Having concluded that the City had demonstrated as a matter of law that the 

Undergrounding Surcharge is not a tax, the trial court granted the City’s motion for 

summary judgment.30

The trial court entered a judgment in favor of the City in August 2018.

8. The appeal

Plaintiffs timely appealed from the judgment.31

30 In its ruling, the trial court noted that the plaintiffs’ motion for summary judgment 

was moot in light of its ruling granting the City’s motion for summary judgment.

31 While this appeal was pending, plaintiffs filed a motion for judicial notice 

requesting that this court take judicial notice of several documents.

We grant the plaintiffs’ unopposed request for judicial notice of the ordinance 

containing the franchise agreement at issue in Jacks and numerous documents of which 

the trial court in this case took judicial notice. (See Evid. Code, §§ 459, subd. (a) [stating 

that “[t]he reviewing court shall take judicial notice of . . . each matter properly noticed

by the trial court,” and providing that “[t]he reviewing court may take judicial notice of 

any matter specified in [Evidence Code] Section 452”]; 452, subd. (b) [permitting the 

taking of judicial notice of “legislative enactments issued by . . . any public entity in the 

United States”].) We also grant the plaintiffs’ unopposed request for judicial notice of 

two additional documents (the ordinance containing SDG&E’s gas franchise and a City 

Manager’s report related to the adoption of Ordinance O-19030) that are contained in the 

record in this case. (See Evid. Code § 452, subd. (b) [legislative enactments]; Evans v. 

City of Berkeley (2006) 38 Cal.4th 1, 7, fn. 2 [taking judicial notice of city manager’s 

memorandum recommending resolution’s adoption “as legislative history reflecting on 

the purposes of the enactment”].)
29

III.

DISCUSSION

The trial court properly granted the City’s motion for summary judgment

on the ground that the Undergrounding Surcharge is compensation validly

given in exchange for franchise rights under Jacks and is therefore

not a tax subject to voter approval under Proposition 218

Plaintiffs claim that the trial court erred in granting summary judgment to the City 

on the ground that the Undergrounding Surcharge is compensation validly given in 

exchange for franchise rights under Jacks and is therefore not a tax subject to voter 

approval pursuant to Proposition 218.

A. The law governing summary judgment and the applicable standard of review

A moving party is entitled to summary judgment when the party establishes that it 

is entitled to the entry of judgment as a matter of law. (Code Civ. Proc., § 437c, subd. 

(c).) A defendant may make this showing by demonstrating that the plaintiff cannot 

establish one or more elements of all of his causes of action, or that the defendant has a 

complete defense to each cause of action. (Towns v. Davidson (2007) 147 Cal.App.4th 

461, 466.)

In reviewing a trial court’s ruling on a motion for summary judgment, the 

reviewing court makes “ ‘an independent assessment of the correctness of the trial court’s 

ruling, applying the same legal standard as the trial court in determining whether there 

are any genuine issues of material fact or whether the moving party is entitled to 

judgment as a matter of law.’ ” (Trop v. Sony Pictures Entertainment, Inc. (2005) 129 

Cal.App.4th 1133, 1143.)
30

As applied to this case, the City was entitled to summary judgment if it 

demonstrated that the plaintiffs could not establish that “the [U]ndergounding 

[S]urcharge is a tax that was not approved by [the] voters.”32 (Accord Jacks, supra, 

3 Cal.5th at p. 267 [“Whether a charge is a tax . . . ‘is a question of law for the appellate 

courts to decide on independent review of the facts’ ”].) We independently review the 

trial court’s determination that the City was entitled to judgment as a matter of law 

because the City successfully demonstrated that the plaintiffs could not establish that the 

Undergrounding Surcharge is a tax under Proposition 218.

B. Proposition 218

“In 1996, state voters approved Proposition 218 . . . .” (Jacks, supra, 3 Cal.5th at 

p. 259.) As relevant to this case, “Proposition 218 amended the Constitution to add voter 

approval requirements for general and special taxes . . . (Cal. Const., art. XIII C, 

§§ 1, 2.)” (Ibid.)

Proposition 218 provided in relevant part:

“SECTION 1. Definitions. As used in this article:

“(a) ‘General tax’ means any tax imposed for general governmental 

purposes.

“[¶] . . . [¶]

32 We quote here from the plaintiffs’ brief summarizing an essential element of each 

of their four causes of action in the operative second amended class action complaint. As 

noted in part II.B.4, ante, those causes of action are styled as “Violation of Proposition 

218,” “Declaratory Relief,” “Injunctive Relief,” and “Tax Refund.”
31

“(d) ‘Special tax’ means any tax imposed for specific purposes, 

including a tax imposed for specific purposes, which is placed into a 

general fund.”

“SEC. 2. Local Government Tax Limitation. Notwithstanding any 

other provision of this Constitution:

“[¶] . . . [¶]

“(b) 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. . . .

“[¶] . . . [¶]

“(d) No local government may impose, extend, or increase any 

special tax unless and until that tax is submitted to the electorate and

approved by a two-thirds vote.” (Prop. 218, § 3, approved Nov. 5, 

1996).

Proposition 218, section 5 provides, “The provisions of this act shall be liberally 

construed to effectuate its purposes of limiting local government revenue and enhancing 

taxpayer consent.”

“Proposition 218 did not define the term “ ‘tax.’ ” (Citizens for Fair REU Rates v. 

City of Redding (2018) 6 Cal.5th 1, 11.) However, in Jacks, as described below, the 

California Supreme Court considered “whether [a] surcharge [in a utility franchise 

agreement] [was] a tax subject to Proposition 218’s voter approval requirement, or a fee 

that may be imposed by [a municipality] without voter consent.” (Jacks, supra, 3 Cal.5th 

at p. 257.)

C. Jacks

In Jacks, a municipality and a utility entered into a franchise agreement to include 

a charge of 2 percent of the utility’s gross annual receipts from the sale of electricity 
32

within the municipality. (Jacks, supra, 3 Cal.5th at p. 255.)33 Pursuant to the 

agreement, half of the 2 percent charge was to be collected from the utility itself, which 

the utility could recover in its electricity rates. (Ibid.) The other half of the 2 percent 

charge was to be collected from the utility’s customers through a separately billed 

surcharge. (Ibid.) The Jacks plaintiffs claimed that the separately billed 1 percent 

surcharge was a tax subject to Proposition 218. (Id. at p. 254.) The municipality 

contended that the surcharge was a valid franchise fee for the use of the municipality’s 

property in connection with the delivery of electricity and therefore was not subject to 

Proposition 218 voter approval requirements. (Ibid.)34

After considering the intersection of the law governing initiatives requiring voter 

approval of taxes with the law governing franchise fees, the Jacks court “h[e]ld that a 

33 The Jacks court noted that the franchise agreement at issue in that case was the 

most recent in “a series of franchise agreements granting [the utility] the privilege to 

construct and use equipment along, over, and under the [municipality’s] streets to 

distribute electricity.” (Jacks, supra, 3 Cal.5th at p. 254.) The Jacks court explained that, 

“A utility franchise is a privilege to use public streets or rights-of-way in connection with 

the utility’s provision of services to residents within the governmental entity’s 

jurisdiction.” (Id. at p. 254, fn. 1.)

34 The Jacks court noted that “in 2010, after the charge at issue in this case was 

adopted, state voters approved Proposition 26,” which amended the Constitution to define 

the word “tax.” (Jacks, supra, 3 Cal.5th at p. 260.) Proposition 26 specified that for 

purposes of voter approval of local taxes, “ ‘ “tax” means any levy, charge, or exaction of 

any kind imposed by a local government.’ ” (Jacks, supra, at p. 260.) However, the 

Jacks court made clear, “no party contends that it applies to the charges in this case, 

which were imposed prior to the enactment of Proposition 26.” (Id. at p. 260, fn. 4.)

The same is true in this case. The Undergrounding Surcharge was imposed prior 

to the enactment of Proposition 26, and plaintiffs do not make any claim premised on 

Proposition 26 in the operative second amended complaint.
33

charge imposed in exchange for franchise rights is a valid fee rather than a tax . . . if the 

amount of the charge is reasonably related to the value of the franchise.” (Jacks, supra, 

3 Cal.5th at p. 257.)35 The Jacks court emphasized that its holding was premised on the 

notion that a bargained for “exchange” (id. at p. 267) is the hallmark of a franchise fee

rather than a tax:

“[A] franchise is a form of property, and a franchise fee is the price 

paid for the franchise. Moreover, historically, franchise fees have 

not been considered taxes, and nothing in Proposition 218 reflects an 

intention to treat amounts paid in exchange for property interests as 

taxes. Finally, like the receipt by a discrete group of a special 

benefit from the government, the receipt of an interest in public 

property justifies the imposition of a charge on the recipient to 

compensate the public for the value received. Therefore, sums paid 

for the right to use a jurisdiction’s rights-of-way are fees rather than 

taxes. But as explained below, to constitute compensation for the 

value received, the fees must reflect a reasonable estimate of the 

value of the franchise.” (Ibid.)

In reaching this conclusion, the Jacks court specifically rejected the plaintiffs’ 

contention that the surcharge was not a franchise fee because the utility’s ratepayers, 

rather than the utility, paid the surcharge.36 (Jacks, supra, 3 Cal.5th at pp. 268–269.) 

The Jacks court reasoned in part:

35 In reaching this conclusion, the Jacks court acknowledged that the provisions of 

Proposition 218 were to be “ ‘liberally construed to effectuate its purposes of limiting 

local government revenue and enhancing taxpayer consent.’ ” (Jacks, supra, 3 Cal.5th at 

p. 267.)

36 The Jacks court also expressly rejected the municipality’s argument that it was the 

utility, rather than its ratepayers, that paid the surcharge. (See Jacks, supra, 3 Cal.5th at 

p. 270 [“The terms of the 1999 agreement belie the contention that [the utility] assumed a 

burden to pay the surcharge”].) The Jacks court also rejected the municipality’s 

contention that the surcharge resulted from a decision by the utility and the PUC. (See id.
34

“Plaintiffs observe . . . that [the utility’s] customers pay the 

surcharge, but [the utility] receives the franchise rights; therefore, 

they contend, the ratepayers do not receive any value in exchange 

for their payment of the charge. . . . [P]ublicly regulated utilities are 

allowed to recover their costs and expenses by passing them on to 

their ratepayers. Among the charges included in the rates charged to 

customers within the [municipality] is the initial 1 percent of gross 

receipts paid in exchange for franchise rights, yet plaintiffs do not 

contend that this initial 1 percent is a tax because ratepayers do not 

receive the franchise rights. The fact that the surcharge is placed on 

customers’ bills pursuant to the franchise agreement rather than a 

unilateral decision by [the utility] does not alter the substance of the 

surcharge; like the initial 1 percent charge, it is a payment made in 

exchange for a property interest that is needed to provide electricity 

to [the municipality’s] residents. Because a publicly regulated utility 

is a conduit through which government charges are ultimately 

imposed on ratepayers, we would be placing form over substance if 

we precluded the [municipality] from establishing that the surcharge 

bears a reasonable relationship to the value of the property interest it 

conveyed to [the utility] because the [municipality] expressed in its 

ordinance what was implicit—that once the PUC gave its approval, 

[the utility] would place the surcharge on the bills of customers 

within the [municipality].” (Ibid.)

The Jacks court acknowledged the prospect that “franchise fees . . . [could] 

become a vehicle for generating revenue independent of the purpose of the fees.” (Jacks, 

supra, 3 Cal.5th at p. 269.) However, rather than guarding against this possibility by 

concluding that surcharges paid by ratepayers are not franchise fees,37 the Jacks court 

at p. 271 [“the [municipality] and [the utility] agreed that [the utility] would impose the 

surcharge on customers and remit the revenues to the [municipality]”].)

37 In dissent, Justice Chin maintained that the fact that the utility’s customers were 

required to pay the surcharge demonstrated that the surcharge was not a franchise fee, but 

was, in fact, a disguised tax. (Jacks, supra, 3 Cal.5th at p. 282 (dis. opn. of Chin, J.) 

[“Because the Ordinance requires [the utility’s] customers to pay for rights and interests 

the [municipality] has granted to [the utility], the charge does not constitute a ‘franchise 

fee’ for purposes of the rule that ‘franchise fees [are not] considered taxes.’ . . . In reality, 
35

explained that its “reasonable value” requirement provided the appropriate limitation. 

(See ibid. [“To the extent a franchise fee exceeds any reasonable value of the franchise, 

the excessive portion of the fee does not come within the rationale that justifies the 

imposition of fees without voter approval”].)

In determining the reasonable value of a franchise, the Jacks court provided the 

following guidance:

“We recognize that determining the value of a franchise may present 

difficulties. Unlike the cost of providing a government improvement 

or program, which may be calculated based on the expense of the

personnel and materials used to perform the service or regulation, 

the value of property may vary greatly, depending on market forces 

and negotiations. Where a utility has an incentive to negotiate a 

lower fee, the negotiated fee may reflect the value of the franchise 

rights, just as the negotiated rent paid by the lessor [sic] of a publicly 

owned building reflects its market value, despite the fact that a 

different lessor [sic] might have negotiated a different rental rate. In 

the absence of bona fide negotiations, however, or in addition to 

such negotiations, an agency may look to other indicia of value to 

establish a reasonable value of franchise rights.

“In sum, a franchise fee must be based on the value of the franchise 

conveyed in order to come within the rationale for its imposition 

without approval of the voters. Its value may be based on bona fide 

negotiations concerning the property’s value, as well as other indicia 

of worth. Consistent with the principles that govern other fees, we 

hold that to constitute a valid franchise fee under Proposition 218, 

it is just an increase in the [municipality’s] user tax, which the [municipality] calls a 

franchise fee”].) This point was the central thesis of Justice Chin’s dissent. (See, e.g., id.

at p. 275 [“The majority cites no support for its conclusion that a charge imposed on and 

paid by someone who is granted nothing in return is not a tax as to that person so long as

someone else receives franchise rights for the payment”]; id. at p. 281 [stating that the 

surcharge was not a franchise fee because it “is not a charge that ‘the holder of the 

franchise’—[the utility]— ‘undert[ook] to pay’ ”]; ibid. [“The majority observes that ‘a 

franchise fee is the purchase price of the franchise’ [citation], but it does not explain how 

the [surcharge], which the [municipality] has imposed on someone other than the 

purchaser of the franchise, meets this test”].)
36

the amount of the franchise fee must bear a reasonable relationship 

to the value of the property interests transferred.” (Jacks, supra, 

3 Cal.5th at pp. 269–270.)38

D. The Undergrounding Surcharge constitutes a valid charge imposed in exchange for 

franchise rights under Jacks and is therefore not a tax

Plaintiffs claim that the Undergrounding Surcharge is a tax under Jacks because 

the surcharge does not constitute compensation for SDG&E’s use of the City’s streets.

Plaintiffs further contend that, even assuming that the Undergrounding Surcharge is 

compensation for the use of the City’s streets under Jacks, the surcharge remains a tax 

because it “has no relationship to the value of the use of City streets.” (Some 

capitalization omitted.)

1. The Undergrounding Surcharge constitutes compensation in exchange for 

franchise rights under Jacks

Plaintiffs’ primary argument, both in the trial court and on appeal, is that the 

Undergrounding Surcharge is not compensation given in exchange for franchise rights 

under Jacks. While plaintiffs acknowledge that the Undergrounding Surcharge 

constitutes “consideration . . . given [by SDG&E] to induce the City to grant SDG&E the 

franchise,” plaintiffs argue that “not all consideration for a franchise is compensation for 

the use of public property.” (Boldface & some capitalization omitted; italics added.) In 

other words, plaintiffs attempt to draw a distinction between compensation given for the 

38 The Jacks court explained that “[t]he litigation below did not address whether the 

charges bear a reasonable relationship to the value of the property interests.” (Jacks, 

supra, 3 Cal.5th at p. 254.) The Jacks court thus remanded the matter for further 

proceedings. (Id. at p. 274.)
37

use of public property, which plaintiffs acknowledge is a valid franchise fee under 

Jacks,39 and other consideration that a utility provides to induce a municipality to enter 

into a franchise agreement, which plaintiffs claim does not constitute compensation under 

Jacks.40 Plaintiffs advance this fundamental premise through a series of arguments 

concerning the text and legislative history of the Electric Franchise, the City’s application 

of the Electric Franchise and City Charter provisions pertaining to franchise revenues, 

and the purpose of the Undergrounding Surcharge.

The City contends that the plaintiffs’ arguments are flawed and based on an 

“extremely narrow interpretation of Jacks.” The City maintains that the trial court 

properly determined that “all items of consideration conveyed and pledged by SDG&E to 

the City under the terms of the Electric Franchise are compensation for the franchise 

rights.”

As we explain below, we conclude that all consideration that is a “charge” and is 

given in exchange for franchise rights, constitutes “compensation for the use of 

government property” as that phrase is used in Jacks. (See Jacks, supra, 3 Cal.5th at 

p. 254 [“charges that constitute compensation for the use of government property are not 

39 For example, plaintiffs argue that in order to determine whether the 

Undergrounding Surcharge is a tax under Jacks, we must determine “whether SDG&E 

agreed to pay the [Undergrounding Surcharge] as ‘compensation for use of its 

streets,’ . . . .”

40 Plaintiffs argue, “[T]he sole compensation the City agreed to accept for the use of 

its streets is the 3% franchise fee and . . . the other consideration [in the Electric 

Franchise] is given to induce the City to grant SDG&E the franchise.” (Italics added.)
38

subject to Proposition 218’s voter approval requirements”].) In addition, after 

considering each of plaintiffs’ arguments with respect to text, legislative history, 

application and purpose, we further conclude that the Undergrounding Surcharge 

constitutes compensation in exchange for franchise rights under Jacks, and thus, that the 

surcharge is not a tax subject to Proposition 218's voter approval requirements.

a. Plaintiffs’ interpretation of Jacks is unreasonably narrow and is 

inconsistent with Jacks’s central premise

As discussed above, plaintiffs’ arguments on appeal rest largely on the premise 

that, in determining whether a charge contained in a franchise agreement is a tax under 

Proposition 218, a court must determine whether the charge is merely “consideration to 

induce” the granting of the franchise, which, according to plaintiffs, is not compensation 

under Jacks. Plaintiffs articulate this theory most clearly in their reply brief in stating the 

following:

“While compensation in a contract is certainly consideration, not all

consideration is compensation. And all valid consideration serves as 

an inducement to the counter party’s agreement to enter into a

contract. [Citation.]

“Here, the plain language of the franchise ordinances is unequivocal 

that the 3% fee is the compensation SDG&E agreed to pay to the 

City for the use of its streets. [Citation.] All other terms and 

conditions in the franchise, including SDG&E’s Rule 20A 

undergrounding budgets, are valid consideration to induce the City 

to grant the franchise. SDG&E agreed to suffer prejudice by 

budgeting additional funds for undergrounding its facilities beyond 

the amounts mandated by the PUC. [Citation.] But the Rule 20A 

undergrounding obligation is not compensation for SDG&E’s use of 
39

its streets. Rather, it is one of several terms that served to induce the 

City to grant the franchise.”41

Yet, there is nothing in Jacks that suggests that the Supreme Court drew any 

distinction between “consideration to induce” and “compensation” in this context, and 

nothing in Jacks indicates that such a distinction has any significance in determining the 

existence of a tax under Proposition 218. The Jacks court did not even use the word 

“consideration” in its opinion,42 and plaintiffs have not offered any rationale for why the 

Jacks court would conclude that monetary consideration given to induce the granting of a 

franchise would be considered a tax while “compensation for the use of government 

property” is not a tax. (Jacks, supra, 3 Cal.5th at p. 254, italics added.)

In addition, many of the examples that plaintiffs provide in their brief on appeal of 

“consideration” contained in the Electric Franchise that plaintiffs contend are not 

“compensation” under Jacks are also not monetary. For example, plaintiffs refer to 

SDG&E’s promises in the Electric Franchise to regularly report its financials and to 

41 Plaintiffs’ references to SDG&E’s “Rule 20A undergrounding budgets,” and the 

“Rule 20A undergrounding obligation” are puzzling. Plaintiffs challenge the 

Undergrounding Surcharge and acknowledge that “projects funded by the surcharge are 

not PUC Rule 20A projects.” (Italics added.) Nevertheless, we understand plaintiffs’ 

central point, which is repeated throughout their briefing, to be that, while the 

Undergrounding Surcharge may be consideration given by SDG&E to induce the 

granting of the franchise, it is not compensation under Jacks. Or, as plaintiffs put it in the 

introduction to their opening brief, “This appeal raises a fundamental question: is all

consideration in a franchise agreement ‘compensation for the use of public property’?”

42 To be precise, the Jacks court did not use the word “consideration,” in the sense of 

contractual consideration. It did talk about another court’s “consideration” of an issue. 

(Jacks, supra, 3 Cal.5th at p. 269 [“Although Sinclair Paint’s consideration of the 

purposes”].)
40

comply with the law. Even assuming, strictly for purposes of this opinion, that these 

nonmonetary forms of consideration do not constitute compensation under Jacks, such 

forms of consideration also are not charges such that they could conceivably be a tax 

under Proposition 218. (See Jacks, supra, 3 Cal.5th at p. 257 [stating that Proposition 

218 was among voter initiatives requiring “voter approval of certain charges,” and 

explaining that whether the surcharge “required voter approval hinges on whether it is a 

valid charge under the principles that exclude certain charges from voter approval 

requirements” (italics added)].)

However, there is no support in Jacks for the proposition that a utility may 

promise monetary consideration to induce the granting of a franchise that is a charge for 

purposes of Proposition 218, but is not compensation under Jacks.43 This distinction 

appears only in plaintiffs’ briefing, and not in Jacks. Instead, whether labeled as 

“consideration to induce,” or as “compensation,” as the Jacks court itself expressly 

“h[e]ld,” any “charge imposed in exchange for franchise rights is a valid fee rather than a 

tax . . . if the amount of the charge is reasonably related to the value of the franchise.” 

(Jacks, supra, 3 Cal.5th at p. 257, italics added.)

Indeed, the central rationale of Jacks strongly supports the conclusion that any

charge that serves as “consideration to induce” the granting of a franchise also constitutes 

“compensation” as that term is used in Jacks. (Jacks, supra, 3 Cal.5th at p. 254.) That is 

43 This is true as long as the amount of consideration promised is reasonably related 

to the value of the franchise.
41

because, as discussed above, Jacks, at its core, is premised on the idea that consideration

promised in exchange for franchise rights is not a tax. The Jacks court emphasized this 

idea repeatedly throughout its opinion. (E.g., Jacks, supra, 3 Cal.5th at p. 257 [“a charge 

imposed in exchange for franchise rights is a valid fee” (italics added)]; id. at p. 262 

[“restrictions on taxation do not encompass amounts paid in exchange for property 

interests” (italics added)]; id. at p. 267 [“nothing in Proposition 218 reflects an intention 

to treat amounts paid in exchange for property interests as taxes” (italics added)]; id. at 

p. 268 [“The aspect of the transaction that distinguishes the charge from a tax is the 

receipt of value in exchange for the payment” (italics added)].) Whether labeled as 

consideration given to induce the granting of a franchise or as compensation for the 

franchise, monetary charges given in exchange for a franchise fit comfortably within the 

Jacks court’s specification of nontax franchise fees.

Jacks’s rooting of its definition of nontax franchise compensation in the notion of 

an exchange is also consistent with City & Co. of S. F. v. Market St. Ry. Co. (1937) 

9 Cal.2d 743 (City & Co. of S. F.), on which plaintiffs rely in their reply brief.44 Indeed, 

Jacks cites City & Co. of S. F. for the proposition that “a franchise fee is the purchase 

price of the franchise.” (Jacks, supra, 3 Cal.5th at p. 262, citing City & Co. of S. F., 

supra, 9 Cal.2d at p. 749.)

44 Plaintiffs contend City & Co. of S. F. reveals “[t]he invalidity of the City’s 

position.”
42

In City & Co. of S. F., a municipality brought an action against a railway company 

to collect a municipal “license tax” on street cars operated by the railway company. (City 

& Co. of S. F., supra, 9 Cal.2d at p. 744.) The railway company contended that the 

municipal taxes were invalid pursuant to a state constitutional provision that established a 

tax on the percentage of gross receipts from railway companies and provided that such 

tax would be “ ‘in lieu of all other taxes and licenses . . . .’ ” (Ibid.) The municipality, in 

turn, maintained that the municipal license tax was lawful because the “orders and 

ordinances by which it granted franchises provid[ed] either for a ‘license’ or ‘license tax’ 

in the sum of $15 per car per annum,” (id. at p. 747) and the state constitutional provision 

contained a proviso requiring a company to pay “ ‘any amount agreed to be paid or 

required by law to be paid for any special privilege or franchise granted by any of the 

municipal authorities of this state.’ ” (Id. at p. 744.) The City & Co. of S. F. court quoted 

the relevant constitutional provision as follows:

“ ‘Such taxes shall be in lieu of all other taxes and licenses, state, 

county and municipal, upon the property above enumerated 

[operative property] of such companies except as otherwise in this 

section provided; provided, that nothing herein shall be construed to 

release any such company from the payment of any amount agreed 

to be paid or required by law to be paid for any special privilege or 

franchise granted by any of the municipal authorities of this state.’ ” 

(Ibid., italics added.)

The City & Co. of S. F. court considered whether the charge was a license tax

subject to the preemptive clause of the constitutional provision or instead, a franchise 

payment subject to the proviso contained therein. (See City & Co. of S. F., supra, 

9 Cal.2d at p. 745 [“The question involved on this appeal is whether the ‘license tax’ . . .
43

is an amount ‘agreed to be paid or required by law to be paid’ for the franchises under 

which the defendant operates its cars”].) In determining that the charge was a prohibited 

license tax, the City & Co. of S. F. court stated, “There is a clear distinction between the 

amount agreed to be paid for property, or required by law to be paid for it, that is, the 

purchase price, and taxes thereafter levied upon it or exacted of the owner in respect of 

said property.” (Id. at p. 749.) In reaching this conclusion, the City & Co. of S. F. court 

emphasized that the license tax at issue in the case arose from a source independent of the 

franchise agreement. (Id. at p. 748 [“even in the absence of provision for a tax or license 

in the grant of franchise . . . the grantee, in the absence of express exemption from 

taxation in the grant, is subject to taxes in respect of this species of property, as of other 

types of property”].) Thus, the City & Co. of S. F. court concluded that the license taxes 

were not “amounts ‘agreed to be paid or required by law to be paid for’ the franchises, 

within the proviso of [the state] Constitution, preserving to municipalities the right to 

collect such amounts.” (Id. at p. 750.)

While the City & Co. of S. F. court concluded that the license taxes in that case did 

not arise from the franchise agreements in which they were referenced, the court 

concluded that the essence of franchise compensation under the state constitutional 

provision at issue was whether the charge at issue was an amount paid “for” the franchise 

rights. (City & Co. of S. F., supra, 9 Cal.2d at p. 750, italics added; see Jacks, supra, 

3 Cal.5th at p. 257 [describing a franchise fee as “a charge imposed in exchange for

franchise rights” (italics added)].)
44

In sum, Jacks and the case law on which it is premised, establish that any “charge

imposed in exchange for franchise rights,” (Jacks, supra, 3 Cal.5th at p. 257, italics 

added) constitutes franchise compensation, provided that the amount of the charge bears 

a reasonable relationship to the value of the franchise rights. (Ibid.) We therefore reject 

plaintiffs’ suggestion that certain charges, namely, those that serve as “consideration to 

induce” the granting of a franchise, are exempt from Jacks’s rationale. In the following 

sections, we apply this understanding of Jacks in considering each of plaintiffs’ specific 

arguments as to text, legislative history, application and purpose in concluding that the 

Undergrounding Surcharge amounts to franchise compensation and is therefore not 

subject to Proposition 218’s voter approval requirements under Jacks.

b. The text of the Electric Franchise supports the conclusion that the 

Undergrounding Surcharge is compensation for franchise rights

under Jacks

Section 9(b) of the Electric Franchise contains the Undergrounding Surcharge and 

provides for a 3.53 percent surcharge to be imposed on ratepayers’ bills. (See pt. 

II.A.5.c, ante.) As a monetary obligation to be paid by ratepayers, we agree with 

plaintiffs that the surcharge may reasonably be considered a “charge” potentially subject 

to voter approval under Proposition 218. (See Jacks, supra, 3 Cal.5th at p. 257 

[“Whether the surcharge required voter approval hinges on whether it is a valid charge 

under the principles that exclude certain charges from voter approval requirements”].)

As noted in part II.A.5.c, ante, the recitals to the 2002 Electric Franchise 

Amendment provided that the “[p]arties have agreed that the funding for the obligations,”

imposed by the amendment would come, in part, from the Undergrounding Surcharge. 
45

Further, the 2002 Electric Franchise Amendment specifically mandated that SDG&E 

would apply to the PUC to budget amounts funded in part by the Undergrounding 

Surcharge.45 (Ord. O-19030, § 3.) In addition, section 9(e) of the Electric Franchise 

expressly provides, “This section is intended only to be a measure of a portion of the 

consideration to be paid by Grantee to City for the rights and privileges granted

herein . . . .” (Italics added.) Moreover, section 12 of the Electric Franchise provides, 

“This franchise is granted upon each and every condition herein contained, and shall ever 

be strictly construed against Grantee.”46

Thus, the text of the Electric Franchise supports the conclusion that the 

Undergrounding Surcharge was consideration given by SDG&E in exchange for 

franchise rights. In other words, unlike the license tax at issue in City & Co. of S. F., 

supra, 9 Cal.2d at page 748, the text of the Electric Franchise supports the conclusion that 

the Undergrounding Surcharge was not unilaterally imposed by the City pursuant to its 

45 For an explanation of the PUC’s involvement in the approval of this type of 

surcharge see footnote 6, ante.

46 Section 16 of the 2001 MOU also made clear that SDG&E’s agreement to the 

Undergrounding Surcharge was part of the consideration given to the City for the 

franchise in that it specified that, if the surcharge were not approved by the PUC, the City 

and SDG&E would continue to negotiate the terms of the amendment of the Electric 

Franchise or submit the matter to arbitration. Thus, section 16 of the 2001 MOU also 

makes clear that the City did not unilaterally impose the Undergrounding Surcharge, and 

that the surcharge was based on an agreement between the City and SDG&E.
46

taxing powers independent of the Electric Franchise.47 Further, since, we have 

concluded in part III.D.1.a, ante, that all consideration that is a “charge” and is given in 

exchange for franchise rights constitutes “compensation for the use of government 

property” as that phrase is used in Jacks, supra, 3 Cal.5th at page 254, the text of the 

Electric Franchise supports the conclusion that the Undergrounding Surcharge is 

compensation given for the use of government property under Jacks.

Plaintiffs’ textual arguments are primarily based on their contention that “the City 

made a clear distinction between general consideration for the City granting the franchise 

and compensation (i.e. recompense) for use of its streets.” For example, plaintiffs point 

out that section 4 of the Electric Franchise refers to the 3 percent payment obligation as 

“compensation,”48 while section 9, which contains the Undergrounding Surcharge, does 

not use the term “compensation.” Plaintiffs also note that the recitals to Ordinance O19030 refer to the 3 percent payment obligation as the “franchise fee.” In explaining the 

purported significance of the use of such terms, plaintiffs return to their central argument 

that not all consideration given in exchange for a franchise is compensation for franchise 

rights under Jacks.

47 Stated differently, it is plain from the text of the Electric Franchise that SDG&E 

could not refuse to comply with its obligations pertaining to undergrounding and still 

maintain its electric franchise.

48 Plaintiffs also contend that the reason that the City used the term “compensation” 

in Electric Franchise, sections 4 and 5 was to comply with sections of the City Charter 

specifying certain requirements for franchise agreements entered into by the City (City of 

San Diego Charter, §§ 104, 105).
47

We reject this argument for two fundamental reasons. First, for the reasons

explained above, we conclude that Jacks drew no distinction between monetary 

consideration given to induce the granting of a franchise and compensation given for a 

franchise for purposes of determining the applicability of voter approval requirements of 

Proposition 218.

Second, plaintiffs’ textual argument is premised on the notion that the City

anticipated the distinction, which we have rejected, between compensation and 

consideration that plaintiffs glean from Jacks, and intended for only the 3 percent 

payment obligation to constitute franchise compensation.49 As plaintiffs argue, “the 

language of the ordinances makes it clear that the City did not intend all franchise 

consideration, including the surcharge, to be compensation for use of City streets.” 

(Italics altered.) We are not persuaded that the City anticipated the distinction that 

plaintiffs draw from Jacks—a decision issued more than a decade after the adoption of 

the 2002 Electric Franchise Amendment and that draws no distinction between 

compensation and consideration—and elected to use language in describing the 

Undergrounding Surcharge that would subject the surcharge to the voter approval 

requirements of Proposition 218. It is far more plausible that, consistent with our 

49 Plaintiffs note that the ordinance at issue in Jacks did refer to the surcharge at 

issue in that case as “compensation,” and argue, that if the City had intended for 

“SDG&E’s undergrounding agreement,” in section 9 of the Electric Franchise to 

constitute compensation, the City would have specified that SDG&E’s obligations were 

given “as compensation for the use of the streets of the City.” (Boldface omitted; italics 

added.)
48

conclusion in part III.D.1.a, ante, the City simply did not perceive there to be any 

significant difference between the terms compensation and consideration in this context. 

This conclusion is supported by the fact that section 4 of the Electric Franchise, which 

describes the 3 percent payment obligation as “compensation” (Electric Franchise, § 4(b), 

italics added) is itself titled “CONSIDERATION.” (Italics added.)

In any event, we are not bound by the label that the City and SDG&E ascribed to 

the Undergrounding Surcharge. (Cf. Plantier v. Ramona Municipal Water Dist. (2019) 

7 Cal.5th 372, 381 [noting that Proposition 218 was adopted because “local governments 

were able to increase rates for services by labeling them fees, charges, or assessments 

rather than taxes”]; accord Jacks, supra, 3 Cal.5th at p. 271 [considering whether a 

charge that is “nominally a franchise fee,” in reality “constitutes a tax”]; see also id. at 

p. 280 [“In determining whether a charge is a tax, courts ‘are not bound by what the 

parties may have called the liability’ [citation]” (dis. opn. of Chin, J.)]. While the City 

and SDG&E may not have foreseen that a surcharge that a utility agreed to collect from 

its ratepayers (i.e., one that was not paid directly out of the utility’s own assets), was a 

franchise fee prior to Jacks, our task is to examine whether the characteristics of the 

Undergrounding Surcharge meet the test for franchise compensation under Jacks. For the 

reasons discussed throughout this opinion, we conclude that the Undergrounding 

Surcharge meets that test.
49

Finally, we reject plaintiffs’ argument that because SDG&E did not agree to “pay

the surcharge to the City,” “the language in [Ordinance] 10466, section 9[50] relied upon 

by the trial court is not applicable to the surcharge at all.” (Boldface omitted.) In making 

this argument, plaintiffs contend that SDG&E acts only as “the City’s collection agent,” 

because ratepayers, rather than SDG&E, pay the surcharge. The same was true in Jacks, 

and the Supreme Court squarely rejected the notion that this fact demonstrated that the 

surcharge was not a franchise fee. The Jacks court stated that it would place “form over 

substance,” to attribute significance to the fact that a utility surcharge is placed directly 

on ratepayers’ bills, rather than being paid by the utility itself when determining whether 

a surcharge is a tax. (Jacks, supra, 3 Cal.5th at p. 269.) The Jacks court reasoned that 

this was so because a “publicly regulated utility is a conduit through which government 

charges are ultimately imposed on ratepayers.” (Ibid.) Plaintiffs offer no basis for 

distinguishing Jacks with respect to this issue. Thus, we reject plaintiffs’ argument that 

the Undergrounding Surcharge does not constitute compensation for the franchise 

because SDG&E does not pay the surcharge.

50 The language to which plaintiffs refer provides, “This section is intended only to 

be a measure of a portion of the consideration to be paid by Grantee to City for the rights 

and privileges granted herein . . . .” (Ord. 10466, § 9(e).) This language remained in the 

Electric Franchise after the 2002 Electric Franchise Amendment.
50

c. Plaintiffs fail to identify any legislative history of the Electric Franchise 

that supports the conclusion that the Undergrounding Surcharge is not 

compensation for franchise rights under Jacks

Plaintiffs contend that the legislative history of the Electric Franchise 

demonstrates that the Undergrounding Surcharge is not franchise compensation under 

Jacks. Plaintiffs raise two arguments in support of this claim. Neither is persuasive. 

First, plaintiffs note that, in 1970, together with the Electric Franchise, the City entered 

into a gas franchise with SDG&E, and that the City and SDG&E amended both 

franchises in 2002. Plaintiffs observe that both the gas and electric franchise agreements 

included provisions mandating payment of 3 percent of gross receipts for compensation 

for the use of the City’s streets, but that the “City imposed the [Undergrounding 

Surcharge] only upon electricity customers.” (Italics added.) Plaintiffs claim that this 

disparity demonstrates that the Undergrounding Surcharge was a “revenue stream for [the 

City’s] expansive undergrounding program,” and did not “compensate the City for using 

its streets.”

To the extent that plaintiffs intend to argue that the City was obligated to agree to 

the same compensation for the two franchises, but failed to do so, this argument is 

unpersuasive because plaintiffs have not established that the gas and electric franchises 

are equally valuable. Thus, the fact that the City charged more for the use of its streets 

for the Electric Franchise does not establish that the higher price was, in part, a disguised 

tax. To the extent that plaintiffs intend to argue that the City agreed to receive the same

compensation for the two franchises, but imposed a utility tax solely on the electric 

franchise, this argument amounts to nothing more than the contention that we rejected 
51

above, i.e., that the Undergrounding Surcharge did not constitute compensation for the 

use of the City’s streets under Jacks. We reject it here for the same reasons.

Plaintiffs also contend that the fact that the 3 percent payment obligation is 

referred to as a “franchise fee” at various places in the documents that comprise the 

legislative history of the 2002 Electric Franchise Amendment,51 demonstrates that the 

3 percent payment obligation is “the sole compensation for use of City streets.” This 

argument, too, is nearly identical to the argument that plaintiffs make with respect to the 

purported significance of the use of the term “compensation” in section 4 of the Electric 

Franchise. Yet, whether contained in the text of the Electric Franchise or in its legislative 

history, we conclude that references to the 3 percent payment obligation as a “franchise 

fee” or as “compensation,” does not demonstrate that the Undergrounding Surcharge is 

not “a charge imposed in exchange for franchise rights” under Jacks, supra, 3 Cal.5th at 

page 257.52

51 Specifically, plaintiffs note that the 3 percent payment obligation is referred to as a 

“franchise fee” in various enactments (e.g., the resolutions extending negotiations that led 

to the 2002 Franchise Amendment, the 2001 MOU, a December 2001 City Manager’s 

report recommending adoption of the 2002 Franchise Amendment, and the minutes of the 

January 2002 City Council meeting adopting the 2002 Franchise Amendment).

As noted in footnote 27, ante, the trial court sustained the City’s objections to the 

plaintiffs’ introduction of the City Manager’s report and the City Council’s minutes. The 

plaintiffs challenge the trial court’s ruling sustaining these objections on appeal. For the 

reasons stated in the text, we conclude that, even assuming that the trial court erred in 

sustaining the City’s evidentiary objections to these documents, none of the legislative 

history demonstrates that the Undergrounding Surcharge is a tax.

52 In their reply brief, plaintiffs cite a case, County of Alameda v. Pacific Gas & 

Electric Co. (1997) 51 Cal.App.4th 1691, decided prior to Jacks and contend, “With 

respect to the term ‘franchise fee,’ courts have concluded that a fee paid to a municipality 
52

d. Plaintiffs’ contention that the City’s application of the Electric 

Franchise demonstrates that the Undergrounding Surcharge is not 

franchise compensation under Jacks is without merit

Plaintiffs note that City Charter section 103.1A mandates that the City place “25 

percent of all moneys derived from the revenues accruing to the City from any franchises 

for the transmission and distribution of gas, electricity and steam within the City of San 

Diego,” into a fund called the Environmental Growth Fund. Plaintiffs further note that, 

while the City places 25 percent of the funds that it receives from SDG&E’s payment of 

the 3 percent payment obligation into the Environmental Growth Fund, the City has never 

placed revenue from the Undergrounding Surcharge into this fund. Plaintiffs contend 

that this course of conduct demonstrates that the City has “never intended or considered 

the [U]ndergrounding [S]urcharge to be revenue accruing . . . from any franchise fee.”

We are not persuaded. Plaintiffs’ argument implicitly rests on the premise that the 

meaning of “moneys derived from the revenues accruing to the City from any franchises 

for the transmission and distribution of . . . electricity . . . within the City of San Diego,”

(City Charter, § 103.1A) has the same meaning as “a charge imposed in exchange for 

franchise rights” under Jacks. (Jacks, supra, 3 Cal.5th at p. 257.) Yet, plaintiffs present 

as a percentage of gross receipts to use/lease public property (i.e. the 3% fee) is a 

franchise fee.” (Italics added.) Even assuming that, prior to Jacks, the term franchise fee 

ordinarily connoted a fee paid as a percentage of a utility’s gross receipts, that is clearly 

not the case in the wake of Jacks, since in Jacks, the Supreme Court concluded that a 

surcharge imposed directly on ratepayers was a franchise fee, so long as it bore a 

reasonable relationship to the franchise rights conveyed to the utility. (Jacks, supra, 

3 Cal.5th at p. 257.) Thus, plaintiffs’ heavy reliance on the fact that the ordinance and its 

legislative history refer to the 3 percent payment obligation as a “franchise fee” or as 

“compensation,” does not demonstrate that the Undergrounding Surcharge is not a 

franchise fee.
53

no argument as to why terms in the City Charter should be interpreted identically with 

concepts from a Supreme Court decision.

Even when interpreting the meaning of two legislative acts, “statutes should be 

construed together only if they stand in pari materia.” (Walker v. Superior Court (1988) 

47 Cal.3d 112, 124.) “ ‘Statutes are considered to be in pari materia when they relate to 

the same person or thing, to the same class of person or things, or have the same purpose 

or object. Characterization of the object or purpose is more important than 

characterization of subject matter in determining whether different statutes are closely 

enough related to justify interpreting one in light of the other. It has been held that where 

the same subject is treated in several acts having different objects the statutes are not in 

pari materia. “The adventitious occurrence of . . . similar subject matter, in laws enacted 

for wholly different ends will normally not justify applying the rule.” ’ ” (Ibid., italics 

added.)

The City Charter provision establishing the Environmental Growth Fund does not 

serve the same object as does the test for franchise compensation in Jacks. (Compare 

City Charter section 103.1A [“The Environmental Growth Fund shall be used exclusively 

for the purpose of preserving and enhancing the environment of the City of San Diego in 

whatever manner is deemed appropriate by the City Council of The City of San Diego”]

with Jacks, supra, 3 Cal.5th at p. 257 [“Whether the surcharge required voter approval 

hinges on whether it is a valid charge under the principles that exclude certain charges 

from voter approval requirements”].) Thus, there is no reason to conclude that the 

meaning of franchise compensation for purposes of the Environmental Growth Fund 
54

would be identical to the meaning of that term as used in Jacks. A court might conclude 

that revenue, such as the Undergrounding Surcharge, that is dedicated for a specific use 

by way of a franchise agreement is not subject to allocation into the Environmental 

Growth Fund for purposes of the City Charter,53 even though such revenue is

compensation under Jacks. Simply put, there is no necessary interpretative connection 

between the two.

Moreover, even assuming that the City improperly failed to deposit the 

Undergrounding Surcharge revenue into the Environmental Growth Fund, such error 

might well have resulted from inadvertence, negligence, or even malfeasance that was 

entirely distinct and unrelated to the City’s determination of whether the Undergrounding 

Surcharge constitutes a charge for franchise rights under Jacks.54 Plaintiffs point to no 

evidence demonstrating that the City elected not to deposit the Undergrounding 

Surcharge revenues into the Environmental Growth Fund because the City believed that 

such revenues were not franchise compensation under Jacks.

Accordingly, we reject plaintiffs’ argument that the City’s failure to deposit 

revenues from the Undergrounding Surcharge into the Environmental Growth Fund 

demonstrates that the surcharge is a tax rather than franchise compensation under Jacks.

53 This question is not before this court and we therefore express no opinion with 

respect to whether this would be a proper interpretation and application of the City 

Charter.

54 We emphasize that we do not conclude that the City improperly failed to allocate 

Underground Surcharge funds to the Environmental Growth Fund.
55

e. Plaintiffs’ contention that the Undergrounding Surcharge lacks the 

characteristics of a franchise fee is without merit

Plaintiffs note that in Jacks, the Supreme Court identified the following 

characteristics of a franchise fee:

“[A] fee paid for an interest in government property is compensation 

for the use or purchase of a government asset rather than 

compensation for a cost. Consequently, the revenue generated by 

the fee is available for whatever purposes the government chooses 

rather than tied to a public cost.” (Jacks, supra, 3 Cal.5th at p. 268.)

Plaintiffs contend that the Undergrounding Surcharge lacks these attributes 

because the surcharge may be used only for undergrounding and, according to plaintiffs, 

the surcharge is “unrelated to the use of any City asset.”

The latter argument amounts to nothing more than an assertion that the 

Undergrounding Surcharge is not compensation for the use of the City’s streets. We 

reject that argument, because, as described in part III.D.1.b, ante, the text of the Electric 

Franchise supports the conclusion that the Undergrounding Surcharge is part of the 

compensation that SDG&E paid for the use of the City’s streets.

As to the former argument, there is nothing in Jacks that precludes a government 

from entering into an agreement that governs its use of franchise fee payments. In fact, 

the agreement at issue in Jacks, “provided that half of the revenues generated by the 

surcharge were to be allocated to the City’s general fund and half to a City 

undergrounding projects fund.” (Jacks, supra, 3 Cal.5th at p. 256.)55 Nevertheless, the 

55 The Jacks court stated that the municipality later decided to allocate all of the 

revenues generated by the surcharge to its general fund. (Jacks, supra, 3 Cal.5th at 
56

Jacks court concluded that the surcharge at issue in that case was a valid franchise fee as 

long as it did not exceed the reasonable value of the franchise. (Id. at p. 254.)

In addition, in Jacks, in specifying that franchise fees are “available for whatever 

purposes the government chooses,” the Supreme Court was merely clarifying that 

franchise fees, unlike other fees, are not limited to the costs of providing a service or 

benefit (as with special assessments) or offsetting the impact of the payee’s activities (as 

with development and regulatory fees). (Jacks, supra, 3 Cal.5th at p. 268 [stating that, 

with respect to franchise fees, “the revenue generated by the fee is available for whatever 

purposes the government chooses rather than tied to a public cost”].) However, there is 

nothing in Jacks that suggests that a government’s agreement in a franchise agreement to 

use franchise fees in a specified manner demonstrates that such fees are taxes.

Plaintiffs have not advanced any reason why a limitation on the use of surcharge 

funds for undergrounding would support the conclusion that the surcharge is a tax. On

the contrary, if anything, the fact that the City agreed with SDG&E to use the 

Undergrounding Surcharge revenues for undergrounding supports the conclusion that the 

surcharge is not a tax. That is because, as the Jacks court recognized, an essential 

attribute of a taxation is that “ ‘no compensation is given to the taxpayer except by way 

of governmental protection and other general benefits.’ ” (Jacks, supra, 3 Cal.5th at 

p. 268, quoting 9 Witkin, Summary of Cal. Law (10th ed. 2005) Taxation, § 1, p. 25].) 

The City’s promise to SDG&E to use the Undergrounding Surcharge funds for 

p. 256.) The Jacks court did not discuss the authority pursuant to which the municipality 

authorized such a reallocation.
57

undergrounding supports the conclusion that SDG&E received something other than 

“ ‘general benefits,’ ” in exchange for agreeing to the surcharge. (Ibid.)

f. Conclusion

In Jacks, the California Supreme Court rejected the argument that a utility 

surcharge contained in a franchise agreement to be paid directly by ratepayers, rather than 

the utility itself, was a tax rather than a franchise fee. (Jacks, supra, 3 Cal.5th at p. 257.) 

The Jacks court reasoned that this was so because a charge imposed in exchange for 

franchise rights is not a tax ([ibid.]),56 and that to conclude otherwise merely because 

ratepayers paid the charge would be to place “form over substance.” (Id. at p. 269.)

As with the surcharge in Jacks, the Undergrounding Surcharge in this case is a 

charge imposed in exchange for franchise rights. While plaintiffs attempt to draw a 

distinction between consideration and compensation in this context, that purported 

distinction amounts to nothing more than an argument that places “form over substance”

(Jacks, supra, 3 Cal.5th at p. 269) and is inconsistent with the central teaching of Jacks. 

Accordingly, we conclude that the Undergrounding Surcharge constitutes compensation 

in exchange for franchise rights under Jacks.

56 This is the case as long as the charge is reasonably related to the value of the 

franchise rights. (Jacks, supra, 3 Cal.5th at p. 257.)
58

2. The City demonstrated that the compensation that it receives from the 

Undergrounding Surcharge bears a reasonable relationship to the value of 

the franchise rights under Jacks

Plaintiffs contend that “the surcharge has no relationship to the value of the use of 

City streets.” (Boldface & some capitalization omitted.) Plaintiffs offer several 

arguments in support of this claim, but none has merit.57

First, plaintiffs contend that “[i]f the surcharge is not compensation for the use of 

City streets and is unrelated to that property right, it cannot have any relationship to the 

value of those rights.” (Italics altered.) We concluded in part III.D.1, ante, that the 

Undergrounding Surcharge constitutes compensation in exchange for franchise rights 

under Jacks. Accordingly, we reject plaintiffs’ contention that the surcharge does not 

have any relationship to the value of the Electric Franchise rights.

Plaintiffs also maintain that the City failed to carry its “burden of proof” to 

establish that the value of the surcharge reasonably relates to the value of the franchise 

rights. Specifically, plaintiffs contend that the City failed to present a “valuation 

analysis” of the franchise rights, and that the City’s evidence as to the negotiations 

leading to the adoption of the 2002 Electric Franchise Amendment did not demonstrate 

that the negotiations were “bona fide.” We are unpersuaded.

57 As noted in part II.B.6, ante, plaintiffs’ opposition to the City’s motion for 

summary judgment did not address the reasonable value prong of Jacks other than to 

assert that the City had “offered no evidence” on this issue. Notwithstanding any 

possible forfeiture, we address all of the plaintiffs’ arguments on appeal with respect to 

this issue and conclude that they are meritless.
59

The City was not required to present a “valuation analysis,” under Jacks, and thus, 

the absence of such an analysis does not demonstrate that the City failed to carry its 

burden of proof. The Jacks court said that a municipality could establish the value of a 

franchise through “bona fide negotiations.” (Jacks, supra, 3 Cal.5th at p. 270.) The City 

offered extensive and undisputed evidence concerning the negotiations surrounding both 

the 1970 Electric Franchise and the 2002 Electric Franchise Amendment. (See pt. 

II.A.3.a and pt. II.A.5.a, ante.) In particular, with respect to the negotiations pertaining to 

the amendment, as described in part II.A.5.a, ante, the City hired consultants to advise it 

with respect to the amendment and the City received a memorandum from the consultants 

concerning issues that were likely to arise in the negotiations. City representatives also 

met with SDG&E representatives more than 30 times during a multi-year negotiating 

process. The City and SDG&E exchanged offers as well as numerous draft ordinances 

and agreements during the process, before agreeing to the 2001 MOU and the 2002 

Electric Franchise Amendment. Plaintiffs, in turn, offered no evidence in opposing the 

City’s motion for summary judgment in the trial court suggesting that such negotiations 

were not undertaken in good faith.58

58 (Compare with Zolly v. City of Oakland (2020) 47 Cal.App.5th 73, 90, review 

granted Aug. 12, 2020, S262634 [concluding that plaintiffs properly stated a cause of 

action sufficient to withstand demurrer where they alleged that franchise fee did not 

reflect the value of the franchise in part because the “procurement process was 

mishandled and subject to political considerations”].) While Zolly involved whether the 

plaintiffs had adequately alleged that a franchise fee was “not reasonably related to the 

value received from the government” (id. at p. 89), the summary judgment in this case 

was granted based on undisputed evidence demonstrating that the compensation that the 
60

Instead, plaintiffs offer several arguments on appeal in support of their contention 

that the City failed to establish the existence of “bona fide negotiations,” under Jacks. 

First, plaintiffs assert that the negotiations were “primarily about the [3 percent payment 

obligation] for the remaining 20 years of the franchise – not the surcharge.” Yet, 

plaintiffs cite no evidence establishing that this is so. In fact, the record contains ample 

undisputed evidence that the City and SDG&E engaged in extensive negotiations 

pertaining to undergrounding that culminated in the Undergrounding Surcharge. 

Specifically, the City presented undisputed evidence that: the City’s consultants advised 

it with respect to undergrounding; the City requested that SDG&E’s undergrounding 

obligation be altered to mandate the spending of funds rather than the allocation of funds; 

SDG&E offered to increase spending on undergrounding projects in exchange for a 

reduction of its 3 percent payment obligation; and the City participated in PUC 

proceedings pertaining to undergrounding that impacted its bargaining position vis-à-vis 

the negotiations with SDG&E.

Plaintiffs also assert that “where a utility merely collects a surcharge from its 

customers and remits the revenue to a city, the utility has no reason to engage in bona 

fide negotiations.” This argument is contrary to both common sense and Jacks. As is 

true for any business, a utility plainly has an incentive to minimize the total amount of 

City receives from the Undergrounding Surcharge bears a reasonable relationship to the 

value of the franchise rights under Jacks.

Zolly was decided after the parties completed their briefing in this case. Plaintiffs 

properly alerted us to the decision via a letter filed pursuant to California Rules of Court, 

rule 8.254.
61

money that its customers will be required to pay in exchange for its goods and services in 

order to maintain the goodwill of its customers. Indeed, the City presented evidence that 

SDG&E’s representatives considered the public’s perception of a potential increase in the 

surcharge during the negotiations.59 Further, while plaintiffs suggest that Jacks supports 

the proposition that a utility has “no incentive to negotiate a lower undergrounding 

surcharge because the surcharge is a pass-through charge,” (boldface & italics omitted) in 

fact, Jacks supports the opposite proposition. In Jacks, as in this case, the surcharge at 

issue was to be paid directly by the utility’s customers (Jacks, supra, 3 Cal.5th at p. 271), 

yet the Jacks court stated that a governmental agency, such as the City, could look to 

“bona fide negotiations . . . to establish a reasonable value of franchise rights.” (Id. at 

p. 270.)

Finally, plaintiffs argue that the “evidence proves the surcharge is not related to 

the value of SDG&E’s right to use City streets.” (Boldface & italics omitted.) In support 

of this contention, plaintiffs return to their argument that an Undergrounding Surcharge is 

not imposed on the gas franchise “despite the nearly identical property interests.”

Plaintiffs also argue that the fact that the franchise fees that SDG&E pays to other 

jurisdictions in SDG&E’s service territory is less than the franchise fees that it pays to the 

59 Specifically, the City lodged an internal memorandum from SDG&E's 

representatives who negotiated the 2002 Electric Franchise Amendment that stated, in 

relevant part, “Public perception appears to be that this is a SDG&E rate increase instead 

of a surcharge imposed by the City.”
62

City demonstrates that the surcharge is not compensation for the use of the City’s streets. 

Neither argument is persuasive.

With respect to the gas franchise, as we concluded above, plaintiffs point to no 

evidence that the property interests conveyed in the gas and electric franchises are 

comparable. (See pt. III.D.1.c, ante.) With respect to other jurisdictions’ franchise fees, 

Jacks makes clear that the market price of utility franchises in charter cities is distinct 

from that in general law cities. (See fn. 6, ante.) Plaintiffs failed to demonstrate that the 

differences in franchise fees within SDG&E’s service area are not due to such market 

differences.

Accordingly, we conclude that plaintiffs have not demonstrated that the trial court 

erred in concluding that the compensation that the City receives from the 

Undergrounding Surcharge bears a reasonable relationship to the value of the franchise 

rights.

IV.

DISPOSITION

The judgment is affirmed. The City is entitled to recover costs on appeal.

AARON, J.

WE CONCUR:

BENKE, Acting P. J.

GUERRERO, J.