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Justia › US Law › Case Law › California Case Law › Cal. 3d › Volume 24 › California Mfrs. Assn. v. Public Utilities Com.
California Mfrs. Assn. v. Public Utilities Com.
Gordon E. Davis, William H. Booth, Brobeck, Phleger & Harrison, Robert D. Raven, James J. Garrett, Charles R. Farrar, James P. Bennett, Morrison & Foerster, Robert L. Schmalz, J. Randolph Elliott, John L. Frogge, Jr., Kenneth M. Robinson, Donald H. Ford, Overton, Lyman & Prince and Bill B. Betz for Petitioners.
Janice E. Kerr, Hector Anninos, Timothy E. Treacy and Walter H. Kessenick for Respondents.
Malcolm H. Furbush, Robert Ohlbach, Shirley A. Woo, Thomas D. Clarke, and Leslie E. LoBaugh, Jr., for Real Parties in Interest.
Petitioners in these consolidated proceedings challenge certain decisions of the Public Utilities Commission (commission) which purport to dispose of refunds received by Pacific Gas and Electric Company (PG&E) and Southern California Gas Company (SoCal), real parties in interest, from some of their interstate natural gas suppliers, pursuant to orders of the Federal Power Commission (FPC) now the Federal Energy Regulation Commission. We refer to these refunds from suppliers as "rebates" to distinguish them from "refunds" to customers.
In Decision No. 88261 the commission applied rebates received by PG&E to the company's "gas balancing account" thus deferring a prospective rate increase requested by the utility. In Decision No. 88751, as modified by Decision No. 89049, similar treatment was accorded [24 Cal. 3d 840] rebates received by SoCal. [1a] We agree with petitioners' contention that the rebate funds must instead be returned to current and, insofar as practical, to prior customers of the utilities, in proportion to the gas usage of such customers during the periods to which the rebates relate. Accordingly, we will annul both decisions in part and remand the cases to the commission for further proceedings.
During the period 1972-1976, when PG&E and SoCal were charged increased natural gas rates by their interstate suppliers, these utilities sought to pass on these higher rates to customers, and obtained from the commission the authority to do so. In each instance, the supplier rate increases to the utilities were approved by the FPC on a contingent basis only, the FPC reserving jurisdiction to determine that the approved supplier rates were "excessive" thus eventually requiring appropriate rebates to the purchasing utilities. Accordingly, the commission-approved tariffs under which these increases were passed through to utility ratepayers consistently provided that any amounts reimbursed to PG&E and SoCal by their suppliers under FPC order would be "refund[ed]" to "customers" of the utilities.
During 1977, rebates were received by both utilities for "excessive" charges paid during the 1972-1976 period, and by October 1 PG&E was holding accumulated rebates approximating $52.4 million, and SoCal held about $75.6 million in similar supplier reimbursements.
In July 1977, PG&E filed with the commission Application No. 57481, requesting a prospective rate increase to offset approximately $75.3 million in anticipated natural gas cost increases during the ensuing year. SoCal filed a similar application, No. 57573, in September 1977, citing approximately $21 million in additional revenue which it deemed necessary to meet similar expected cost increases. The concept of the allocation of the accumulated supplier rebates for this purpose originated with the commission staff not the utilities.
Petitioners, except for California Manufacturers Association, are industrial concerns, each of which received substantial gas service from one or both utilities during the 1972-1976 period. Because of the scarcity and generally rising price of natural gas, and because commission-approved rate designs encouraged low priority gas users to switch to the use of less precious alternative fuels, the industrial petitioners sharply curtailed their gas usage since 1976. Accordingly, if the supplier rebates [24 Cal. 3d 841] in question are applied against future rates, as the commission proposes, petitioners, having substantially reduced their gas consumption, will not share in the benefit of the rebates to a degree proportionate to the overcharges to which they were previously subjected during the 1972-1976 period of their heavier gas usage.
In Decision No. 88261, the commission found PG&E's total additional annual gas purchase revenue requirement to be $82.4 million and ordered the $52.4 million in accumulated supplier rebates transferred in their entirety to the utility's "gas balancing account," thus to be credited against the prospective rate increase otherwise necessary. This, together with a $36.9 million credit already in the balancing account, permitted a complete deferral of PG&E's total requested rate hike. The excess credit in the account remains available for future use. The commission announced its intention to treat future supplier rebates in a similar manner.
In Decision No. 88751, as modified, the commission found SoCal's additional annual gas purchase revenue requirement to be $18.5 million which included the effect of a negative balance in the utility's "purchase gas adjustment balancing account." The entire $75.6 million in supplier rebates held by SoCal was ordered transferred to this balancing account as a credit against present and future rate increases.
There is no challenge to the constitutionality of section 453.5. [2a] Accordingly, where it applies, "refunds" which are ordered "distributed" by the commission must be allocated according to the statutory formula; present customers (except for small residential users) must be compensated on the basis of their prior usage to which the refund corresponds, and, where practical, prior customers must also participate to the extent of the overcharges which they previously paid.
Petitioners, on the one hand, urge that the statutory term "rate refunds" includes those "refunds" ordered in the 1972-1976 tariff approvals, and that the commission "distributed" such "rate refunds" when it allocated to the utilities' balancing accounts those specific supplier rebates reserved for "refund" in the tariffs. Hence, it is asserted, the commission action, in directing benefits of the rebate to flow entirely to future users, violated section 453.5, because it manifestly did not adhere to the statutory allocation formula.
The commission, on the other hand, adopting a more narrow interpretation, argues that "rate refunds" are "distributed" under section 453.5 only when the commission, by its order disposing of excess funds held by a utility, decides to return the money as a "refund." According to the commission, its 1977 orders used the supplier rebates other than as a "refund" and did not "distribute" them; hence, the commission contends, section 453.5 never became applicable.
The interplay of the terms "orders," "rate refunds," and "distributed," as used in section 453.5 is not rendered facially clear by reference either to the dictionary (see Webster's New Internat. Dict. (3d ed. 1961) pp. 660, 1910) or to other statutes or prior decisions involving "refunds." (See, e.g., § 1766 [disposition of "refund" where stay of rate reduction is vacated by Supreme Court]; City of Los Angeles v. Public Utilities Commission (1972) 7 Cal. 3d 331, 355 [102 Cal. Rptr. 313, 497 P.2d 785] [ordering "refund" after annulment of rate increase].) The above cited legal authorities do assume that "refunds" discussed in the circumstances [24 Cal. 3d 844] there presented will be paid pro rata to ratepayers on the basis of prior overpayments. However, since they themselves in effect order or require the "distribution" of the "refunds" therein provided, these authorities are of limited help in answering the commission's argument that, here, it has declined to "order" such "distribution." We therefore seek other aids in ascertaining the legislative purpose.
The facts surrounding the enactment of section 453.5 are these: In February 1977, the commission, on its own motion, instituted Case No. 10255. The order instituting investigation (OII) announced that the commission had under scrutiny several matters in which "refunds may be ordered" and was considering withholding any refund from nonresidential customers, since they could presumably pass rate increases on to their own customers. Our records reveal that the FPC-ordered supplier rebates here at issue were among the sums involved as possible "refunds" in Case No. 10255. In S.F. 23691, filed October 7, 1977, petitioners in S.F. 23823 sought mandate to compel pro rata refund of the FPC-ordered rebates. We denied relief when the commission argued that the petition was [24 Cal. 3d 845] premature in light of then-pending consideration of the matter in Case No. 10255.
Senate Bill No. 604, which, as amended, became section 453.5, was introduced by Senator Stull (R-Escondido) in March 1977, the month after issuance of the OII in Case No. 10255, and in response to it. (Kuersteiner & Herbach, supra, at p. 674.) As originally drafted, the bill provided only that any "refunds" ordered "distributed" by the commission must be allocated on an "equitable pro rata basis," without regard to customer class. The earliest version of the bill contained no definition of "equitable pro rata basis." This definition was supplied in its current form by subsequent amendments which provided that, insofar as feasible, each "current" and "prior" customer must be reimbursed on the basis of "the amount originally paid for the utility service involved," or "the amount of such service actually received." (Italics added.) A further successful amendment declared that the statute would not prevent refunds to "residential and other small customers" based on current usage.
For several reasons, both the history and language of section 453.5 persuade us that the statutory term "rate refunds," as therein employed, refers to specific amounts held by utilities as rebates from their suppliers and earmarked for customer "refunds" by prior commission orders and utility tariffs.
First, the prior enactment of section 792.5, which mandates prospective adjustment of gas cost overcollections under balancing account procedures, plus the Legislature's specific omission from section 453.5 of [24 Cal. 3d 846] language which would have permitted such balancing account treatment of "rate refunds," suggests that "refunds" were considered by the Legislature to be conceptually separate from other forms of overcollection.
The commission's attempt to diminish the significance of the "clarification" language is not persuasive. Citing an offset case in which, prior to enactment of section 453.5, balancing account procedures were used (San Diego Gas & Electric Co. (July 19, 1977) Dec. No. 87639), the commission contends that the Legislature, by deeming section 453.5 a "clarification" of current law, simply intended to approve such practices. The San Diego case is inapposite, however, because no supplier rebates were there involved. Moreover, the timing of Senate Bill No. 604, and its deliberate omission of balancing account authority for "rate refunds," more reasonably suggest that the Legislature intended to limit, not affirm, commission discretion.
Third, though the commission argues that it may supersede tariffs at will, the term "rate refunds," as used in the statute, appears logically referable to similarly worded provisions in the 1972-1976 tariffs to the effect that the instant supplier rebates, if received, would be "refund[ed]" to customers of the utilities. It seems reasonable to assume that, in [24 Cal. 3d 847] enacting section 453.5, the Legislature sought to prevent the commission from denying these promised "refunds" to particular classes of customers.
Fourth, supplier rebates subject to "refund," on the one hand, and balancing account overcollections, on the other, may be logically distinguished on another ground relevant to section 453.5. The typical balancing account reflects excessive charges for the period immediately preceding rate adjustment. (See § 792.5; cf., Southern Cal. Edison Co. v. Public Utilities Com., supra, 20 Cal. 3d 813, 823.) Because the period of time between overcharge and rate relief is thus relatively small, such a rate adjustment, though it allocates benefits on the basis of current rather than past use of utility service, is nonetheless a fairly accurate means of doing equity to customers previously overcharged.
In contrast, supplier rebates are generally time-delayed; the sums at issue here represent overcharges occurring as far back as late 1972 or early 1973. Because, as the instant petitions demonstrate, the circumstances and identification of the customers who paid these charges may have changed radically in the intervening period, prospective relief, occurring through balancing account procedures, gives little assurance of equitable allocation. These considerations reinforce our view that the direct pro rata reimbursement formula of section 453.5 was intended to apply to the instant circumstances.
Fifth, and most fundamentally, acceptance of the premise that section 453.5 applies only when the commission chooses to call its actions "refunds" would permit the commission, by a simple ipse dixit, to avoid the statute in every case. That is a capricious and absurd result, and would render section 453.5 entirely superfluous. We must assume the Legislature had no such intent, but desired, instead, as fair and equitable a result as could be reached.
Nor can we conclude that application of the rebates to future rate relief is justified on grounds that direct refunds to industrial ratepayers would constitute a windfall recovery of costs which were presumably passed on to such ratepayers' customers. Such a conclusion that the prior overcharges were passed on is inherently conjectural. In any event, the specific language and legislative history of section 453.5 suggest strongly that its provisions were intended to prevent just such discrimination against nonresidential gas users.
[2b] Within the context of the case before us, we therefore hold that the statutory term "rate refunds," as used in section 453.5, refers to prior direct rebates received by utilities from their suppliers for past overcharges, and earmarked by commission-approved tariffs for "refund" to customers. We further conclude that the commission "orders" such "refunds" to be "distributed" whenever it directs their final disposition, thereby dividing and apportioning them. (See definition of "distribute," Webster's New Internat. Dict., supra, at p. 660.) The construction of section 453.5 we thus adopt is reasonably inferable from the statutory language, does not impair the implementation of section 792.5, and most nearly respects the apparent statutory purpose as reflected in the public and legislative history of section 453.5.
[1b] From the foregoing, it follows that the commission exceeded its powers when it "distributed" the supplier rebates here at issue to the PG&E and SoCal balancing accounts as an offset to prospective rate increases, rather than adhering to the "refund" rules described in section 453.5. No other aspects of Decisions Nos. 88261 and 88751 are before us for review. The two decisions must therefore be annulled to the extent that they purport to dispose of the supplier rebates in violation of the statute.
Appropriate interest should, of course, be allowed on all refunded amounts, and suitable accounting adjustments made to reflect the changed disposition of the supplier rebates.
Our disposition of these cases makes it unnecessary for us to reach petitioners' additional arguments.
Bird, C. J., Mosk, J., Clark, J., Manuel, J., and Regan, J., concurred.
I dissent. I have not been persuaded by either written or oral argument (1) that "section 453.5 was intended to apply to the instant circumstances" (maj. opn., ante, at p. 847), or (2) that the section superseded other pertinent statutes.

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 Application No. 57481
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