Source: https://law.justia.com/cases/california/supreme-court/4th/12/87.html
Timestamp: 2020-07-08 12:19:02
Document Index: 214819609

Matched Legal Cases: ['§ 1756', '§ 1766', '§ 453', '§ 453', '§ 1519', '§ 18', '§ 3', '§ 1033', '§ 2100', '§ 2104']

Assembly v. Public Utilities Com. (1995) :: :: Supreme Court of California Decisions :: California Case Law :: California Law :: US Law :: Justia
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Assembly v. Public Utilities Com. (1995)
(Opinion by George, J., with Kennard, Acting C. J., Arabian and Baxter, JJ., Boren, J., fn. * Chin, J., fn.  and Sills, J., fn.  concurring.)
No appearance for Real Party in Interest. [12 Cal. 4th 90]
Thereafter, the Commission held hearings on the appropriate disposition of the money in the Pacific Telesis account. After initially adopting one disposition in August 1994, the Commission, in response to several rehearing petitions, modified that approach in January 1995 and entered the order that is challenged in the present proceeding. In its January 1995 decision, the Commission ordered disbursement of the sum of approximately $11.6 million to the current customers of Pacific Bell (the refund principal of $7.9 million, plus interest on that amount calculated at a rate of 3.4 percent per year, compounded monthly, from September 1, 1983 [approximately $3.7 million in interest]). With regard to the balance of the Pacific Telesis account (which at the time amounted to more than $42 million), the Commission ordered that such funds be "allocated toward school telecommunications infrastructure development and consumer education." [12 Cal. 4th 91]
In its November 1993 decision, the Commission specifically found "that the reimbursed funds were intended by both the FCC and this Commission to [12 Cal. 4th 92] be refunded to PacBell ratepayers and were not so refunded." As a consequence, the Commission concluded that its approval of the Pacific Telesis spinoff proposal should be conditioned, among other matters, upon a requirement that Pacific Telesis "pay to PacBell all principal payments with compound interest no later than 30 days after the date of this decision."
Pursuant to the order of the Commission, Pacific Telesis deposited into a designated account a total sum, including the refund principal and interest, of approximately $50 million. [12 Cal. 4th 93]
Several parties recommended, as an alternative to a direct refund, that the moneys be employed for the development of telecommunications infrastructure in California's schools and libraries, as proposed by the Governor, fn. 4 in light of the severe underfunding of California's schools and the increasing importance of telecommunications technology in education. Many parties, however, opposed this suggestion, arguing that such use of the fund would [12 Cal. 4th 94] amount to a tax imposed upon ratepayers for the payment of public expenses unrelated to the regulation of public utilities, and that the Commission had neither the authority nor the duty to employ the ratepayer refund for such a purpose.
Accordingly, in its August 1994 decision, the Commission, by a three-member majority, directed disbursement of the Pacific Telesis account as follows: $7.9 million to be refunded directly to current ratepayers, $40.3 million to be allocated for telecommunications infrastructure development in public schools "as directed by Governor Wilson," and the balance of the fund, in the approximate amount of $2.1 million, to be allocated to the Telecommunications Education Trust, an entity previously established by the [12 Cal. 4th 95] Commission to promote consumer education. fn. 5 The Commission delegated to the Governor the ultimate authority to determine the specific uses of the nonrefunded moneys.
Commissioners Patricia M. Eckert and Norman D. Shumway dissented from the decision of the majority. In her dissenting opinion, Commissioner Eckert stated it was clear that "the $50.3 million must all be refunded to Pacific Bell's ratepayers under California law," citing section 453.5 and California Mfrs. Assn. v. Public Utilities Com. (1979) 24 Cal. 3d 836, 847 [157 Cal. Rptr. 676, 598 P.2d 836], a decision holding the Commission may not, in order to evade the provisions of section 453.5, declare that a fund previously ordered distributed to ratepayers is not a "refund." This dissenting opinion concluded that "[t]he Commission simply does not have the discretion under this code section to allocate refunds in the manner set forth in this decision, however worthy the cause."
First, the Commission determined that, in addition to refund of the principal in the amount of $7.9 million, "an appropriate level of interest" on the refund should be paid to the ratepayers, citing this court's decision in California Mfrs. Assn. v. Public Utilities Com., supra, 24 Cal. 3d 842, 849, holding that "appropriate interest" should be allowed on all amounts refunded to ratepayers pursuant to section 453.5.
Second, the Commission concluded that, although it had determined that Pacific Bell's customers were entitled to receive "appropriate interest" on the $7.9 million principal, the 18 percent interest charged to Pacific Telesis was not the appropriate rate of interest to which the ratepayers were entitled on their refunds in this case. The Commission explained its reasoning as follows: "In [our November 1993 decision], we determined that a high interest rate was appropriate because of Pacific's failure to comply with the [12 Cal. 4th 96] FCC order and refund the cellular research and development expenses to ratepayers long ago. The 18% annual interest rate adopted in [that decision] reflects our displeasure with Pacific's failure to pass the AT&T refund on to ratepayers. [¶] There is a difference between what we found to be an appropriate interest rate to charge Telesis and what we find to be the appropriate interest rate to apply to the $7.9 million principal to be refunded to ratepayers, however. As [the November 1993 decision] notes, '[i]t has been a convention of the Commission to assign the short term commercial paper rate as interest in the case of refunds owing to ratepayers over a period of time.' [Citation.] We will use this convention in the current proceeding." Finally, the Commission stated that it believed a refund of the $7.9 million principal with 3.4 percent interest fully comported with the requirements of section 453.5 as construed by our decision in California Mfrs. Assn., and that it did not believe section 453.5 required a refund to ratepayers of the entirety of the interest that Pacific Telesis had been required to pay pursuant to the Commission's earlier order.
On February 10, 1995, petitioners timely filed in this court a petition for writ of review of the Commission's decision determining the distribution of the Pacific Telesis refund account. (§ 1756.) The petition alleged that (1) in failing to order the entirety of the 18 percent interest amount paid by Pacific Telesis to be distributed to the ratepayers, the Commission violated section 453.5 and exceeded its constitutional and statutory authority, and (2) the Commission's actions constituted a usurpation of the legislative power to tax [12 Cal. 4th 97] and spend, and an unlawful attempt to establish the Commission's own treasury and "arrogate to itself the core legislative function of how to apportion scarce public resources between competing urgent demands on the public fisc." Petitioners argued that the difference between the 18 percent interest charged Pacific Telesis and the 3.4 percent interest accorded to the ratepayers must be (1) distributed to the ratepayers pursuant to section 453.5, or (2) treated as a penalty and paid into the State Treasury General Fund as required by various provisions of the Public Utilities Code, or (3) escheated to the General Fund to the extent unclaimed by rateholders.
On May 23, 1995, we granted the petition for review. fn. 6 [12 Cal. 4th 98]
Second, we emphasize that we are not faced with the issue of the soundness or wisdom, as a matter of public policy, of the Commission's proposed disposition of the funds in question. Official pronouncements by both the legislative and executive branches of state government repeatedly and emphatically have stressed the importance of furthering the development of an advanced telecommunications infrastructure in California and the vital nature of the role of our state's educational system in this endeavor. fn. 7 Thus, as a matter of policy, the Commission's proposed disposition might well reflect a wise use of such funds. The issue before us, however, is the legality, [12 Cal. 4th 99] rather than the wisdom, of the Commission's decision under the circumstances of the present case. [1a] The question presented is simply whether the Commission, having obtained the funds that are deposited in the Pacific Telesis account by virtue of the November 1993 order described above, lawfully could order that such funds be disposed of in the manner prescribed by its January 1995 order. It is only this narrow issue that is presented here.
The basis of the Commission's November 1993 order, requiring Pacific Telesis to deposit into an account the sum of approximately $50 million, was the utility's obligation to refund moneys to ratepayers pursuant to the prior 1982 order of the FCC. The amount of the refund ordered by the Commission was calculated based upon the refund principal ($7.9 million) plus interest on the principal. The inclusion of interest, in calculating the total amount of a rate refund in this setting, expressly was approved in California Mfrs. Assn. v. Public Utilities Com., supra, 24 Cal. 3d 842, fn. 8 which held that the Commission, when ordering a rate refund under section 453.5, shall include "[a]ppropriate interest" on all refunded amounts. (24 Cal.3d at p. 849.) In an analogous context, the Legislature has recognized that it is appropriate for the Commission to pay interest on rate refunds distributed to ratepayers. (§ 1766.) fn. 9
Thus, the funds deposited by Pacific Telesis constituted the refund principal, plus interest on the principal. As discussed post, as an alternative to charging the high interest rate of 18 percent on the refund principal, the Commission might have sought to impose a penalty against Pacific Telesis or Pacific Bell-separate from the rate refund-because of their disregard of the FCC order. The Commission chose not to proceed in that fashion, however. Instead, the Commission elected to obtain from Pacific Telesis approximately $40.3 million as interest under its authority, recognized in California Mfrs. Assn., to collect interest on the refund principal, such interest constituting part of the total refund. [12 Cal. 4th 100]
[2] The legislative history of section 453.5 reflects that a purpose of the enactment was to restrict the Commission's discretion with respect to the use of ratepayer refunds ordered by the Commission. The legislative measure was introduced in the 1975-1976 Regular Session of the Legislature as Senate Bill No. 604, clarifying existing law governing rate refunds (the law not then expressly requiring that such refunds be distributed to all utility customers on an equitable pro rata basis [see § 453] ). The apparent legislative objective was to preclude a refund procedure favoring one class of customers over another, and to prevent the Commission from employing such funds for a purpose entirely apart from a refund to utility customers. (Assem. Office of Research, 3d reading analysis of Sen. Bill No. 604 (1975-1976 Reg. Sess.) as amended Aug. 25, 1977.) The legislative history of the bill reflects that those parties who opposed the proposed legislation did so on the basis that "[t]he PUC should be allowed to make the determination of how the refunds should be paid and to whom." (Sen. Com. on Pub. Util., Transit, and Energy, Analysis of Sen. Bill. No. 604 (1975-1976 Reg. Sess.) as amended May 18, 1977.) A committee bill analysis noted that "[t]he Department of Consumer Affairs opposes this bill because it restricts the manner in which the PUC may authorize the distribution of refunds. The department also believes that refunds that would normally go to industrial and commercial customers should be put into a conservation trust fund to be used for energy conservation demonstration projects." (Sen. Com. on Fin., Ins., and Com., Analysis of Sen. Bill No. 604 (1975-1976 Reg. Sess.), italics added.) In response to these views, the analysis observed that a purpose of the bill was in fact to limit the Commission's ability to employ the rate refunds for such purposes, in that "[w]hile the conservation of energy may be a laudable goal, the concept would raise a multitude of administrative [12 Cal. 4th 101] problems and in all likelihood this approach would constitute confiscation of property or illegal taxation." (Ibid.)
The Commission initially argues to us that its actions are consistent with section 453.5, because that statute itself recognizes that it is appropriate for the Commission to attempt to allocate rate refunds on an equitable basis that, to the extent feasible, benefits the class of customers who in the past actually paid the overcharges to which the refund corresponds. (See California Mfrs. Assn. v. Public Utilities Com., supra, 24 Cal. 3d 836, 847-848.) The Commission notes that in its November 1993 decision, ordering the deposit of funds by Pacific Telesis, the Commission expressed concern over the mismatch between those who paid the inflated rates (to whom the refunds should have been paid in 1983) and the present customers of Pacific Bell.
For these reasons, even if the interest rate of 3.4 percent could be justified in the abstract as an "appropriate" rate of interest, we believe that in the [12 Cal. 4th 102] present case the Commission is not entitled to order a refund of less than the full 18 percent interest that it has obtained from Pacific Telesis.
In our view, this argument has no merit. As explained previously, under applicable statutes the Commission might have been authorized to proceed against Pacific Telesis by (1) requiring a refund to ratepayers of $7.9 million plus 3.4 percent interest, and (2) pursuing a separate proceeding against Pacific Telesis in which the Commission might have sought to impose a punitive fine against the utility for wrongfully failing to comply with the 1982 FCC order and unilaterally retaining the funds in question. Existing statutory provisions authorize such a penalty proceeding, but require that any [12 Cal. 4th 103] penalty be deposited in the General Fund. fn. 10 The Commission did not proceed in that fashion, however, but instead obtained the funds from Pacific Telesis as interest on the $7.9 million principal. Under these circumstances, we do not believe the Commission may seek thereafter to characterize the funds as something other than interest, in order to justify its decision not to order the money refunded to customers.
[3] The Commission finally relies upon section 701 as conferring an "open-ended grant of authority to the Commission" with respect to the use of funds such as the 14.6 percent interest differential. To the contrary, that statute does not grant the Commission any authority to circumvent the requirements of section 453.5 that govern the use of these funds. Section 701 provides that "[t]he commission may supervise and regulate every public utility in the State and may do all things, whether specifically designated in this part or in addition thereto, which are necessary and convenient in the exercise of such power and jurisdiction." Past decisions of this court have rejected a construction of section 701 that would confer upon the Commission powers contrary to other legislative directives, or to express restrictions placed upon the Commission's authority by the Public Utilities Code. (See, e.g., Pacific Tel. & Tel. Co. v. Public Util. Com. (1965) 62 Cal. 2d 634, 653 [44 Cal. Rptr. 1, 401 P.2d 353] ["Whatever may be the scope of regulatory power under this section, it does not authorize disregard by the commission of express legislative directions to it, or restrictions upon its power found in other provisions of the act or elsewhere in general law."].)
In the context of the present case, section 453.5 constitutes one of the express legislative directives and restrictions upon the Commission's regulatory authority clearly mandating that a ratepayer refund be paid to the ratepayers of a public utility. Thus, the statutory grant of authority under [12 Cal. 4th 104] section 701 does not authorize the Commission to divert a substantial portion of the interest component of a ratepayer refund for a purpose entirely different from payment to the ratepayers. Instead, the Legislature expressly has barred the Commission from retaining ratepayer refunds, by mandating disbursement of such funds either to the ratepayers (§ 453.5) or, through escheat, to the General Fund (Code Civ. Proc., § 1519.5).
Kennard, Acting C. J., Arabian, J., Baxter, J., fn. * Boren, J., fn.  Chin, J., and Sills, J., fn.  concurred.
FN *. Presiding Justice, Court of Appeal, Second Appellate District, Division Two, assigned by the Acting Chairperson of the Judicial Council.
FN . Presiding Justice, Court of Appeal, First Appellate District, Division Three, assigned by the Acting Chairperson of the Judicial Council.
FN . Presiding Justice, Court of Appeal, Fourth Appellate District, Division Three, assigned by the Acting Chairperson of the Judicial Council.
FN 1. Petitioners are the Assembly of the State of California and Willie L. Brown, Jr., then Speaker of the Assembly and a ratepayer of Pacific Bell.
FN 2. All further statutory references are to the Public Utilities Code unless otherwise indicated.
FN 3. The Commission explained: "There are a number of methods of distribution which bear exploring, for example, setting aside a fund for advanced telecommunications for schools and libraries, or for rural or economically underdeveloped zones. Other options might be to reinstate a telecommunications education trust, or to create a fund to promote the achievement of universal service goals. In the last analysis, the most equitable treatment may be to flow the refund through to the ratepayers in a Z factor adjustment. We will pursue these different theories of compensation in further evidentiary hearings, set by the [administrative law judge] at a future date."
FN 4. The record indicates that in a January 21, 1994, letter to the Commission, Governor Wilson suggested that $45 million from the "Pacific Telesis spin-off case," i.e., the Pacific Telesis account, be directed to telecommunications infrastructure for schools and libraries, consistent with the recommendation of a 1993 report of the Commission.
FN 5. In 1988, following the determination of the Commission that Pacific Bell had engaged in marketing abuses in violation of section 532 and of various Commission rules and orders, the Commission ordered, as a penalty against Pacific Bell, that the utility fund a ratepayer education program-the Telecommunications Education Trust (TET)-aimed at ensuring that Pacific Bell not engage again in objectionable marketing devices. (Re Pacific Bell (1987) 27 Cal.P.U.C.2d 1; Re Pacific Bell (1988) 29 Cal.P.U.C.2d 486.) The activities of TET were to expire in or about 1994.
FN 6. Following issuance of the writ and the completion of briefing, petitioners were granted leave to file a supplemental brief accompanied by a request that the court take judicial notice of designated materials, including Assembly Bill No. 1302, 1995-1996 Regular Session, introduced in the California Assembly on February 23, 1995 (and subsequently passed by the Legislature and approved by the Governor on October 11, 1995, as noted below). This legislation provides for the appropriation of moneys from the Pacific Telesis account to be used for purposes of telecommunications development in public schools, consistent with the decisions of the Commission that are the subject of the present writ proceeding, and labels the appropriation as the imposition of a tax. The bill further provides that this provision "shall not become operative until the California Supreme Court issues its decision in Assembly of the State of California v. Public Utilities Commission, No. S044844, or the court's stay in that matter is otherwise lifted." (Stats. 1995, ch. 767, § 18(b).)
FN 7. In 1993, the Commission produced a report entitled, A Strategy for Telecommunications Infrastructure, recommending significant investment in the development of telecommunications infrastructure throughout California's schools and libraries-an infrastructure that, according to the report, lagged far behind that of businesses and many consumers with respect to access to technology. Also in 1993, the Legislature enacted section 882 (Stats. 1993, ch. 1274, § 3), providing in part: "(a) The Public Utilities Commission shall, as soon as practicable, open a proceeding or proceedings to, or as a part of existing proceedings shall, consider ways to ensure that advanced telecommunications services are made available as ubiquitously and economically as possible, in a timely fashion, to California's citizens, institutions, and businesses. The proceeding or proceedings should be completed within one year of commencement. [¶] (b) The proceeding or proceedings shall develop rules, procedures, orders, or strategies, or all of these, that seek to achieve the following goals: [¶] (1) To provide all citizens and businesses with access to the widest possible array of advanced communications services. [¶] (2) To provide the state's educational and health care institutions with access to advanced communications services. [¶] (3) To ensure cost-effectivedeployment of technology so as to protect ratepayers' interests and the affordability oftelecommunications services...."
FN 8. In California Mfrs. Assn. v. Public Utilities Com., supra, 24 Cal. 3d 842, 845, the court concluded that both the history and the language of section 453.5 indicate that the term "rate refund[]," as used in that section, refers to "specific amounts held by utilities as rebates from their suppliers and earmarked for customer 'refunds' by prior commission orders and utility tariffs." In so construing the term "rate refund[]," however, the court clearly did not exclude from the operation of section 453.5 other types of refund monies that constitute rate refunds.
FN 9. Under section 1766, in the event this court upholds a Commission order lowering a utility rate that has been challenged, "all money which the public utility has collected pending the appeal in excess of that authorized by the order or decision of the commission, together with such interest as may be reasonable, shall be promptly paid to the corporations or persons entitled thereto ...." (Italics added.)
FN 10. Several statutes authorizing the imposition of penalties by the Commission under a variety of circumstances expressly require that any moneys collected pursuant to these provisions be deposited in the General Fund. (See, e.g., § 1033.5, subd. (b) [Commission-imposed penalty for abuse of an operating right must be deposited in the Transportation Reimbursement Account in the General Fund]; § 2100 [authorizing the Commission to impose a penalty against common carriers that have undercharged for transportation services, and requiring that such penalty be deposited in the General Fund]; §§ 2104, 2104.5 [authorizing the Commission to recover penalties in any civil action filed in the superior court in the appropriate city or county, and providing that all fines and penalties recovered by the state in such an action are to be deposited in the General Fund].)
FN 11. Concurrently with its request that the court take judicial notice of designated matters (see fn. 6, ante), the Commission filed an application "for a lifting of the stay of further Commission action," seeking to reopen the proceedings relating to the disbursement of the monies in the Pacific Telesis account in order to respond to Assembly Bill Nos. 1302 and 1519, 1995-1996 Regular Session. By this decision, the matter is remanded to the Commission for further proceedings consistent with our opinion.