Court Opinion

ID: 9602986
Source: CourtListenerOpinion
Date Created: 2023-08-22 02:02:15.55969+00
Date Added: 2024-06-11T12:12:41.494402
License: Public Domain

CARTER, J.
I dissent.
It appears to me that the gas company formula, accepted by the majority, attempts to deduct every possible dollar of invested capital from the distribution system before they compute the value of the distribution system attributable to either public or private ways. In this manner they seek to base the county’s share on little more than pipe in the ground. This is a complete misconception of the Broughton Act and its interpretation by this court in the Dinuba case. (County of Tulare v. City of Dinuba, 188 Cal. 664 [206 P. 983].)
The Broughton Act provides that the utility “shall during the life of the franchise pay to the county or municipality two percent (2%) of the gross annual receipts of the grantee arising from the use, operation, or possession of the franchise.” In giving an interpretation to the meaning of these words this court, in the Dinuba case, supra, stated (p. 673) that the corporation’s gross receipts “arise from the ‘use, operation or possession, ’ not alone of these franchises over the streets and highways, but likewise from the use, operation, or possession of the power-houses and private rights of way. The two last named are not subject to any franchise ch'arges and the county or municipality is not entitled under the law to any part of the gross receipts attributable to these *140privately owned parts of the system.” This court then went on to say (p. 681) that “The first step in this accounting should be to determine as a question of fact what proportion of the total, amount of gross receipts of the public utility should be justly accredited to its distributing system over various rights of way, as distinguished from its power plants or other producing agencies.
“This will establish the fund from which the percentage of earnings 1 arising from the use, operation or possession’ of the various franchise easements shall be ascertained.
“The percentage of this fund to be apportioned to the respective public franchises will not include the proportion of such gross receipts of the distributing system as are attributable to the use of private rights of way occupied by the utility, as such part of the system is not subject to franchise charge.” (Emphasis added.)
The clear import of this language is that we are first to deduct from gross revenue that amount attributable to the production system. This leaves us with the amount of gross revenue attributable to the entire distribution system. We then must determine what proportion of these earnings of the entire distribution system to attribute to the distribution system on public ways as contrasted to the distribution system located on private ways. Such was clearly this court’s view in the Dinuba case when it said (p. 676) : “The reasonable construction of the language used is that each county or municipality is entitled to its percentage of the gross earnings arising from the use of its highway, in the proportion that the receipts arising from the use of such highways bears to the receipts attributable to all the rights of way of the entire system.” In determining what share of the distribution earnings to attribute to the public ways and what share to the private ways this court felt that the relative mileage of each was the most appropriate basis. This was illustrated by the following statement on page 681: “We have adopted this appropriation, to the various rights of way, according to mileage, not necessarily as an exclusive method of distribution of the gross receipts, but as a practicable one where the contribution of the various franchise easements to the gross earnings cannot be otherwise determined. . . . There may be instances where the extent or value of the distributing system over a given right of way may indicate its earning capacity; or where the service of lateral lines may be differentiated from that of main conduits in the value of their use *141of the easements. In such cases these conditions should be taken into account. But where, as will often happen, contribution to the earnings of the various rights of way is general and indistinguishable, we can see no reason why the proportionate mileage basis should not be used in apportioning the statutory percentage of gross receipts.” (Emphasis added.)
Thus we see that once we have determined what proportion of the gross receipts is attributable to the entire distribution system, we must find some method of determining what proportion is attributable to private ways and what portion is attributable to public ways. The most practical method of so doing is by use of the relative mileage basis. An example of its application was given by this court in the Dinub a case (p. 676) where it said: “It may be assumed that the distributing system covers six hundred miles of easements. The proportion of the gross receipts derived from and chargeable to the use of the distributing system should be credited to this entire mileage. One-third of this mileage may extend over private rights of way which are not subject to any franchise liability. The remaining two-thirds of the mileage covered by county franchises is entitled to two-thirds of the two per cent of the gross amount, and each county is entitled to the percentage of this two-thirds in the proportion that the mileage of its franchises bears to the total mileage covered by all the franchises.” (Emphasis added.)
By its language this court, in the Dinuba case, made it extremely clear that the 2 per cent was to be taken from that portion of the gross receipts of the total distribution system attributable to the distribution system on public ways; that the exact earnings of each mile in the system cannot always be accurately determined; that the value of each portion of the distribution system is not necessarily indicative of its earning capacity and therefore the best method of prorating the earnings of the entire distribution system between public and private ways is to use the mileage basis. All of this makes it apparent that this court established a rather simple formula whereby we first determine what portion of the total gross receipts is attributable to the distribution system, and then, as the best practical method of prorating these total distribution receipts between public and private ways, we use the relative mileage basis. From the gross receipts attributable to public ways the governmental bodies granting the *142franchises are entitled to 2 per cent of their proportionate interest. What could be clearer ?
As stated by the District Court of Appeal in its opinion in this case (see County of Los Angeles v. Southern Counties Gas Co., (Cal.App.), 259 P.2d 665) : “The Broughton Act recognized the justice of allowing a public utility a credit for its private property by exempting 98 per cent of the gross receipts from the franchise charge. The Dinuba case went a step further in allowing an apportionment of the 2 per cent toll so as to eliminate any charge for that proportion of the mileage over private rights of way. The gas company is not satisfied to accept the benefits granted by both the Broughton Act and the Dinuba decision, but in addition thereto it takes the additional deduction for the facilities located on private property by the utilization of the so-called ‘capital investment method’ of accounting.”
The formula proposed by the county and accepted by the District Court of Appeal follows the pattern as established in the Dinuba case. The gas company, on the other hand, seeks to use a combination formula which includes some of the suggestions of the Dinuba case but which also includes several other calculations designed to reduce to a bare minimum the amount due the county. For a clearer understanding of the gas company’s departure from the formula in the Dinuba case, it may be well at this time to compare the methods used by the county and by the gas company.
To begin with it should be noted that both the county and the gas company are in accord as to certain calculations even though they are made at different stages of the respective formulae. As a starting point both the county and gas company agree that in 1939 total invested capital equalled $31,216,081.13. From this both deduct intangibles, capital in general facilities and office and capital invested in production facilities. This leaves a total of $28,548,380.17 as that portion of the total capital which is invested in the distribution system. Once the extent of the distribution system, as contrasted to the producing system, has been ascertained, the next step should (under the Dinuba case) be to determine what proportion of the gross receipts can be attributed to the total distribution system. This is required under the Dinuba formula and is done by the county. Thus the county calculates that the amount of capital invested in distribution is 99.1306 per cent as contrasted to .8694 per cent invested in production facilities. Since 99.1306 per cent of the pro*143duction and distribution capital is invested in distribution facilities it follows that 99.1306 per cent of the gross receipts should be credited to the entire distribution system. This is the logical approach, this is the reasoning of the Dinuba case and this is the formula used by the county, but the gas company seeks still another deduction. Rather than determine the amount of capital invested in the entire distribution system they seek a figure which includes only the distribution capital invested in rights of way. To do this they deduct $7,556,603.15, which is the value of all distribution capital on consumer’s property or on leased property. It is in this major respect that the gas company formula departs from the Dinuba case and differs from the county formula.
By so doing the gas company deducts over 25 per cent of the value of the entire distribution system before computing the gross receipts attributable to the distribution system. This leaves only the capital invested in rights of way and has the effect of basing the gross receipts attributable to the distribution system on little more than the value of the pipe in the ground. It is a departure from the strict mileage formula established by the decision in the Dinuba case.
The net result of the gas company formula is that it does not compute the gross receipts for the entire distribution system as required by the Dinuba ease, but it tries to limit the fund to those receipts attributable only to rights of way. It attempts to exclude some of the distribution system which is located on private property in this preliminary calculation, when such exclusion should properly be made only on the mileage basis when the ratio of public to private system is determined.
As has already been pointed out in the Dinuba case the value of an isolated portion of the distributing system is not necessarily indicative of its earning capacity. Certain portions which are new may have a greater value but far less earning capacity than some of the older sections which have little book value but a great deal of earning power. The terminus of a gas conduit may be one of the most extensive parts of the line but that does not mean that the meters and terminal equipment account for most all the earnings and that the transporting conduit earns little or nothing. Thus we can see that while the amount of capital invested in an entire system may be some indication of its earnings, we cannot segregate isolated portions of a system and determine that its dollar value is a correct measurement of its earning *144power. For this reason this court in the Dinuba case preferred to compute all the gross receipts attributable to the entire distribution system and then prorate them between the public and private ways on a mileage basis rather than deducting part of such system on a dollar value basis. This is necessary since as a practical matter the contributions of the various portions of the distribution system to the gross distribution receipts cannot otherwise be determined.
The majority fails to recognize the fact that some portions of the distribution system which are low in dollar value may have an earning power as great or greater than other portions which have a high book value. Based on this misconception it states that “As in rate making there is a relationship between the value of the property and the amount it earns; the dollars invested in the property produce the dollars that form the gross receipts. Since every dollar invested in operative property earns an equal part of the gross receipts, gross receipts are attributed to a particular item or class of operative property according to the dollars invested in it.” Granted that there is a relationship between the value of a corporation’s property and the amount it earns, we must recognize the limitations of such a broad generalization. Thus it might be said that there is a relationship between the value of the entire production system and the extent of its earning power; or it might be said that there is a relationship between the value of the entire distribution system and the amount it earns; but such a general relationship between the value of the property and the degree of earning power cannot be carried too far. For example, assume that every building on Block “A” has a direct conduit connection with the main gas line; that each conduit has a book value of $100; that one of the buildings serviced is a restaurant using gas ranges; that one of the buildings is a bakery using gas ovens; that two of the buildings are unoccupied; that one of the buildings is occupied by a frozen food locker; apd that one of the buildings is occupied by a meat market. From this type of factual situation it can clearly be seen that the amount of gas consumed by the various customers serviced will vary to a considerable extent even though the value of the conduit into each building has the same $100 book value. Thus we s-'e that the earning power of the various conduits will vary in spite, of the fact that the same number of dollars is invested in each; and therefore the generalization that earnings have a relationship to dollars invested has its limitations.
*145Granting that there is a relationship between the dollars invested in an entire system and its earnings, there is not always an accurate relationship between the value of a particular portion of the system and its earnings. In view of this it is not correct to say (as the majority has) that “every dollar invested in operative property earns an equal part of the gross receipts,” and that “gross receipts are attributed to a particular item or class of operative property according to the dollars invested in it.” (Emphasis added.) By this reasoning the majority (following the theory advanced by the gas company) contends that the earning power of the public ways must be limited to the actual value of the investments in rights of ways after various other portions of the distribution system have been deducted. Thus they compute the dollars earned on a particular portion of the distribution system on a dollar investment basis even though such a method is only feasible when applied to an entire system as contrasted to an isolated part.
These limitations were recognized by this court in the Dinuba case when it stated "(p. 682) : “There may be instances where the extent or value of the distributing system over a given right of way may indicate its earning capacity; . . . But where, as will often happen, contribution to the earnings of the various rights of way is general and indistinguishable, we can see no reason why the proportionate mileage basis should not be used in apportioning the statutory percentage of gross receipts.” Thus in order to compute the gross receipts arising from the use, operation or possession of the public franchise we must first determine the gross receipts of the entire distribution system and then on a mileage basis prorate these gross receipts between public and private ways.
By seeking to deduct the $7,556,603.15 as part of the distribution system on consumers’ property or on leased property and later seeking to deduct 8.603 per cent of the mileage as being located on private ways the gas company is attempting a form of double deduction. The portion of the'distribution system located at the terminus of each line is high in value ($7,556,603.15) but low in mileage so the gas company seeks to deduct this portion on a dollar basis. The other portions of the distribution system on private ways do not account for as much value (approximately $2,400,000) so the gas company is willing to compute these portions on a *146mileage basis. Thus the gas company attempts to divide the distribution system on private ways into two parts. The one part having a high value ($7,556,603.15) they seek to deduct on a dollar basis. The other portions having a lower dollar value (approximately $2,400,000) but a higher mileage value they seek to deduct on a mileage basis. Actually the gas company is only entitled to one deduction from the receipts of the distribution system and that is a single deduction for the proportion of the distribution system on private ways. This should include that portion of the system running over private ways owned by the company, private ways leased by the company, private ways merely used by the company and all other forms of private ways including the conduits and equipment running to each consumer. Why should there be a distinction between private ways on consumers’ property and other private ways f It is all part of the distribution system and the gas company will be credited with that portion of the distribution system on all private ways on a mileage basis.
By these calculations the gas company has reduced the' total of distribution receipts to $6,537,430.70 rather than the total of $9,537,137.16 reached under the county formula. Since 91.3963 per cent of the distribution mileage is on public ways the gross receipts fund attributable to public ways, from which the 2 per cent is to be taken, should total $8,716,590.49 instead of $5,974,969.77 as computed by the company. The net result of the gas company’s double deduction is that for 1939 the county of Los Angeles having 15.3831 per cent of the public ways would only be entitled to $18,382.60 rather than $26,817.63.
There can be no doubt that the Broughton Act as well as the Dinnba ease intended the 2 per cent to be taken from the gross receipts attributable to the distribution system after the proportion attributable to private ways had been deducted. However, the manner of deducting or excluding such items must be consistent. It is not proper to exclude the part of the distribution system located on ' private property on a dollar invested basis and the balance on a mileage basis.
The term gross receipts was adequately defined by the District Court of Appeal (County of Los Angeles v. Southern Counties Gas Co., (Cal.App.) 259 P.2d 665) when it said: “No authority has been found to define the term ‘gross receipts’ to mean anything other than the total without deduction ; it means ‘ all receipts on business beginning and ending *147within this state. ’ (Pacific Gas & Elec. Co. v. Roberts, 176 Cal. 183, 189 [167 P. 845].) The phrase is ‘plain language which requires no interpretation . . . “perfectly plain, unequivocal language” ... it must be taken in its plain sense without limitation or deduction save as expressly modified by the Legislature. ’ (Bekins Van Lines, Inc. v. Johnson, 21 Cal. 2d 135, 140 [130 P.2d 421].) Gross receipts mean all receipts arising from or growing out of the employment of the corporation’s capital in its designated business. (Robertson v. Johnson, 55 Cal.App.2d 610 [131 P.2d 388].) Is there any doubt then that the Legislature intended for the utility to pay as a toll for the use of public highways on which to lay its pipes, tracks or cables, 2 per cent of its gross receipts ?
“These conclusions are fortified by the doctrine of strict construction. The basic franchise ordinance (No. 1107, New Series, 1924) provides that ‘the franchise is granted upon each and every condition contained herein, and in the ordinance granting the same and shall ever be strictly construed against the grantee. ’ When a franchise provides for the protection of the public interest, it is a fair assumption that the board of supervisors endeavored to perform its duty as trustee for the public and that the provisions were inserted for the purpose of securing for the public all substantial advantages. (38 Am.Jur. 214.) It is a general principle of construction that franchises granted by the state to private persons or corporations must be construed most strongly in favor of the public. If a doubt arises, nothing is to be taken by implication as against public rights. (Clark v. City of Los Angeles, 160 Cal. 30, 38 [116 P. 722]; Sacramento v. Pacific Gas & Elec. Co., 173 Cal. 787, 791 [161 P. 978].)
“From all that is said above it is unavoidable that the franchise must be construed strictly in favor of the county and as so construed respondent should pay its full 2 per cent of its gross receipts each year of the life of its franchise with no deductions except those attributable to production capital and the proportion of the distribution system belonging to the utility.”
It would also appear that the eases cited by the majority and the gas company were adequately distinguished by the District Court of Appeal (County of Los Angeles v. Southern Counties Gas Co., supra, (Cal.App.) 259 P.2d 665) in the following discussion: “Ocean Park Pier Amusement Corp. v. City of Santa Monica, 40 Cal.App.2d 76 [104 P.2d 668, 879], *148cited by the gas company in support of its position, is readily distinguishable. In that case the city exacted the full statutory toll for the use of its own property and in addition sought to exact a charge for the use of the corporation’s property. It was therefore properly held that no franchise payment need be made for the use of private property with respect to which no public property was contributed or used. In the ease at bar, however, the gas company has consistently utilized public property in its operations and of course could not operate for an instant without public franchises, but the record discloses no attempt by appellant ‘to include in the grant, land over which it had no proprietary interest, ’ as was true of the City of Santa Monica in the last cited authority, page 86.
“Respondent cites also City of Monrovia v. Southern Counties Gas Co., 111 Cal.App. 659 [296 P. 117], as authority for its contention. The court said at page 660, ‘In accordance with this method [from the Dinuba decision] the defendant . . . [eliminated] that portion of its earnings attributable to the use of its properties located on private property. ’ The context of the above sentence, a portion of. which respondent quotes, makes it clear that the mileage allocation formula of the Dinuba decision, under no dispute in the instant case, is referred to. But in any event, the only issue involved in the Monrovia action was whether or not the city was entitled to 2 per cent of the gross receipts collected within the city, a point not at all involved in the instant controversy. ’ ’
If we are to abide by the decision of the Dinuba case, if we are to insist on a fair and consistent formula without double deductions, and if we are to construe the franchise most strongly in favor of the public (as is required by law), then we must reverse the judgment rendered by the trial court.
For these reasons I would reverse the judgment.
Appellant’s petition for a rehearing was denied February 17, 1954. ‘ Carter, J., was of the opinion that the petition should be granted.