15 cities sue PG&E over electricity tax accounting

Fifteen cities sued Pacific Gas & Electric Co. this week for allegedly using the state's greenhouse gas laws to deprive local governments of tax revenue. Reached Thursday, the company denied the claims.

The complaint filed Tuesday asserts that around 2016 the investor-owned utility changed the way it calculated voter-approved local electricity taxes. By law, the utility collects these taxes and then passes them on to governments.

The latest filing is part of a series of cases around the state involving the interplay between utilities and AB 32, the Global Warming Solutions Act of 2006. That law created a cap-and-trade system in order to offset greenhouse gas emissions.

The system created corresponding "upward pressure" on utility rates, according to the complaint filed by Colantuono, Highsmith & Whatley PC.

In order to offset the increased power costs, the state created credit programs for consumers and large and small businesses, administered by the California Public Utilities Commission.

The complaint claims customers are required to pay taxes on the full value of electricity they use. But it alleges the utilities improperly subtracted these credits from customer bills before calculating the taxes to be paid to cities, while pocketing the full amount of the corresponding reimbursement from the commission.

PG&E "is obliged to collect those taxes, but has no power to reduce them. ... Nor does the California Public Utilities Commission," Colantuono wrote in City of Arcata v. Pacific Gas & Electric Company, CGC-20-585483 (S.F. Super. Ct., filed July 21, 2020).

Reached Thursday, Colantuono emphasized he is not claiming the utility skimmed taxes directly. Rather, he said, it reduced customers' bills in a way that encouraged them to use more power and also cheated cities of revenue. He acknowledged the complexity of the claims underlying the complaint.

"The first paragraph of the complaint reads like a press release for a reason," Colantuono said. "This is a statewide fight between cities and counties that collect utility usage taxes and investor-owned utilities that use our money to make their services cheaper so they can sell more of them."

"PG&E is one of the largest local taxpayers in the state of California and is committed to compliance with the tax code," said company spokesman James Noonan in an email. "We're aware of the suit and are currently reviewing."

Noonan also shared an April 14 press release that illustrated PG&E's own massive tax liability. It stated the company paid "property taxes and franchise fees of nearly $386 million this spring to the 50 counties, 246 cities and one district where it owns and operates gas and electric infrastructure." These taxes are distinct from the electricity taxes at issue in the complaint, however.

The cities in the complaint include Cupertino, Monterey, Sacramento, Santa Cruz and Sunnyvale. The County of Sacramento is also a plaintiff. Colantuono said his team first needed to get permission from U.S. Bankruptcy Judge Dennis J. Montali to file the complaint rather than litigate it as part of PG&E's Chapter 11 case. In re: PG&E Corp. bankruptcy, 19-30088 (N.D. Cal., filed Jan. 29, 2019).

Colantuono's firm has also filed two similar cases against other investor-owned utilities. The first was filed on behalf of the City of Torrance. He said city officials there noticed the issue first because Torrance is home to multiple oil refineries and other large energy infrastructure, meaning the drop in tax revenues was particularly hard to ignore.

"Torrance was the canary in the coalmine," Colantuono said.

A Los Angeles Superior Court judge dismissed the claim last year, but it is on appeal. City of Torrance v. Southern California Edison Company, B300296 (Cal. App. 2nd, filed Aug. 22, 2019).

The third case is City of Arcadia v. Southern California Edison Co., 20CV02026 (S.B. Super. Ct., filed June 9, 2020).