An appeals court panel on Thursday invalidated a 2017 ruling that required Glendale city officials to repay ratepayers roughly $60 million for what was then considered an illegal 2013 electricity rate hike and the transfer of electric revenues to its General Fund — but the case isn’t over.
Glendale electric rates adopted in 2007 constituted a partial tax because their inclusion of an annual fund transfer from Glendale Water & Power to the city’s General Fund caused them to exceed the costs of providing service, according to the Second District Court of Appeal.
However, the rates, including the transfer, were adopted before the passage of Proposition 26, under which taxes require two-thirds voter approval. Proposition 26 is not applied retroactively, so the initial inclusion of the transfer cost in the rates is lawful, the appeals court ruled.
That reverses a January 2017 ruling by L.A. Superior Court Judge James Chalfant stating that Glendale officials had violated the city’s charter when they transferred $85 million from the electric revenue fund to its General Fund during fiscal years 2010-14, although the appeals court acknowledged the city violated its charter in other ways.
That leaves open the question of whether or not the rate’s tax increased or was extended after Proposition 26 was adopted, which would trigger a violation of the state law that could result in a new financial judgment against the city.
“The trial court found that the city increased electric rates in 2013, but did not determine whether the city increased the amount of the tax incorporated in those rates,” Justice Carl Moor wrote in a 48-page opinion.
That issue — just one of many in the complex case — will need to go back to the trial court for further proceedings, unless the two sides settle or seek review by the state Supreme Court.
“We consider it a major victory for the [electrical] union and for the Glendale rate payers,” said D. William Heine, an attorney representing a local chapter of the International Brotherhood of Electrical Workers.
“We’re confident that we will show that the tax did increase, if you look at the city’s records,” he added.
The union brought the suit in 2014, following the 2012 layoff of 25 utility employees and operational downsizing that the city claimed was necessary to maintain the financial health of the utility.
At the same time, city officials continued to make annual revenue transfers to the tune of nearly $20 million from the utility to the General Fund.
That suit was consolidated with another case brought by Glendale Coalition for a Better Government, a local watchdog group.
“They raised the rate because they felt the utility needed funds, but at the same time they were draining this constant transfer out of the utility,” said coalition board member Roland Kedikian in October after oral arguments for the appeal were heard.
Michael Colantuono, an attorney representing Glendale, interpreted the opinion as an overall win for the city.
With the court ruling that the General Fund transfer itself was not a tax, “there’s no $60-million credits anymore,” Colantuono said. “It’s going to be a much smaller number — if there’s any number at all.”
According to Colantuono, if the trial court determines there was an increase following 2010, the city would only need to lower its rates back to where they were around 2006, not eliminate the General Fund transfer completely.
Heine disagreed, predicting the award would still be close to $60 million. Because the opinion stated the transfer is still not a cost of service, “it will be the major component of the rates that is in violation,” Heine said.
Because Judge Chalfant ruled that the General Fund transfers were illegal, no analysis of the energy rate’s year-over-year increases were done. Now that number crunching will have to be done, according to the appeals court.
“There wasn’t sufficient data at the court of appeal hearings for [the judges] to make a ruling” on the increase aspect, said Benjamin Benumof, counsel for the coalition.
Glendale will also need to rework its water rates, following a separate opinion from the same appeals court also issued on Thursday rejecting the city’s base rate structure.
According to that opinion, the rates were not based on the cost of service.