The legality of a hidden surcharge that San Diego residents pay SDG&E and the City of San Diego to fund the burying of utility lines is slated for trial in April 2017. In the meantime, documents released in the discovery phase show that residents — and not the utility-conglomerate — were intended to shoulder the cost for moving power and gas lines below ground.
The City of San Diego and SDG&E entered into a formal agreement in December 2001 to extend and increase the so-called "franchise fee" to 3.58 percent on all residents to pay for undergrounding. According to documents released in the case, the fee generated approximately $36.5 million per year and would be collected until 2065; what isn't spent annually to convert the power grid is deposited into the city's general fund.
Over the 62-year agreement, the fee would generate over $1.6 billion.
As reported by the Reader, in May 4 of last year, resident Jess Mahon Jr. filed a class-action lawsuit against the city and SDG&E for imposing a tax without the vote of the people.
Reads the complaint: “The City did not conduct an election because the undergrounding program to be funded by the 3.53 [percent] electricity surcharge is a program that...is not estimated to be completed until the year 2065. Because of the term of the program, many payers of the electricity surcharge may never receive any direct benefit from these taxes, and, therefore, most voters were unlikely to vote in favor of the tax. Neither SDG&E nor the City had legal authority, as part of their contracting, or entry into the [memo of understanding], to waive utility users' Propositions 62 or 218 rights."
In 2011, Santa Barbara hotel owner Rolland Jacks sued the City of Santa Barbara for tacking a 1 percent tax on residents to pay for new utility poles and hanging power lines. In March 2015, one month before Mahon filed his lawsuit, an appellate court shot down the fee, calling it “an illegal tax masquerading as a franchise fee.”
The City of Santa Barbara's request for the state supreme court to review the decision has since been granted but has not yet been heard by the court.
In Mahon Jr.'s case, the discovery phase of the trial has produced documents revealing a similar structure to Santa Barbara's franchise fee. That could spell legal trouble for San Diego and SDG&E.
Those documents show that the entire cost to bury the lines will come from ratepayers in the form of a 1.15 percent fee and the remainder from the 3.53 percent "surcharge" on "all ratepayers in the [City of San Diego]."
Meanwhile attorneys for the city are standing by their argument that the franchise fee is legal.
"Defendant bears no liability in this case as there has been no violation of Propositions 62 and/or 218 because the franchise fee as described in Plaintiffs' [First Amended Complaint] is a fee charged by the city for a franchise fee, and not a tax, as that term is defined by state law."
In coming months superior court judge Judith Hayes is expected to rule on whether the case will be certified as a class-action lawsuit.