The City of Santa Barbara might be forced to repay thousands of dollars to local Southern California Edison customers, who were paying a tax that a court recently ruled illegal.
An appellate court has ruled that a 1 percent surcharge SCE was collecting from Santa Barbara customers as part of its contract with the city was an “illegal tax masquerading as a franchise fee” — a tax locals should’ve voted on before it became official.
The ruling overturns a previous summary judgment that favored the city, which in November 2005 began collecting the 1 percent surcharge expected to generate about $600,000 in revenue annually to go toward general governmental purposes.
According to court documents, the surcharge increased the monthly electricity bill for a typical residential customer by about 54 cents.
The class-action lawsuit filed by Rolland Jack of Hotel Santa Barbara and others in late 2011 questions the validity of the November 2005 contract between the city and SCE.
In it, SCE agreed to continue paying the city a 1 percent franchise fee, which essentially compensates the city for allowing SCE a right of way to purvey electricity, handing over 1 percent of the company’s gross annual receipts for electricity sold locally.
The city also asked SCE to add a 1 percent surcharge, and SCE began billing and collecting that fee (remitting revenues to the city) once the state’s Public Utilities Commission approved the surcharge as a fee.
Although Santa Barbara Superior Court Judge Thomas Anderle backed the city’s contract in October 2013, an appeals court reversed the ruling late last month.
The court swayed in favor of the appellants, agreeing the surcharge was prohibited under Proposition 218, which forbids local governments to impose new or increased taxes without first obtaining voter consent.
“In short, the 1 percent surcharge bears all the hallmarks of a utility user tax,” the ruling stated.
The ruling directs the city to stop collecting the tax and to repay the revenues already collected.
Santa Barbara City Attorney Ariel Calonne couldn’t say whether the city would appeal the decision up to a higher court, but he plans to confer with the Santa Barbara City Council on March 17 to determine whether officials wish to seek further review.
The city continues to assert that the surcharge is part of its franchise fee, and is not a tax.
Calonne didn’t want to comment on a possible outcome, saying that if the city didn’t appeal it would have to negotiate a settlement with plaintiffs.
SCE has never been involved in the dispute, said Rondi Guthrie, the company’s public affairs region manager for Santa Barbara, who added the lawsuit was an issue between customers and the city.
— Noozhawk staff writer Gina Potthoff can be reached at gpotthoff@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.