A judge has ruled that a recent Riverside electric rate increase is an unconstitutional tax because a portion of it raises money for the general fund budget — the city’s main bank account — and funds municipal services unrelated to electric power.
The decision means Riverside may have to rescind part of the increase, give utility customers refunds and curb a practice of transferring tens of millions of dollars a year from the electric utility to the general fund.
The lawsuit that prompted the decision is seeking $24.6 million in refunds for 2019 alone.
A Dec. 1 hearing in Riverside County Superior Court is scheduled to determine what the city will need to do.
City spokesman Phil Pitchford said Wednesday, Nov. 11, that Riverside officials are aware of the court’s decision and are evaluating their options.
Riverside and the cities of Anaheim, Long Beach, Palo Alto and Sacramento, which also operate utilities, are “working to understand this complex area of the law and the options available to municipalities,” Pitchford wrote in an email.
The decision comes at a time when Riverside is operating on a pared-down general fund budget of $271.4 million, with revenue projected to fall 10%, or $28.1 million, this fiscal year due to the coronavirus pandemic‘s economic impact.
Patricia Lock Dawson, who has built a big lead over City Councilman Andy Melendrez in the mayor’s race, said last week that addressing the ruling’s implications for the budget will be one of her top priorities if she is seated as mayor next month.
“That decision is going to potentially have a huge impact,” Lock Dawson said. “And we are going to have to figure out what to do.”
The general fund pays for a range of services, including police and fire protection and the upkeep of parks.
The court ruling follows a Riverside City Council decision in May 2018 to boost electric rates 3% annually for five years, starting Jan. 1, 2019, and a September 2019 lawsuit by Summer and Vincent Parada challenging the increase.
Their attorney, Eric Benink of San Diego, said, “the core of our case is the allegation that rates are too high because they are designed” to fund the general fund transfer.
Under California law, utility rates that cover more than the cost of providing utility service are taxes which must be approved by voters, the lawsuit states, and residents weren’t given the opportunity to vote on the electric increase.
The city has a longstanding practice, set forth in Riverside’s governing city charter, of transferring up to 11.5% of its electric revenue to the general fund.
The electric utility provides power to 109,000 customers and generates about S350 million in annual revenue, court documents show. And in recent years, the annual deposit in the general fund has been about $40 million. But the suit alleges that only about $15 million of that transfer comes from sources not generated by customer charges.
In an Oct. 9 ruling, Superior Court Judge Craig G. Riemer concluded that the rate increase is unconstitutional and ordered the December hearing to determine the next course of action.
Riemer asked attorneys to be ready to discuss whether the entire rate increase should be tossed out, or only that portion of the increase that raises dollars for the general fund.
The judge also asked attorneys to be prepared to discuss whether refunds to customers are warranted, and if so, how much.
A separate lawsuit concerning the city’s transfer policy was filed in December. The class action suit challenges the city’s practice of shifting up to 11.5% of water utility revenue to the general fund and alleges Riverside has unlawfully collected more than $100 million from water customers since 1997.
In an Oct. 2 response to the suit, the city defended its practice, citing an April 2013 settlement in a similar case that called for a city election on the water transfer issue. In June 2013, Riverside voters approved Measure A, which amended the city charter and allowed the city to continue transferring money from the water utility to the general fund.
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November 13, 2020 at 03:07AM
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Riverside electric rate increase ruled unconstitutional - Press-Enterprise
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