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<br />Foreshadowing Potential UUT Problems
<br />The 1980s, however, brought events that fore-
<br />bode the possibility of future problems for the
<br />cities' UUT ordinances. First, the state and fed-
<br />eral regulatory commissions began employing
<br />competition and market pricing as an alterna-
<br />tive to micromanaging the regulated utilities.
<br />The Federal Energy Regulatory Commission
<br />broke open the interstate pipeline and gas sup-
<br />ply market, and soon thereafter, the Califon is
<br />Public Utilities Commission (CPUC) intro-
<br />duced competition in the sale of natural gas
<br />to retail customers. Many new third -party mar-
<br />keters, such as ENRON and Broadstreet,
<br />could now compete with the regulated mo-
<br />nopoly providers, such as Pacific Gas & Elec-
<br />tric (PG &E), Southern California Gas
<br />(SoCalGas) and San Diego Gas & Electric
<br />(SDG&E), in the retail sale of the commodity
<br />of natural gas. (About 80 percent of the aver-
<br />age gas bill is attributable to the commodity
<br />natural gas, and about 20 percent to transpor-
<br />tation and distribution services, which con-
<br />tinue to be provided exclusively by the regu-
<br />lated utilities.) The result was more utility pro-
<br />viders, more competition, and thus, lower gas
<br />bills. Market competition also produced more
<br />numerous and complicated gas bills (one or
<br />the commodity and one for the transportation
<br />and distribution services), increasing the like-
<br />lihood of noncollection of the UUT.
<br />Second, the scope of the UUT also began to
<br />expand. A U.S. Supreme Court case, Goldberg
<br />v Sweet, removed a constitutional impediment
<br />for imposing the UUT on interstate and inter-
<br />national telephone service (instead of just intr-
<br />astate). in response, many cities amended their
<br />ordinances and began imposing a UUT on the
<br />interstate and international telephone services.
<br />This produced increased fax revenues or those
<br />cities, but it also expanded the number of tax
<br />collectors of their UUT on telecommunications
<br />from one or two to several companies, includ-
<br />ing AT &T, Sprint and MCI.
<br />The changes in the 1980swere soon followed
<br />by even more dramatic changes in the 1990s.
<br />The CPUC essentially deregulated the long
<br />distance and wireless industries, and as a con-
<br />sequence, hundreds of new competitors and
<br />resellers began doing business in California
<br />Today, there are more than 600 telecommuni-
<br />cation companies licensed by the CPUC to pro-
<br />vide a panoply of telecommunication services
<br />by wives, radio waves (using various bands of
<br />the radio spectrum), fiber optics, satellite and
<br />microwave. The number of service providers
<br />and telecommunication services continues to
<br />grow exponentially.
<br />Based on the success of these efforts, the
<br />CPUC next directed its deregulation initiative
<br />to the electric industry. Lastyear, the state leg-
<br />islature enacted implementation legislation to
<br />formalize the electricity restructuring process.
<br />*4
<br />Like the gas industry, the main focus of com-
<br />petition is in the sale of the commodity of elec-
<br />tricity. However, unlike gas, the electricity com-
<br />modity (or generation) represents only 20 per-
<br />cent of the average electric bill, while the other
<br />charges (transportation, distribution, stranded
<br />investment or Competitive Transition Charge)
<br />represent 80 percent According to the CPUC,
<br />there are currently more than 100 new elec-
<br />tric service providers (ESPs) that are eligible
<br />to make "direct access" sales of electricity to
<br />retail customers in the service territories of
<br />PG&E, Edison andSDG&E. Consequently, this
<br />year there will be many new electric service
<br />providers with new UUI' collection responsi-
<br />bilities, and a greater likelihood of improper
<br />collection of the UUr
<br />Wiry Cities Neglect UUT Updates
<br />Taken together, the above-described changes
<br />of the past 30 years, and the introduction of
<br />many new utility providers and services, has
<br />greatly complicated the collection of cities'
<br />U(TF.To furtherexacerbate the problem, most
<br />California cities have neglected to update their
<br />UUT ordinances to keep pace. This oversight
<br />is likely due to the complicated and arcane
<br />nature of utilities and their regulation, and also
<br />the fear of triggering an election requirement
<br />under Proposition 218. These reasons for in-
<br />action are certainly understandable, but not
<br />without substantial risks.
<br />Fist UUT ordinances that fad to reflect new
<br />technologies and services will inevitably pro-
<br />duce loopholes and unintended tax subsidies
<br />for those new technologies and services, at the
<br />expense of citizens that can least afford the new
<br />technologies and services.
<br />Second, UUr ordinances that are outdated
<br />or ambiguously worded will invite legal cbat-
<br />lenges regarding the scope of a UUT or the
<br />collection responsibilities of the collecting
<br />parry. Since ambiguities in tax ordinances are
<br />normally resolved in favor of the taxpayer, this
<br />could result in lower UUr revenues.
<br />Thud, through neglect, UUT ordinances
<br />may become legally invalid, in part or in
<br />whole, if similar utility services are treated
<br />differently without a rationale for such dis-
<br />parate treatment
<br />"Unbundling" an Ordinance to Protect
<br />Existing UUT Revenues
<br />In the past, a utility customer would receive a
<br />single utility bin with a single charge for the
<br />utility service based upon ande tariff approved
<br />by the CPUC. Also, at the bottom of the bill,
<br />there might be some additional surcharges for
<br />special programs, and then various taxes would
<br />be applied, including the UUL The charges for
<br />all of the various activities needed to provide
<br />the utility services would be incorporated or
<br />bundled into that single rate or charge. With
<br />Even these relatively new ordinances
<br />need some minor updates since their
<br />original enactments. In fan, the author
<br />of this article, who also developed the
<br />Vallejo and Richmond ordinances, rec-
<br />ommends annual updates to UVr or-
<br />dinaroes to keep abreast of industry
<br />changes. Last year, the legislature en-
<br />acted Public Utilities Code section
<br />7284.6 -.7 (SB 2143, a utility industry-
<br />sponsored bill), which imposed a crimi-
<br />nal penalty for disclosing UUT payment
<br />information or audit- related informa-
<br />tion. Cities should now make certain
<br />that city staff or outside consultants
<br />treat such Information as confidential,
<br />and not subject to the normal disdo.
<br />sure requirements of the Public
<br />Records Act.
<br />deregulation, however, a customer may receive
<br />several different utility bills. For instance, an
<br />electricity customer may receive one bill from
<br />an ESP (or its billing agent) for the commod-
<br />ity of electricity, and another bin from the local
<br />distribution company (or its billing agent) or
<br />distribution, transmission, metering and other
<br />related services. To complicate matters, the
<br />trend is now for the service provider to "un-
<br />bundle" the former composite rate with numer-
<br />ous "line items" showing the cost of each com-
<br />ponent of the utility service so that the cus-
<br />tomer receives more pricing information. This
<br />information is essential for helping the cus-
<br />tomer make informed choices, as more of the
<br />different components of traditional utility ser-
<br />vice are opened up to competition.
<br />Hazards of Unbundling
<br />Although unbundling serves a useful purpose
<br />in furthering competition, it can also create
<br />problems under a city's UUT ordinance. For
<br />example, one of the line items on customers
<br />bill will be the charge for the commodity, gas
<br />or electricity. Since the old ULTr ordinance
<br />typically imposes a tax on "charges for the use
<br />of gas or electricity," a taxpayer (or more likely
<br />his or her tax avoidance counselor) might ar-
<br />gue that the UUT now only applies to the con,
<br />modity charge and none of the other charges
<br />necessary to deliver the commodity to the cus-
<br />tomer This actually occurred in a lawsuit in-
<br />volving the City of Torrance and a gas cow
<br />tomer. The superior court, however, sum-
<br />marily dismissed the taxpayers argument and
<br />found in favor of the city. Despite the favorable
<br />costiaaed
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