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Tax Law

Don’t Be Shocked: California Cities Allege that PG&E Willfully Miscalculated Electricity Tax

Several California localities filed a complaint alleging that PG&E willfully miscalculated the electricity user’s tax (“Electricity Tax”) causing harm to the cities, their employees and public services. California cities and counties impose Electricity Tax on a percentage of charges for electricity used within the city. For example, the City of Sacramento imposes an Electricity Tax on every person who uses electricity in the city “at the rate of five percent (5%) of the charges made for such energy…” Following the adoption of California’s cap-and-trade program and the requirement for utilities to purchase greenhouse gas emission allowances, California developed multiple financial assistance programs for customers affected by rate increases. This included the Industry Assistance Credit, Residential Climate Credit, and the Small Business Climate Credit. PG&E calculated “charges” to which the Electricity Tax applies by reducing the Electricity Tax base by the amount of these credits. The localities allege that the Electricity Tax ordinances impose tax on total “charges made for such energy” and that the ordinances do not provide an exception or other provision permitting PG&E to reduce the amount of charges subject to the Electricity Tax. Further, the localities allege that PG&E violated the state’s unfair business competition statute because the willful under-collection of the Electricity Tax subsidizes PG&E’s sales and causes financial harm to the localities and those who rely on the public services PG&E provides.

City of Arcata at al. v. Pacific Gas & Electric Co. et al., No. 20-585483 (Sup. Ct. San Francisco).