Richards, Watson & Gershon
Attorneys at Law - A Professional Corporation
 Spring 2010 Advisor
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Proposition 16: An Attack on Local PowerAt the June 8, 2010 Statewide Primary Election, the voters are being asked whether to approve Proposition 16, a ballot measure proposed and so far financed entirely by the Pacific Gas and Electric Company (PG&E). The Proposition requires two-thirds voter approval before local governments may spend funds or incur debt to establish or expand electric delivery service or establish a Community Choice Aggregation (CCA) program. CCA is a program authorized by Public Utilities Code Section 366.2 that permits cities and counties, or a joint powers authority formed by these entities, to purchase electricity on behalf of its residents and businesses for distribution by the incumbent private electric utility. After five years of study, the Marin Energy Authority, a joint powers authority made up of the County of Marin and seven Marin cities and towns, was established in 2008 to meet the greenhouse gas reduction goals of Assembly Bill 32 by increasing significantly the amount of renewable energy consumed in Marin. The Authority commenced service to its first phase customers on May 7, 2010. The Impact of Proposition 16There is no doubt that Proposition 16 was designed not only to derail the Marin Energy Authority but also any other CCA from being established in California such as the proposed CCA program in San Francisco. This Proposition, however, has a much broader reach than CCA's. It prohibits any city from establishing its own electric utility without two-thirds voter approval and may severely impact the operations of all existing public electricity providers in the state. The purposeful ambiguity of the Proposition makes it impossible to conclude with any certainty how broadly the courts will interpret this initiative measure. The title that PG&E proposed for Proposition 16 was "The Taxpayers Right to Vote Act." Although PG&E continues to use this title in its advertising, the California Attorney General changed the official title to "New Two-Thirds Vote Requirement For Local Public Electricity Providers," as the measure has nothing to do with the approval of taxes. The Proposition amends the state Constitution and, if adopted, can be amended only by the voters. The Fine PrintProposition 16 states that its purpose is "to guarantee to ratepayers and taxpayers the right to vote any time a local government seeks to use public funds, public debt, bonds or liability, or taxes or other financing to start or expand electric delivery service to a new territory or new customers, or to implement a plan to become an aggregate electricity provider." The two-thirds voter approval requirement is imposed by Section 9.5(a) of the Proposition and states:
Public funds are defined broadly to include all types of revenues received by local government except for federal funds. On the other hand, subsection (h) provides two very limited exceptions to the voter approval requirements. The first exception is any indebtedness or use of public funds approved by a majority vote of the voters within the jurisdiction of the affected local government agency prior to the enactment of the Proposition. The second exception applies to any indebtedness or use of public funds incurred solely for the purpose of purchasing or providing renewable energy or for the local government's own end use and not for electric delivery service to others. The QuestionsFor the Marin Energy Authority, commencing electricity service before the adoption of the Proposition will avoid the voter approval requirement for becoming a CCA, but for others planning to implement a CCA program, the event that triggers becoming an aggregate electricity provider under the Proposition is unclear and subject to dispute. The particularly troubling part of the Proposition is its voter approval requirement for any expansion of service by existing public utilities and CCA's that could jeopardize the ability of these public electricity providers to continue to function. The definition of "expand electric delivery service" in subsection 9(d) states: "‘Expand electric delivery service' does not include (1) electric delivery service within the existing jurisdictional boundaries of a local government that is the sole electric delivery service provider within those boundaries, or (2) continuing to provide electric delivery service to customers already receiving electric delivery service from the local government prior to the enactment of this section." This definition is inherently ambiguous as it does not state what an expansion is, but rather defines the term by what it is not. There is no doubt that an expansion of territory will require voter approval. The question is whether voter approval will be required when the service boundaries remain the same, but the customers change. The answer to this question depends upon how the courts interpret the two exceptions. The ExceptionsThe first exception applies to electricity delivery service within the existing jurisdictional boundaries of a local government that is the sole provider within those boundaries. This exception seems to exclude existing publicly owned utilities from the voter approval requirements for an expansion of service within their jurisdictional boundaries if they are the exclusive local electric service provider. However, there may be circumstances that undermine this conclusion. For example, the presence of direct access providers within the jurisdiction of a public utility would appear to not make the utility the sole electric delivery service provider. The interpretation issue for a court under the second exception is whether the definition of "expand" includes all new customers not included within the customer base existing on the date of adoption. If the Proposition is interpreted literally and broadly to apply to any expansion of service beyond the customer base existing on the enactment date, the addition of one new customer will require voter approval. Not only will any new development within the service area of a public utility or CCA require voter approval, but so will the arrival of every new customer into the service area. This is a very harsh and punitive result. An established rule of statutory construction is that a law, including an initiative measure, will not be construed to create arbitrary, capricious or absurd results. California School Employees Association v. Governing Board of the Marin Community College District, 8 Cal.4th 333 (1994); Halberts Lumber, 6 Cal.App.4th 1233, 1236 (1992). In Halberts Lumber, the court stated: "[I]f possible, the words should be interpreted to make them workable and reasonable in accord with common sense and justice, and to avoid an absurd result." There is no doubt that the intent of the Proposition is to limit competition and any challenge to PG&E's monopolistic control over local electric power. The ambiguity of the Proposition will require the courts to divine the intent of the initiative. The California Supreme Court in Robert L. v. Superior Court, 30 Cal.4th 894, 900 (2003) stated: "… our task is simply to interpret and apply the initiative's language so as to effectuate the electorate's intent." The Court noted that the motive or purpose of the drafters of an initiative is not relevant to its construction as the court must discern the intent of the voters in adopting the initiative. If the voters' intent in adopting Proposition 16 is to gain greater control over the spending of public monies on establishing or expanding local power sources, it does not mean that the voters intended to cripple the on-going operations of local public utilities or CCA's by interpreting the word "expand" literally to apply to every new customer. Under these principles of statutory construction, if Proposition 16 is adopted, the courts should limit the voter approval requirement for expansions to the addition of new territory beyond the existing jurisdictional boundaries of a public electricity provider. To reach this result, however, the courts will be forced to override the literal language of the measure. The Challenge for the CourtsThe initiative power was added to the California Constitution in 1911 as part of the progressive movement to reform government and break the stranglehold that the state regulated Southern Pacific Railroad had over the state Legislature. Strauss v. Horton, 46 Cal.4th 364, 420-421 (2009); Associated Home Builders v. City of Livermore, 18 Cal.3d 582, 591 (1976). With the financial ability to dominate the media, unfortunately, the initiative power has evolved into a tool for special interests to protect their economic power. Although the Supreme Court has been reluctant to place limits on the initiative power (e.g., Rossi v. Brown, 9 Cal.4th 688 (1995)), the courts should not allow this power of the electorate to be used to impair the functioning of government in order to serve private economic interests. Although the court's role is not to question the wisdom of validly adopted legislation, the separation of powers doctrine does not mandate that the courts abdicate their responsibility to interpret the law in a manner that prevents unjust or absurd results. GREG STEPANICICH SERVES AS GENERAL COUNSEL TO THE MARIN ENERGY AUTHORITY. FOR ADVICE FROM RW&G ON PROPOSITION 16 OR LOCAL ENERGY PROGRAMS, PLEASE CONTACT GREG STEPANICICH OR ANY OF THE ATTORNEYS IN THE FIRM'S PUBLIC LAW DEPARTMENT
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