Southern California Edison improperly billed customers in Torrance, depriving the South Bay’s largest city – and potentially dozens of others in Southern California – of revenue from special taxes on utility companies, a state appeals court has ruled.

Hundreds of millions of dollars could be at stake statewide as well, the attorney representing Torrance said, with 104 cities and counties having similar voter-approved taxes that utilities across California may have also incorrectly calculated.

But collecting the money could prove problematic. That’s because while the three-judge state appeals panel unanimously overturned an initial Los Angeles Superior Court decision – which ruled SCE had properly calculated the taxes – it also said Torrance must collect the lost revenue from customers, not the utility company.

A spokesman for SCE declined to say whether the company would appeal to the state Supreme Court, but did say Edison remained committed to protecting customers from “unnecessary costs.”

At the heart of the issue is a tax called a utility user fee and a state rebate utilities receive for having energy conservation programs.

Utility user fees go to the city or county whose voters have approved such taxes. Utility companies, though, calculate the taxes based on a customer’s energy consumption. Besides Torrance, San Bernardino, Seal Beach, Sierra Madre, South Pasadena, Paramount, Pomona, and Westminster are among the Southern California cities with utility user fees.

The utility rebates, meanwhile, get passed onto ratepayers in the form of lower utility bills.

In 2013, SCE received regulatory approval to calculate utility user fees after applying the rebate – rather than before — reducing the amount of taxes local governments receive.

For typical customers, that amounts to two or three dollars a month, making it difficult for agencies to quickly catch the reduction, said Michael Colantuono, whose Pasadena law firm, Colantuono, Highsmith & Watley, is representing Torrance.

That was until 2018, when Eric Tsao, the now-retired Torrance finance director, noticed the reduction in his city. Torrance demanded repayment, was rebuffed by Edison and filed suit the following year.

For Torrance, which has several companies that consume massive amounts of energy, the total reduction in revenue was significant.

Torrance, for example, has already sought to recoup the lost revenue from its four largest electricity users, with some success.

ExxonMobil, the former owner of the Torrance Refinery, the biggest user of electricity in the city, recently wired a check for $433,710, Colantuono said, and a company that supplies industrial gases paid about $17,000.

And, in general, utility user fees can be an important part of local budgets statewide. Take, for example, Whittier, which is part of a coalition involved in a separate SCE lawsuit. Utility user taxes there – not just electricity — are estimated to be $6.8 million for the current fiscal year, said Assistant City Manager Shannon DeLong.

“The UUT,” DeLong said, “helps to fund parks, safety and essential services to residents, businesses and property owners in Whittier.”

Colantuono, for his part, has filed two separate lawsuits — against SCE, and Pacific Gas and Electric — on behalf of a coalition of cities and counties in those companies’ service areas, based on the Torrance lawsuit. The second Edison lawsuit includes a coalition of more than 40 cities, most from Southern California. That coalition includes Carson, Gardena, Hermosa Beach, Lawndale and Whittier.

But those suits are on hold, pending a final resolution in the Torrance case.

Local governments, however, may face challenges to recouping the money — even if they ultimately prevail in court.

That’s because, under the appellate ruling in the Torrance case, they may have to get the money from customers. The potential underpayment also dates back several years and typical customers wouldn’t know they didn’t pay enough in taxes, Colantuono said.

“It’s not going to be practical or perhaps politically wise to go chase small amounts from every electricity user,” he said. “You don’t go chase $25 with a lawyer.”

Torrance, for example, has yet to determine how it will try to get the unpaid portion of taxes from all of its energy consumers.

And it’s too early for other cities to say what they will do as well.

Hermosa Beach’s city attorney, for example, said that while the coastal town is staying up-to-date on the litigation, the City Council will ultimately have to decide on the next steps.

DeLong, in Whittier, said the same – though she added that the Torrance decision was crucial.

“Having this clarity from the court on the proper collection of the UUT,” she said, “is important moving forward.”

Colantuono, meanwhile, seemed to focus more on the largest energy consumers, who benefit most from the tax reduction.

“This scheme costs Edison nothing,” he said, “and allows it to reward its largest customers and to subsidize the price of its service, encouraging more power use in a state trying to conserve.”

Edison spokesman David Song, though, pushed back on that notion.

The utility company will continue ensuring “climate credits” – in other words, the rebates – get distributed to “customers in a fair and equitable manner,” he said.

“The company is committed to protecting its customers,” Song said, “from unnecessary costs that detract from the state’s goal to reduce harmful carbon emissions and a transition to a clean energy future.”

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