Cost Accounting in Local Government

Charging a Utility Encroachment Permit

Every so often I’ll hear about Edison or the Gas Company telling a City that they cannot be charged an encroachment permit to plan check and inspect a street cut under the franchise agreement.  They will then hope that you blink and reduce or eliminate the fee.

But recently, I was told that they cited two court cases in their desire to eliminate these fees.  The two cases are related and one case cites the other case. The cases are So Cal Gas and So Cal Edison v. the City of Alhambra in district court in 2011 and Southern California Gas v. City of Santa Ana in the Court of Appeals in 2003.  They both deal with the same issue and the Alhambra case relies on the Santa Ana case in its opinion, so I’ll focus on the Santa Ana case here.

The issue in this case is whether the City can charge a fee “that required advance payment by anyone who wished to perform excavations or trench cuts.”  The utility argued that this type of fee for just accessing the street to recover the reduced life of the street due to the cuts was not allowed by the franchise agreement, as this fee deprived it of rights under the contracts clause.  The court agreed with the utility that this did impair their rights under the contract clause.

But the important distinction here is that the fee being challenged was not the permit fee.  The court opinion provides the detail needed to see the difference:

“While trench cut fees are imposed incident to obtaining a permit, Santa Ana does not claim such fees are based on the cost of providing the permit.  Instead the fees are designed to compensate Santa Ana for the ‘unavoidable’ loss of useful life caused by trench cuts and the additional costs incurred in repaving trenched streets.”

In short, if the fee is to recover the cost of providing plan check and inspection services, it is allowed under Article XIIIB of the State Constitution (Prop 4).  If it is recovering the cost of future street replacement or maintenance based on a nebulous calculation of the damage caused by a trench cut, it is probably covered by the Franchise agreement and most likely not allowed.

So if Edison or the Gas Company tries to tell you that you cannot charge them Plan Check and Inspection Encroachment Permit fees, make sure that your City Attorney understands the distinction between these two different types of fees.

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