City to Appeal Decision in Green v. City of Palo Alto

Published on September 24, 2021

Media Statement


PALO ALTO, CA – On Monday, September 20, the City Council voted to appeal the trial court’s decision in Green v. City of Palo Alto (Santa Clara Superior Court Case No. 16CV300760), a class action lawsuit which challenges the City’s gas and electric rates under Proposition 26, one of many such cases following a 2015 decision involving the City of Redding. 

In Green, the trial court judge found the City’s electric rates valid, but that the City’s gas rates were taxes requiring voter approval under California’s Proposition 26, because they were set at a level sufficient to fund an annual transfer of approximately $7 million to the City’s general fund. The Court was unpersuaded by the City’s argument that its voters did approve the transfer when they amended the City Charter to authorize it. Plaintiffs also challenged the City’s practice of charging its utilities rent for their use of City property, like space in parks for utility infrastructure, akin to fees investor-owned utilities pay to use public rights-of-way.  Although Proposition 26 was approved in 2010, the California Supreme Court did not apply it in an electric utility case until 2018 and it has never before been applied to a municipal gas utility.  Significant open questions about the measure remain to be answered by the courts.
The results of this lawsuit will have important implications for Palo Alto, as well as for other municipal utilities and cities in California.  The Council therefore authorized an appeal to seek guidance from the Court of Appeal on these novel legal questions. The City is also exploring a ballot measure to seek voter approval or modification of the City’s general fund transfer so City voters can have the final word on how they want to finance City services, and at what level.

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