Class Action: Los Angeles Overcharges $250M Per Year for Electric Fees

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The city of Los Angeles was hit with a class action lawsuit by a resident who claims that the city tries to pass off taxes as fees on electricity bills to the tune of $1.3 billion in a five year period.

Plaintiff Patrick Eck lives in Los Angeles and says that the Los Angeles Department of Water and Power (LADWP) is charging excess electric fees, which are only supposed to be imposed “by a vote of the electorate,” according the state’s constitution.

Eck claims he and other Los Angeles residents are overcharged taxes by eight percent, which he says the city is doing by disguising the additional taxes as fees. However, the Los Angeles man alleges that the fees do not go toward paying for electricity, which is what is required under California’s Constitution, but instead it goes into the LADWP’s reserve fund.

“The tax is embedded into each customer’s monthly electric utility fee, leaving customers no choice but to pay the tax or face collection or loss of service,” the class action lawsuit filed against Los Angeles says.

California voters amended the state’s constitution in 2010 with Proposition 26, which requires all government entities to make sure that all fees charged to customers are for the purpose of paying for the services they are being charged for, and they cannot be used for another purpose, unless the residents approve such taxes or fees by a vote.

The California Constitution was amended to expand “‘the definition of ‘tax’ to include any levy, charge, or exaction of any kind imposed by a local government.'”

One of the seven exceptions allowed is if the “tax” is charged “for a specific government service,” however, Eck says that the alleged tax is put into a reserve fund “which in turn is used to benefit the City’s General Fund.”

According to Eck, the whole purpose behind Proposition 26 is preventing government entities from using things such as utilities to pay for other projects. This is considered an unlawful tax, which must be approved by two-thirds of the electorate as required by California law.

However, according to the Los Angeles tax class action lawsuit, the city has transferred about $250 million per year from 2011 through 2015 “to transfer from its Power Fund to its Reserve Fund.”

He says the amount to be transferred was decided “by multiplying the prior fiscal year’s gross electric utility fee revenues by eight percent.”

The class action lawsuit explains that “in order to fund these transfers, the LADWP includes in its rare structure, fees and charges that exceed the costs providing electric utility service. This results in an approximate eight percent overcharge to LADWP.”

According to the class action lawsuit, this practice was started as part of a city ordinance, which is passed “each year” to approve the transfer of the funds.

Eck wants the alleged tax to be voted on by California residents and for the $1.3 billion to be returned to the consumers who were overcharged.

There are about 3.8 million people who buy electricity from the LADWP, which is the largest city utility in the country.

Eck is represented by Vincent D. Slavens of Krause Kalfayan Benink & Slavens LLP.

Counsel information for the LADWP is not yet available.

The Los Angeles Electricity Tax Class Action Lawsuit is Eck v. City of Los Angeles, Case No. BC577028, in the Superior Court of the State of California, County of Los Angeles.

UPDATE: October 2017, the Los Angeles electricity surcharge class action settlement is now open. Click here to learn more.