TRAYNOR, J. This appeal involves the same basic problems as those presented in City of San Diego v. Southern Calif. Tel. Corp., ante, p. 110 [266 P.2d 14],
Defendant is a public utility engaged in purchasing and selling illuminating gas. It produces a small amount of the gas it sells. Its system is an integrated one and extends through six counties, including the County of Los Angeles. It holds franchises granted by these counties and many cities therein. By this action for declaratory relief and an accounting, plaintiff seeks a judgment establishing the basis on which [132]defendant must compute the amount due for four franchises granted it by plaintiff to lay its pipes in the public roads, streets, and highways in the county. Bach franchise was granted by a separate ordinance pursuant to the Broughton Act. (Stats. 1905, p. 777, now Pub. Util. Code, §§ 6001-6071.) Section 3 of that act fixes the amount that must be paid for the franchises at “two per cent (2%) of the gross annual receipts of the person, partnership or corporation" to whom the franchise is awarded, arising from its use, operation or possession.” Bach ordinance contains substantially the same provision.1 Defendant filed statements and made payments for the years 1936-1939, which plaintiff claims were incorrect. Although this case is based on statements and figures for 1939, it will control all payments due from 1936 to the termination of each franchise. There is no dispute as to the figures in the accounting processes or what they- represent and no dispute as to the end result for the other years once it is determined which of the accounting methods is correct. The trial court made findings and entered judgment sustaining defendant’s computations and return of the amount due. Plaintiff appeals, contending that the judgment is not in accord with section 3 of the Broughton Act as construed by this court in County of Tulare v. City of Dinuba (1922), 188 Cal. 664 [206 P. 983].
Defendant made the following computation of the amount due plaintiff for 1939, the year selected by the parties for presenting the issues:
Prom its total capital, $31,216,087.13, defendant deducted its intangibles, $152,351.98, leaving $31,063,735.15 as its total investment in operative property, i. e., property used and useful in purchasing, producing, and distributing gas. It then segregated the amount invested in property not on rights of way, public or private, $9,955,707.06, and the amount invested in facilities on all rights of way, public and private, $21,108,028.09. Defendant then divided its total gross receipts, $9,620,838.45, by its total investment in operative property, $31,063,735.15, which gave $0.309713 of gross receipts per dollar invested. The amount invested in operative property on all rights of way, public and private, $21,108,-[133028].09, was then multiplied by $0.309713, which gave a total of $6,537,430.70 as the gross receipts arising from the use of rights of way. Defendant then prorated this amount between public and private rights of way on a mileage basis. Defendant uses 3,249.225 miles of rights of way; 2,969.673 miles thereof, or 91.3963 per cent, are public rights of way. The amount of gross receipts attributable to all rights of way, $6,537,430.70, was then multiplied by 91.3963 per cent, the percentage of miles of right of way subject to franchises, which gave $5,974,969.77 as the amount of gross receipts attributable to such rights of way. Of the 2,969.673 miles of such rights of way, 456.829 miles or 15.3831 per cent are public rights of way in Los Angeles County. Multiplying $5,974,969.77 by 15.3831 per cent gave $919,135.57 as the gross receipts arising from the use of the franchises granted by plaintiff. Two per cent of that amount is $18,382.60, the charge for 1939 for the use of such franchises.
The foregoing computations were based on the following principles, which defendant maintains, and which we agree (see City of San Diego v. Southern Cal. Tel. Corp., ante, p. 110 [266 P.2d 14]), are in accord with the principles enunciated or implicit in the opinion of this court in the Tulare case:
1. Defendant’s gross receipts arise from all of its operative property, whether or not such property is located on rights of way, public or private, or on land owned or leased by it or on land owned by others.
2. Defendant’s operative property consists of various kinds of real and personal property, including land leased or owned, compressor stations and equipment, meter stations and equipment, regulator stations and equipment, gas production equipment, pipe lines, valves, general office buildings, warehouses, transportation equipment, laboratory equipment, etc. Pipe lines and appurtenances on public and private rights of way are but a component part of defendant’s over-all system.
3. Since the 2 per cent charge applies only to gross receipts arising from the use of the franchises, gross receipts arising from operative property other than franchises must be excluded from the base to which the 2 per cent charge applies.
4. As in rate making, there is a relationship between the value of the property and the amount it earns; the dollars invested in the property produce the dollars that form the gross receipts. Since every dollar invested in operative prop[134]erty earns an equal part of the gross receipts, gross receipts are attributed to' a particular item or class of operative property according to the dollars invested in it. Moreover, the factors in the proration must be measured in the same terms, and since the gross receipts are measured in dollars, the property giving rise to them must be measured in dollars. (City of San Diego v. Southern Cal. Tel. Corp., ante, p. 110 [266 P.2d 14].) Although this court’s opinion in the Tulare case did not specify how the gross receipts were to be apportioned between the property on various rights of way and other property, the method here described is the only feasible method of making that apportionment and was used on the retrial of the Tulare case (87 Cal.App. 744, 745-746). It is fair, practical, readily understood, and easily verified.
5. Gross receipts that arise from the use of the franchises are the gross receipts attributable to that part of the property using the public rights of way pursuant to the franchises.
6. Gross receipts attributable to the various rights of way are apportioned between public and private rights of way according to mileage, “not necessarily as an exclusive method, ’ ’ but as a practicable one, as suggested in the Tulare ease. (188 Cal. 664, 681.) Defendant could have made this apportionment according to the amounts invested in rights of way as in (4) above (City of San Diego v. Southern Cal. Tel. Corp., ante, pp. 110, 122, 125-126 [266 P.2d 14]), but plaintiff raises no question as to this method of apportioning gross receipts between rights of way and, in fact, adopts it in its own computations.
Plaintiff contends that in arriving at the base to which the 2 per cent charge applies, defendant and the trial court erred in deducting all gross receipts attributable to (1) its office and other general facilities; (2) the part of its distribution system on private property owned by consumers and not under lease by defendant; (3) the part of its distribution system on private property owned or leased by defendant. Since this contention would not permit the allocation of any of defendant’s gross receipts to the- foregoing classes of property, it necessarily involves a repudiation of the principle that defendant’s gross receipts arise from all of its operative property and that gross receipts arising from all operative property other than franchises must be excluded from the base on which the 2 per cent charge is computed.
[135]Plaintiff would justify this repudiation on the grounds that the Tulare case decided that the total gross receipts of a public utility can only be divided into two categories: (1) that which is credited to its distribution system and (2) that which is credited to its production system; that the gross receipts attributable to its distribution system constitutes the fund from which the 2 per cent charge shall be ascertained; that the only gross receipts of defendant from its operative property that can be attributed to its production system and therefore excluded from the fund from which the 2 per cent charge is ascertained is the $134,111.96 investment in facilities for manufacturing the small amount of gas it produces and does not buy from others; and that the only gross receipts of defendant attributable to its distribution system that are not subject to the 2 per cent charge are the gross receipts attributable to the use of private rights of way. In support of this contention, plaintiff cites the following language from the Tulare case:
“The gross receipts of this defendant accrue from two distinct agencies. One is the generating plants or powerhouses of the company, located in three separate counties; the other is the distributing system. . . . The first step in this accounting should be to determine as a question of fact what proportion of the total annual gross receipts of the public utility should be justly credited to its distribution system over various rights of way, as distinguished from its power plants or other producing agencies.” (188 Cal. 673, 681.)
This language, however, must be read in the light of the conclusions this court had reached as a basis for the steps in the accounting. Among these conclusions were: “The corporation’s gross receipts, to refer to the language of the Act arise from the ‘use, operation or possession’ not alone of these franchises over the streets and highways, but likewise from the use, operation, or possession of the powerhouses and private rights of way. The two last named are not subject to any franchise charges and the county or municipality is not entitled under the law to any part of the gross receipts attributable to these privately owned parts of the system.” (188 Cal. 673-674.) It should be noted that the reason for the conclusion that the county or municipality was not entitled to any part of the gross receipts attributable to powerhouses and private rights of way, was that the company’s gross receipts arise, not alone from the “use . . .” [136]of the franchise, but from the use of powerhouses and private rights of way, which are not subject to any franchise charges. It is clear from the opinion in the Tulare case that the principle that this court there enunciated was that the county was not entitled to any part of the gross receipts from utility property not subject to franchise charges. The gross receipts attributable to generating plants, powerhouses, and private rights of way were excluded, not because the court regarded them as the only source of gross receipts other than the use of franchises, but because they were privately owned parts of the system not subject to any franchise charges. (See, also, City of San Diego v. Southern Cal. Tel. Corp., ante; City of Monrovia v. Southern Counties Gas Co., 111 Cal.App. 659 [296 P. 117] ; Ocean Park Pier Amusement Corp. v. Santa Monica, 40 Cal.App.2d 76 [104 P.2d 668, 879].) ‘Since that reason applies with equal force to all operative property of the company not subject to any franchise charges, it cannot reasonably be implied' that this court meant that only operative property of the kind mentioned contributes to gross receipts. That such an implication is absurd is apparent from the statement, “The absurdity of the position that any integral part of an electric distributing system like this is entitled to credit for the whole of the earnings from deliveries and sales in a given county or municipality when a large part of such service is over parts of the system not subject to such franchise permit may be shown by various illustrations.” (188 Cal. 674.) Operative property other than generating plants, powerhouses, and the distributing system consisting of poles and wires, are just as much an integral part of an electric or gas system as generating plants, powerhouses and private rights of way. Office buildings to house engineers and executive and administrative staff, warehouses, transportation equipment, communication equipment, meter devices, laboratory equipment and other facilities are all essential to an electric or gas company’s operations and all contribute to its gross receipts. If it is absurd to say that any integral part of such a system is entitled to credit for the whole of its gross receipts, it is equally absurd to say that any number less than the whole is so entitled.
Plaintiff’s contention is based on the erroneous conclusion that in the Tulare case this court regarded all property of a public utility other than generating plants and powerhouses as part of its distributing system. This court was there concerned, not with labels or a division of the [137]property into producing system and distributing system, but with property that was and property that was not subject to any franchise charge. The arbitrary classification of land, office buildings, warehouses, garages, construction equipment, automotive equipment, laboratory and other equipment as entirely part of the distribution system rather than as part of the production system or as part of both production and distribution systems or as “other [revenue] producing agencies” (188 Cal. 664, 681), would not only be unreasonable but pointless. Even if all of the property other than generating plants and powerhouses could reasonably be regarded as entirely part of the utility’s distribution system, it would not follow that gross receipts attributable thereto should be included in the fund to which the 2 per cent charge applies. Thus, property in private rights of way is admittedly part of the distribution system. Yet this court in the Tulare case made it abundantly clear that gross receipts attributable to such property were not subject to the 2 per cent charge, since such property was “not subject to any franchise charges.” For the same reason gross receipts from any other parts of the distribution system that are not subject to franchise charges are not subject to the 2 per cent charge.
Plaintiff does not quarrel with the capital investment method as such for allocating gross receipts to a particular item or class of operative property in it. In fact, it uses that method itself in its own apportionment between production and distribution. Plaintiff contends that although this method is “plausible” and “entirely correct,” there is no occasion to use it as defendant uses it and that unless it is limited to the use plaintiff makes of it to apportion gross receipts between production and distribution, defendant will get a double deduction for the same purpose: (1) the deduction taken by the proration on a mileage basis for gross receipts attributable to private rights of way and (2) the deduction taken, before the proration on a mileage basis, for operative property not located on rights of way. This contention assumes the validity of the distinction, discussed at length above, that plaintiff would make between production and distribution and the conclusions it would draw therefrom, and is simply another way of asserting that only gross receipts attributable to generating plants and private rights of way can be excluded from the base to which the 2 per cent charge applies. There is no double deduction for the same purpose. [138]Gross receipts attributable to private rights of way and gross receipts attributable to private property not located on rights of way are separately excluded from the base to which the 2 per cent charge applies, without duplication, or overlapping, and for the same reason—they arise from property not subject to any franchise charges.
Plaintiff would also justify its repudiation of the principle that defendant’s gross receipts arise from all of its operative property and that gross receipts arising from all operative property other than franchises must be excluded from the base on which the 2 per cent charge is computed, on the following theory: The Broughton Act allows the utility to retain 98 per cent of its total gross receipts as the percentage applicable to its private property and requires it to pay to cities and counties 2 per cent of its gross receipts (less those attributable to private rights of way) for the use of public property; if it were allowed to take any more of its gross receipts as applicable to its private property, it would get a double deduction: (1) the amount so taken and (2) the 98 per cent it is allowed to retain. This theory ignores the limitation in the Broughton Act that the 2 per cent charge applies, not to defendant’s total gross receipts, but only to its gross receipts “arising from the use” of the franchise. Thus, by its express terms the Broughton Act allows the utility to retain not only 98 per cent but 100 per cent of its gross receipts from its private property not subject to franchise charges, as well as 98 per cent of its gross receipts arising from the use of the franchises. It is not 2 per cent of its total gross receipts but only 2 per cent of its gross receipts “arising from the use” of the franchises that is exacted as a payment for the use of such franchises. The foregoing theory of plaintiff’s is simply a slight modification, purportedly made in obedience to the Tulare case, of another contention. suggested by it that the Tulare ease should be disregarded and that there should be only a proration of the entire gross receipts between rights of way on a mileage basis.2 As we have pointed out at some length above, and [139]in City of San Diego v. Southern Cal. Tel. Corp., ante, pp. 110, 124 [266 P.2d 14], that is not what the statute provides. There is no more justification for prorating the total gross receipts between rights of way than there would be for attributing the total gross receipts to each franchise used and requiring the utility to pay 2 per cent of its total gross receipts to each of the numerous cities and counties granting the franchises.
The judgment is affirmed.
Gibson, C. J., Shenk, J., Edmonds, J., Sehauer, J., and Spence, J., concurred.
Ordinance 500 (New Series) is typical. It provides: “. . . the said grantee and Ms or its successors or assigns shall, during the life of said franchise, pay to the county of Los Angeles . . . two per cent (2%) of the gross annual receipts of such grantee, and his or its successors- or assigns, arising from the use, operation or possession of said franchise.”
In advancing this contention plaintiff makes the specious argument that gross receipts means all receipts without deduction and that there is no more justification for deducting a cent from gross receipts than there would be to deduct manufacturing costs from the retail price of gas appliances in computing a sales tax based on gross receipts. There is no deduction here of manufacturing costs, cost of gas, costs of operation or other costs. Gross receipts that are attributed to the use of franchises and to other operative property are still gross receipts. There [139]is no deduction from gross receipts but a proration of gross receipts between property that is subject to franchise charges and property that is not, just as there is no deduction from gross receipts in plaintiff’s proration of gross receipts between rights of way. Plaintiff’s argument would necessarily lead to the conclusion that there can be no proration of gross receipts, even between rights of way, and that for every franchise granted by each county and city, defendant must pay 2 per cent of its total gross receipts.