Apple Valley Ranchos Water Co. v. County of San Bernardino

BURKE, J. Plaintiff water company appeals from (1) an order denying its motion to vacate findings and order of the board of supervisors of defendant county, which fixed the assessed valuation of plaintiff’s water distribution lines, and (2) an order refusing to set the matter for retrial. As will appear, plaintiff has failed to establish error in the proceedings below. The orders appealed from will accordingly be affirmed.

Plaintiff owns a water distribution system, including pipelines extending through land subdivided into some 9,000 building lots, of which only about 935 were occupied and served by plaintiff during the taxable years here involved (1958-1959; 1959-1960). For some reason, perhaps because of the physical distribution of the users’ homes, the entire pipeline system was in service. The lines had been installed by the subdivider at a cost to it of nearly 1.5 million dollars, and at a cost to plaintiff of an additional $78,320. In 1958 the assessed valuation of the pipelines and service connections as set by the assessor was $165,470, and in 1959 it was $167,780.1 Over plaintiff’s protests and requests for reduction for each of the two years, the board of supervisors upheld the valuations. Plaintiff then paid the taxes under protest, and brought this action to recover them.

As shown at the trial, the valuation method employed by the assessor was this: Historical cost of the pipelines was first established, and then reduced for depreciation at the rate of 2% percent per year; because of “low customer density” a “limited-use factor” of 50 percent was then applied to 80 percent of the depreciated cost and the resulting figure was added to the other 20 percent of depreciated cost to reach the appraised market value; to this market value the “equalization factor” of 25 percent was applied to produce the assessed valuation of the pipelines and service connections (see fn. 1, ante). The effect of applying the 50 percent “limited-use factor” to 80 percent of the depreciated cost was equivalent to reducing such cost by 40 percent.

The Public Utilities Commission (PUC) is authorized to fix plaintiff’s water rates, but had not yet done so. During the two years in question the rate at which plaintiff sold [872]water to consumers was substantially less than the rate charged by a comparable water company (Hesperia). In fixing rates, the PUC in practice allows as the rate base upon which the reasonable return to the company is to be computed, only that proportion of the cost of a system represented by the proportion of actual users to the total potential,- i.e., the PUC does not permit the imposition of an undue burden upon actual consumers in order to provide a return on cost of the entire system, nor (in fixing rates) does it allow as an operating cost the proportion of taxes paid on the value of that part of the total system not serving users.