American Microsystems, Inc. v. City of Santa Clara

The question presented on appeal is whether the City of Santa Clara (City) was under a duty to pass through to its ratepayers certain savings in costs of purchasing electrical power. For the reasons hereafter discussed following our grant of rehearing, we again conclude no duty existed.

Facts

The City of Santa Clara owns and operates a municipal electrical utility. Although it has no electrical generating facilities of its own, it purchases wholesale electrical power from Pacific Gas & Electric Company (PG&E) and the Western Area Power Administration of the United States Department of Energy (WAPA); the electric power is sold and distributed to local businesses and homes over city-owned power lines.

The billing for retail power sales is based upon rates adopted by the city council. Since 1973, the rates charged to customers have included, in addition to the basic rate, a “fuel cost adjustment” (FCA) which reflects the changing fuel costs charged by PG&E in generating power without the necessity of further city council action.

Prior to 1971, the City received varying amounts of its power needs from WAPA. In 1971, however, WAPA began decreasing the supply of power…