I have requested that the matter of franchise taxes from utilities be placed on the City Council agenda for discussion and possible direction to staff to find out if Richmond is receiving the revenue it is due. I stumbled onto the murky world of franchises while looking for petroleum pipelines under our streets.

When an inquiry from a Richmond resident about petroleum product pipelines motivated me to ask the City for whatever information was on file about the location and use of such pipelines, I was told the information could not be made available to ordinary people on grounds of Homeland Security. See Secret Fuel Pipelines Crisscross Richmond, October 17, 2007.

Subsequently, I was informed by an E-FORUM reader that the information about pipeline locations was available from a government website, although not in exquisite detail. See Information Held Secret by City Available Online from Federal Government, October 17, 2007.

As a city councilman, I was eventually able to obtain from government sources the same GIS data the City had sequestered from me and any other person in Richmond. Had I not made a Public Records Act, request, I was told by City sources, I would have been given the more detailed information.

When I further requested, under the Public Records Act, any documents that supported the City’s assertion that the GIS data on the pipelines could not be publicly disclosed, it turned out there were none. I was told, “I am informed that the assurances of confidence were provided verbally.  The concerns about the potential threat to public safety were assessments made by City public safety staff, and were not made in written form.”

I am naturally suspicious of secrecy in the public realm, particularly at the local level. It often turns out that information deemed secret is usually readily available to an inquiring mind from other sources.

This led to my subsequent request for copies of the franchise agreements between the City and the companies that own those “secret” pipelines.

That turned up something even more disturbing. The City couldn’t readily find the franchise agreements, even though the City receives over $2 million annually from pipeline franchises, mostly from PG&E for gas pipelines. See table below:

According to the Finance Department, the City receives franchise taxes from three pipeline companies and PG&E (for gas). Only one pipeline franchise agreement has been located (Click here for a copy). It was originally executed with Union Oil Company, and transferred to Tosco with consent of the City Council in 1997. Incidentally, the agreement describes the location of the pipeline by the streets under which it passes, and if that’s not enough, you can go out and look for the signs that show exactly where it is. The signs are posted so that someone unaware of its existence won’t excavate and damage the pipeline. But we all know that terrorists aren’t very smart and wouldn’t be able to figure any of this out.

The Union Oil/Tosco franchise expired in 2002. The City has collected amounts ranging from around $10,000 to nearly $20,000 annually for pipeline franchises from Chevron, Kinder Morgan and Conoco Philips, but no one knows how these amounts are computed or if they are accurate.

According to information from the federal government, the owners of these three petroleum pipelines are:

• CHEVRON PIPE LINE CO   HES Department 4800 Fournace, Bellaire, TX 77401 Phone: 8775962800, Email: GarySaenz@chevron.com
• CONOCOPHILLIPS KEN CASEY (MANAGER, OPERATIONS SUPPORT ENGINEERING)   1000 S. PINE ST, ROOM 550-24 ST, PONCA CITY, OK 74604 Phone: 5807673663
  Fax: 5807675139, Email: K.M.CASEY@CONOCOPHILLIPS.COM
• SFPP, LP   CONTROL CENTER 1100 TOWN AND COUNTRY RD, ORANGE, CA 92868 Phone: 2136249461, Email: MCLANET@KINDERMORGAN.COM

The contact information for the PG&E gas pipelines is:

• PACIFIC GAS & ELECTRIC CO Robert Mulder (Gas Technical Specialist)   375 N. Wiget Lane Suite 200, Walnut Creek, CA 94598 Phone: 9259744290
  Email: rlmt@pge.com

The amount a city can collect in pipeline franchise taxes is governed by the California Utilities Code, Sections 6231-6235, which codifies the Broughton Act and the Franchise Act of 1937.

For Charter Cities (like Richmond), neither the Broughton Act nor the Franchise Act of 1937 appears to limit the amount cities may charge for utility franchises, except for oil pipeline fees (Source: League of California Cities, Municipal Revenue Sources Handbook, 2001 Edition). Other charter cities have been able to double franchise taxes on gas pipelines.

It may be prudent for the City of Richmond to audit all of its franchise opportunities to see if the City is collecting the revenue it is due or the revenue it could collect under new agreements. In 2003, the Grand Jury of Nevada County recommended an audit, which resulted in increased revenue. See http://court.co.nevada.ca.us/documents/gjreports/0304-FIN-FranchiseOperationsN.pdf. The Grand jury found that “The County accepts, without verification and on a good faith basis, the components used by the utilities in calculating the franchise fees.” That seems to be the same practice the City of Richmond follows.

I want to be clear that the City Attorney’s Office and the Finance Department has been helpful, cooperative and diligent in trying to locate the franchise tax information, and eventually it may come to pas that it is all there and in order. But it is also clear that the information is not readily available, even to those in City government who are responsible for administering it.

CALIFORNIA CODES

PUBLIC UTILITIES CODE

SECTION 6231-6235

6231.  An applicant for a franchise shall file with the legislative

body of the municipality in which the franchise is desired an

application stating all of the following:

   (a) The name of the applicant.

   (b) The purpose and term, whether definite or indeterminate, for

which the franchise is desired.

   (c) That the applicant if granted the franchise will pay to the

municipality during the life of the franchise 2 percent of the

applicant's gross annual receipts arising from the use, operation, or

possession of the franchise, except that this payment shall be not

less than 1 percent of the applicant's gross annual receipts derived

from the sale within the limits of the municipality of the utility

service for which the franchise is awarded.  If the application is

for a franchise complementary to a franchise derived under Section 19

of Article XI of the California Constitution as that section existed

prior to its amendment on October 10, 1911, then the applicant shall

pay annually, if the application is for an electric franchise, 2

percent of the applicant's gross annual receipts arising from the

use, operation, or possession of the franchise, except that this

payment shall be not less than one-half of 1 percent of the applicant'

s gross annual receipts from the sale of electricity within the

limits of the municipality under both the electric franchises; or, if

the application is for a gas, oil pipeline, or water franchise, 2

percent of the applicant's gross annual receipts arising from the

use, operation, or possession of the franchise, except that this

payment shall be not less than 1 percent of the gross annual receipts

from the sale of gas or water within the limits of the municipality

under both the gas franchises or both the water franchises.

   Notwithstanding any other provision of this section, if the

application is for a franchise for a nonpublic utility pipeline for

industrial gas or oil or products thereof, the application shall

state that the applicant, if granted the franchise, will pay to the

municipality during the life of the franchise either a specified

percentage agreed to by the applicant and the municipality of the

gross annual receipts of the applicant arising from the use,

operation, or possession of the franchise or an annual franchise fee

in an amount agreed to by the applicant and the municipality or an

annual franchise fee computed by multiplying the sum of one-half cent

($0.005) times the nominal internal diameter of the pipe, expressed

in inches, times the number of lineal feet of the pipe within the

public streets, ways, alleys, or other public places within the

municipality.

6231.5.  (a) An applicant for a franchise to build and operate a

pipeline system transmitting oil or products thereof shall file with

the legislative body of the municipality in which the franchise is

desired an application stating all of the following:

   (1) The name of the applicant.

   (2) The purpose and term, whether definite or indeterminate, for

which the franchise is desired.

   (3) That the applicant, if granted the franchise, permit, license,

or other privilege, will pay to the municipality an annual fee

computed as follows:

   The length of pipe expressed in feet located within the franchised

area shall be multiplied by the applicable base rate, as adjusted

pursuant to subdivision (d), in accordance with the following

schedule:

          Pipe size (internal                 Base rate per

          diameter in inches)                  lineal foot

                 0-4  .........................   $0.088

                   6  .........................    0.132

                   8  .........................    0.176

                  10  .........................    0.220

                  12  .........................    0.264

                  14  .........................    0.308

                  16  .........................    0.352

                  18  .........................    0.396

                  20  .........................    0.440

                  22  .........................    0.484

                  24  .........................    0.528

                  26  .........................    0.572

                  28  .........................    0.616

                  30  .........................    0.660

   For pipelines with an internal diameter not listed above, the fees

shall be in the same proportion to the fees of a 12-inch-diameter

pipe as the diameter of the unlisted pipe is to 12 inches.

   (b) The annual payment for each lineal foot of pipeline shall be

computed and revised each calendar year as follows:

   (1) The applicable base rate shall be multiplied by the Consumer

Price Index for the area, as published by the United States

Department of Labor, Office of Information for the month of September

immediately preceding the month in which payment is due and payable,

and divided by the Consumer Price Index for June 30, 1989, which is

declared to be 100.0.  Under no circumstances shall the multiplying

factor be less than one.

   (2) If the United States Department of Labor, Office of

Information discontinues the preparation or publication of a Consumer

Price Index for the area, and if no translation table prepared by

the Department of Labor is available so as to make those statistics

which are then available applicable to the index of June 30, 1989,

the municipality shall prescribe a rate of payment which shall, in

its judgment, vary from the rates specified in this section in

approximate proportion as commodity consumer prices then current vary

from commodity consumer prices current in December 1988.  On this

point, the determination by the municipality shall be final and

conclusive.

   (c) No fee paid to any municipality pursuant to a franchise,

permit, license, or other privilege issued under an ordinance which

is in effect on September 1, 1989, which exceeds the fee computed

under this section shall be reduced.  On or after January 1, 1990, a

municipality may collect an additional amount which represents the

percentage increase in the Consumer Price Index for the area during

the preceding calendar year applied to that fee.  The formula used in

arriving at that fee shall be applicable to any replacement,

modification, or extension of the pipeline.  Upon expiration of a

franchise, permit, license, or other privilege, the municipality may

renew or extend the franchise, permit, license, or other privilege,

using the local formula contained in an ordinance which is in effect

on September 1, 1989.  However, the fee shall not exceed the greater

of the fee actually paid on September 1, 1989, or the fee computed

pursuant to this section.

   (d) Notwithstanding any other provision of law, until January 1,

1990, a municipality which is involved in eminent domain proceedings

in which a court order for possession has been issued relating to an

easement for a pipeline system transmitting oil or products thereof

may adopt an ordinance setting its fee without following the

provisions of this section.  Upon expiration of the ordinance, the

municipality may renew or extend the franchise, license, permit, or

other privilege, utilizing the local formula in effect on January 1,

1990, or the fee computed pursuant to this section, whichever is

greater.

   (e) Notwithstanding any other provision of this section, if the

application is for a franchise for a nonpublic utility pipeline for

industrial gas or oil or products thereof, the application shall

state that the applicant, if granted the franchise, will pay to the

municipality during the life of the franchise either of the

following:

   (1) A specified percentage agreed to by the applicant and the

municipality of the gross annual receipts of the applicant arising

from the use, operation, or possession of the franchise.

   (2) An annual franchise fee in an amount agreed to by the

applicant and the municipality, or an annual franchise fee computed

by multiplying the sum of one-half of the nominal internal diameter

of the pipe, expressed in inches, by the number of lineal feet of the

pipe within the public streets, ways, alleys, or other public places

within the municipality.

   (f) Any nonpublic utility pipeline system transmitting oil or

products thereof covered by subdivision (e) on December 31, 1989,

that converts to public utility status shall continue to pay the fee

established pursuant to subdivision (e) for the remaining term of its

franchise, license, permit, or other privilege.  Upon expiration of

its franchise, license, permit, or other privilege, a nonpublic

utility pipeline system transmitting oil or products thereof that has

converted or seeks to convert to public utility status shall

establish to the satisfaction of the franchising authority all of the

following:

   (1) Its property is dedicated to the service of the public.

   (2) Its rates for transportation are established pursuant to

tariffs filed with the Public Utilities Commission.

   (3) Its accounts and records are established pursuant to rules and

regulations adopted by the commission.

   (4) It has filed an appropriate annual report with the commission.

   (5) Its rates for transportation are just, reasonable, and

nondiscriminatory, as evidenced either by an order of the commission

approving those rates, or an application for approval of its rates

that is pending with the commission.

6232.  Upon receipt of the application the legislative body of the

municipality may pass its resolution declaring its intention to grant

the franchise applied for, stating the character of the franchise,

setting forth a notice of the day, hour, and place when and where all

persons having any objection to the granting thereof may appear

before the legislative body and be heard thereon, and directing the

clerk of the legislative body to publish the notice at least once

within fifteen (15) days after the passage of the resolution in a

newspaper of general circulation within the municipality.

   The time fixed for the hearing shall be not less than twenty (20)

nor more than sixty (60) days after the date of the passage of the

resolution.

6233.  The notice of the time and place of hearing objections shall

state that the grantee of the franchise and its successors and

assigns will, during the life of its franchise, pay to the

municipality the percentage specified in its application, that the

percentage will be paid annually from the date of the granting of the

franchise, and in the event such payment is not made the franchise

will be forfeited.  The notice shall also designate the term, whether

definite or indeterminate, for which the franchise is proposed to be

granted.

6234.  At any time not later than the hour set for the hearing of

objections, any person interested may make written protest stating

objections against the granting of the franchise.  The protest shall

be signed by the protestant and be delivered to the clerk of the

legislative body.  At the time set for hearing objections the

legislative body shall proceed to hear and pass upon all protests so

made and its decision shall be final and conclusive, subject to the

right of referendum of the people.  The legislative body may adjourn

the hearing from time to time.

   If no protest in writing is delivered to the clerk up to the hour

set for hearing, or such protests as are filed have been heard and

determined by the legislative body to be insufficient, or have been

overruled or denied, the legislative body may grant the franchise.

The franchise shall be granted by ordinance adopted in the manner

prescribed by law for the enactment of ordinances by the granting

body.

6235.  A franchise granted under this chapter does not become

effective until the grantee files written acceptance thereof with the

clerk of the granting municipality.  When so filed the acceptance

constitutes a continuing agreement by the grantee that if and when

the granting municipality thereafter annexes, or consolidates with,

additional territory, all franchises, rights and privileges owned by

the grantee therein, except a franchise derived under Section 19 of

Article XI of the Constitution as that section existed prior to the

amendment thereof adopted October 10, 1911, shall be deemed abandoned

within the limits of the additional territory.