A planned 130-mile-long pipeline that will carry crude oil to South Bay refineries may also bring cash to city coffers.
Several South Bay cities have been re-examining their methods of charging oil companies for running pipes beneath their streets since a group of four oil companies announced the pipeline plans on July 26. The line will run 130 miles from Santa Barbara oil fields south to Long Beach, passing through the South Bay cities of Carson, El Segundo, Gardena, Hawthorne, Lawndale and Manhattan Beach.
Depending on what formulas the various cities use, the oil companies could end up paying hundreds of thousands of dollars per year to each city.
To run pipes beneath city streets, companies have to pay what is known as a "franchise fee." Until the past few years, fees generally have been nominal, usually just enough to cover a city's administrative costs. Most cities used formulas developed in the 1940s and refined in the 1960s that do not consider land value and instead charge a small percentage of the company's gross receipts from the pipeline, or an amount based on the pipe's length and width. Under those formulas, annual fees ranged from a few hundred dollars to a few thousand.
But philosophical differences have arisen over whether the fees should simply cover city costs or provide revenue.
Some officials, such as Torrance City Atty. Stanley Remelmeyer, say cities should consider surface land value in determining how much to charge companies. On the opposite side of the issue, a Mobil official says streets already have been dedicated to public use and cannot be used by cities to generate revenue.
The Torrance City Council took a middle path last week when it renewed Mobil Oil Co.'s 40-year-old franchise for a 10-inch pipeline connected to Mobil's Torrance refinery. The council adopted a formula, developed in Carson and Long Beach, which assigns a minimal value to the land under which the pipes are buried and considers the length and width of the pipes. Mobil's annual fee will increase from $169 to $6,054 for the next 25 years, adjusted annually for inflation.
Remelmeyer proposed a system that assigned higher value to the land and would increase Mobil's annual fee to $14,585 for the 10,366-foot, 10-inch-wide pipe.
Carson is expected to use the Carson-Long Beach formula for the new pipeline, a city official said, but spokesmen for the other five South Bay cities involved say it is too early to determine what formula they will use.
Cities have plenty of time to think about which of the various formulas to use. A construction permit evaluation and an environmental review for the proposed pipeline are expected to take 18 months. Construction on the Southern California Pipeline System, which is being built by Atlantic Richfield Co., Chevron Corp., Texaco Inc. and Shell Oil Co., could begin late next year.
Al Greenstein, a spokesman for Atlantic Richfield Co., said, "It's a little early in our project to give any definitive answers on what we will encounter." Greenstein said he thinks most cities will follow Los Angeles County and the city of Los Angeles, both of which use formulas based on the length and width of the pipelines and do not consider land value.
One city official, however, El Segundo Public Works Director Bill Glickman, said he has begun looking at the formula used in Carson and Long Beach.
"We have not negotiated a franchise in many, many years," he said. "We have just started talking to people on another franchise application. We are looking at what they use in Carson."
Greg McClintock, an attorney representing the Western Oil and Gas Assn., an oil industry group, said Carson, Long Beach, Torrance and Santa Monica are the only cities in the state that he knows of that use land values in determining fee formulas.
He said he expects most cities to continue using the length-and-width formula, but said the Carson-Long Beach formula is "the upper limit of what you would expect" in formulas using land values.
Torrance, which is not on the route of the pipeline, has applied the Carson-Long Beach formula three times in the last two years on franchise renewals, even though City Atty. Remelmeyer said the higher formula that was rejected last week would have been justified.
"In effect, the oil pipeline franchisee is leasing the land from the city for a certain period of time," said Remelmeyer in his report to the City Council. "The value-of-the-land approach is expected to be more widely used in the future by governmental agencies in setting franchise fees for oil pipelines. This concept, also known as the standard appraisal method, had been used for some time by large private landowners" in determining what to charge companies for underground pipes.
Should Be Double
Remelmeyer said the city's fee should be double what is charged in Carson and Long Beach because the value of land in Torrance is generally higher.