City of Culver City, California
City Council Agenda Item Report
RECOMMENDATION:
Staff recommends the City Council 1) adopt a resolution granting ExxonMobil’s
request for a third five-year extension under its existing Franchise Agreement with
the City and 2) adopt a resolution declaring the City Council’s intent to consider
granting an oil pipeline franchise to ExxonMobil and setting the time and place for
the related public hearing.
BACKGROUND:
On February 4, 2008, the City Council considered a report on this subject. At the
time this report was presented (a copy of the Staff Report from February 4, 2008 is
attached for the City Council’s ease of reference), a member of the public provided
additional comment. Prior to taking action on this item, the City Council directed
staff to perform additional research on the topics raised during public comment.
This item was also placed on the August 25, 2008 City Council agenda for the
Council’s consideration. However, because of a clerical processing error which
inadvertently did not provide the attachments with delivery of the staff report, staff
requested the item not be heard on August 25, 2008. At that time, the City Manager
announced this item would be presented to the City Council on September 8, 2008.
After reviewing documents dating to 1992, staff presents the following information in
response to the comments made on February 4, 2008 and provides additional
supplementary information for the City Council’s consideration.
Meeting Date:09/08/08 Item Number: A-6
AGENDA ITEM: 1) Adoption of a Resolution Granting a Five Year Extension of an
Existing Oil Pipeline Franchise Agreement with ExxonMobil; and (2) Adoption of a
Resolution Declaring the City Council’s Intent to Consider Granting an Oil
Pipeline Franchise to ExxonMobil and Setting the Time and Place for the Related
Public Hearing.
Contact Person/Dept.: Martin R. Cole,
Assistant City Manager
Phone Number: (310) 253-6000
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [X] Attachments: [X]
Public Notification:
Master E-Mail Notification List (09/03/08); ExxonMobil (09/03/08); Mr. Steven Gourley –
in person (08/25/08)
Department Approval:
Martin R. Cole (09/02/08)
City Attorney Approval:
Carol Schwab (by R. Miranda) (09/03/08)
Fiscal Impact Review:
Jeff Muir (by N. Kimball)(09/03/08)
City Manager Approval:
Jerry B. Fulwood (09/03/08) City of Culver City, California
City Council Agenda Item Report
DISCUSSION:
In general and in response to the comments presented to the City Council, staff
reviewed the franchise and related documents researching two broad topics: Fiscal
Related Issues and Operational Issues. Following are the results of the research:
Fiscal Related Issues
Four items of concern were voiced related to the fiscal components of the Franchise.
They involve: (1) the reasons for and circumstances surrounding a penalty payment
to the City, in 2003, in the amount of $949,091.25; (2) a potential of $1,000,000 in
lost revenues to the City for the years 1993 to 2001; (3) the change in penalty rate
from $0.25 to $0.05; and (4) performance of fiscal audits. A review of the pertinent
records reveal the following:
(1) 2002 payment of $949,091.25: It had been mentioned in comments provided
from the public that this payment was a result of an audit by the City Treasurer’s
Office. The records indicate this payment was provided voluntarily by
ExxonMobil, in the normal course of business under the Franchise which
requires ExxonMobil to provide throughput reports to the City. The records do
not indicate that any audit was performed for calendar year 2002.
(2) Potential for $1,000,000 in “lost” revenues for the periods 1993 to 2001
based upon the application of a statute of limitations by ExxonMobil: The
records indicate the throughput for these years did not exceed the 95,000 barrel
threshold. Because the throughputs did not exceed the 95,000 barrel threshold
in any of these years, no overage penalties were due to the City and, therefore,
there were no lost revenues to the City. The records indicate, however, that
ExxonMobil did pay the City the franchise fee due to the City under the
Franchise.
(3) Change in penalty from $0.25 to $0.05: This change was one of the two
amendments approved by the City Council on December 1, 2003. In brief, the
City implemented this reduction after receiving an addendum to the original
Environmental Impact Report showing that, due to advances in technology, the
volume of oil which could be pumped through the pipeline without causing
significant environmental impacts had increased. Additional detail is provided in
the December 1, 2003 staff report. (A copy of said report is included as an
Attachment for the City Council’s ease of reference).
(4) Performance of Fiscal Audits: With respect to audits, the City Treasurer’s
Office commissioned an audit for calendar years 1999, 2000, and 2001. As City of Culver City, California
City Council Agenda Item Report
reported by the City Manager, a recent audit for calendar years 2004, 2005, and
2006 was also completed. In both cases, the audits resulted in findings that
ExxonMobil had paid the City all monies owed to the City pursuant to the
Franchise for the years subjected to the audit. The Chief Financial Officer will
also ensure audits for calendar years 2007 and forward are conducted as
deemed fiscally and operationally desired.
Operational Issues
(5) Monitoring of equipment, current condition of the pipeline: In response to
public comment related to the monitoring of equipment and the current condition
of the pipeline, on March 25, 2008, staff contacted the State Fire Marshal (who,
under State Law “…shall exercise exclusive safety regulatory and enforcement
authority over intrastate hazardous liquid pipelines…” (California Pipeline Safety
Act of 1981)). The State Fire Marshal’s Office reported that the ExxonMobil
pipeline “is in compliance and has no outstanding safety issues.” Further, there
is no indication in City records that the pipeline is now or ever has been allowed
to deteriorate and, therefore, poses an unusual hazard.
Granting of Third Five-Year Option
As excerpted in pertinent part from the Franchise:
“[Section 1A] Grantee (Exxon/Mobil) shall further have the option to extend this
franchise for three additional five year terms…for a fee as agreed to by the
parties or determined to be reasonable in light of franchise fees then being
charged by jurisdictions for rights-of-way of similar size and type. Grantee may
exercise its rights to extend this franchise by notifying the City of its election to
extend this franchise in writing no later than ninety (90) days prior to the
expiration of the then current term.”
ExxonMobil provided written notification to the City of its election to extend the
franchise on March 27, 2007, which is no later than ninety days prior to the
expiration of the then current term.
Staff has researched “franchise fees…being charged by jurisdictions for rights-of-
way of similar size and type” and has been able to negotiate a franchise fee which is
(1) acceptable to Culver City; (2) agreeable to ExxonMobil; and (3) reasonable in
light of other jurisdictions’ fees being charged for similar rights-of-ways. Therefore,
(1) because ExxonMobil has met the requirements of the franchise for exercise of its
option rights thereunder and (2) staff can find no other justification to withhold such
approval, staff recommends the City Council grant the third and final five-year
option. City of Culver City, California
City Council Agenda Item Report
Granting of a New Franchise Agreement
ExxonMobil has also requested that its franchise be extended beyond its current
ending date of November, 2012. Therefore, the City Council is also requested to
adopt a resolution declaring the time and place for a public hearing to consider
granting a new franchise to ExxonMobil. While additional detail will be provided for
the City Council’s consideration at the time of the Public Hearing, it is important to
note staff will consider, when making its recommendation to the City Council, that
the proposed new franchise under consideration:
(1) provides the City Council with the sole discretion to approve any future
extension options; and
(2) provides an increase in the administrative fee based upon the Produce Price
Index (similar to the existing language for the base franchise fee).
The proposed date and time for the Public Hearing is October 13, 2008 at 7:00 PM.
FISCAL ANALYSIS:
Under the current franchise agreement, ExxonMobil pays the City a flat fee annually
as compensation for use of the City’s right-of-way. The flat fee was set at
$64,139.85 when the franchise agreement was first executed in 1992 and is subject
to an annual increase based on the Producer Price Index for All Commodities.
Additionally, ExxonMobil pays a throughput penalty, based on the average daily flow
of crude oil through the Culver City pipeline. If in any calendar year, the throughput
of crude oil averages more than 95,000 barrels per day, then ExxonMobil must pay
the City a throughput penalty in the amount of five cents ($0.05) per barrel in excess
of 95,000 times the number of days in that year. The following table summarizes the
City’s flat fee and throughput penalty receipts since 2004-05:
2004-05 2005-06 2006-07 2007-08
Flat Fee $80,420 $88,151 $90,057 $94,467
Throughput Penalty 3,504 26,950 0 0
Total Receipts $83,924 $115,101 $90,057 $94,467
Assuming a 3.5% annual increase in the Producer Price Index for All Commodities,
the receipts through the end of the current franchise agreement are as follows:
2008-09 2009-10 2010-11 2011-12
Flat Fee $97,773 $101,195 $104,737 $108,403
Throughput Penalty TBD TBD TBD TBD
Total Receipts $96,470 $99,850 $103,345 $106,960 City of Culver City, California
City Council Agenda Item Report
Administrative Fee
Based on the estimated staff cost to review, research and process ExxonMobil’s
third option, an administrative fee of $10,000 has been tentatively agreed upon.
Staffing cost estimates include direct salary and benefits costs for each staff
member involved in the process as well as indirect overhead costs (such as payroll,
IT services, workers’ comp and liability insurance costs, management oversight,
etc.).
ATTACHMENTS:
1. Section A – Throughput Reports (Pages 1 – 36)
2. Section B – Franchise Agreement (Pages 8-49)
(Note: Pages 1-7 of Section B are left blank intentionally)
3. Section C – Staff Reports from 12/1/03 & 2/4/08 (Pages C1-C85)
4. Section D – Penalty Payments (Pages D1-D4)
5. Section E – Audit Reports (Pages E1-E20)
6. Section F – Additional Documents (Pages F1-F308)
MOTION:
That the City Council:
1. Adopt a resolution granting a five-year extension of the existing oil pipeline
franchise with ExxonMobil (to November 25, 2012); and,
2. Adopt a resolution declaring the City Council’s intent to consider granting an
oil pipeline franchise to ExxonMobil and setting the time and place for the
related public hearing as Monday, October 13, 2008 at 7:00 PM.