City Council Approves Recommendations in Gas Franchise Audit

Posted on March 08, 2017

City Controller Called for Stronger Oversight after Aliso Canyon Leak

Los Angeles – The Los Angeles City Council today adopted several of the recommendations in an audit of the City’s franchise agreement with Southern California Gas Company (SoCalGas) that will strengthen municipal oversight of the utility’s operations while bringing more revenue to the City. The recommendations were outlined in a September 2016 audit by Controller Ron Galperin's office following a massive gas leak at the Aliso Canyon oil field in the northern San Fernando Valley.
In a unanimous vote, the Council adopted Galperin's recommendations to:
  • Direct the Office of Finance to ensure that the City is receiving all of the fees to which it is entitled.
  • Request the Board of Public Works Office of Petroleum and Natural Gas Administration and Safety to negotiate a new franchise agreement with SoCalGas to begin July 1 that would increase fees to the City in accordance with a case pending before the California Supreme Court. The case, Rolland Jacks v. Santa Barbara, tests whether a utility surcharge imposed by the City of Santa Barbara is a tax subject to voter approval under Proposition 218 or a franchise fee that does not require voter consent.
  • Add a requirement to the franchise agreement that SoCalGas must pay the City for the actual cost of damage to roadways from its cuts and excavations.
  • Enhance City oversight and develop a compliance program to evaluate the safety and security of assets and operations subject to the franchise agreement, as well as environmental protections.
  • Strengthen the agreement’s indemnity and liability provisions.

“A City franchise is a privilege, and utilities granted that privilege must show responsibility to the public,” said Controller Galperin. “We should strengthen our franchise agreement with SoCalGas to ensure we’re doing everything we can when it comes to safety, as well as making sure we recoup our costs for any damage they cause to City streets.”

With SoCalGas’ current franchise agreement to distribute and sell natural gas within City limits expiring June 30, Galperin called for a new agreement to ensure accountability, effective monitoring, and the establishment of appropriate franchise fees. At the same time, the City’s ability to enforce safety and environmental regulations is limited by state law, which gives the California Public Utilities Commission responsibility for natural gas transmission and distribution.

Galperin’s September 2016 audit found that since the franchise agreement with SoCalGas was executed in 1992, the company has paid the City an average of $17.6 million per year, although those payments have fluctuated by as much as $6 million from one year to the next. The audit also found that the City was missing out on as much as $1.3 million a year in Street Damage Restoration Fees that other utilities pay when they cut and excavate into City streets.

In February 2016, the City Council voted to restore the full-time position of petroleum administrator to better manage the City's oil resources and oversight of lease agreements. The City hired Uduak-Joe Ntuk for the position in September.

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