Firm Nears Victory on Bill That Revises Cities’ Pipeline Fees : Legislature to Vote Today on Measure Backed by Santa Fe to Limit Some Levies

A major pipeline company appears close to winning passage of a bill that would significantly change the way cities levy fees for underground rights of way, a revision that some larger cities say would cost them millions of dollars in future revenues.

The measure, sought by Santa Fe Pacific Pipelines Inc., was approved 5 to 1 Tuesday by a joint legislative conference committee, with Assemblywoman Gwen Moore (D-Los Angeles) voting against it. Final action on the legislation, sponsored by Sen. Newton R. Russell (R-Glendale), is scheduled for today. If it is approved, Ray Grabinski, a city councilman from Long Beach, which has taken the lead in opposing the measure, said he will ask Gov. George Deukmejian to veto it.

“This stinks from the get-go,” Grabinski said. “For the state government to line the pockets of the pipeline companies is just ridiculous.”

Under two 42-year-old laws, smaller, general-law cities are limited in the amount of fees they can levy for common carrier pipelines, or pipelines used by more than one oil company.

But the existing laws do not place limits on fees charged by Torrance, Los Angeles, Inglewood, Long Beach, Santa Ana, San Diego and 77 other state-chartered cities.

Russell’s legislation would impose a new fee formula that would provide far less revenue for charter cities. But rather than reducing the revenue now received, the legislation freezes fees for charter cities at existing levels until cost of living increases applied to the new formula catch up. The bill would also allow a small increase for some general-law cities.

Michael Arnold, a lobbyist for Long Beach, the city whose ordinance increasing pipeline franchise fees triggered the bill, termed the proposal “a giant windfall” for the pipeline companies. “They are going to save literally millions of dollars over the next 25 years,” Arnold predicted. For example, the fee that Los Angeles charges Santa Fe would be frozen at about $14,000 a year, whereas the city has wanted to negotiate a new franchise fee of about $28,000 a year.

Oil Firms May Also Benefit

Stanley Remelmeyer, a consulting attorney for Torrance, where the City Council opposed the bill, said oil companies also may benefit since they receive crude oil and pump refined petroleum products through pipelines.

“Obviously, oil companies have tremendous influence in Sacramento, and we don’t,” Remelmeyer said.

Russell acknowledged that some cities would eventually receive less revenue. But, he said, the aim of his bill is to ensure that one city does not hold up a pipeline company for “an exorbitant fee.” He added that the formula in the bill is a compromise that gives cities more than the pipeline company wanted but less than the cities were asking.

Campaign finance records compiled by Legi-Tech, a computerized information service, show that Russell received $1,750 in contributions from Santa Fe between August, 1986, and April, 1989, and an additional $16,950 in contributions from oil companies between July, 1985, and May, 1989, including $5,500 from Shell, $4,200 from Arco and $3,000 from Chevron.

Russell said in an interview that the Santa Fe and oil company contributions did not influence his decision to carry the bill.

Santa Fe lobbyist Don Reisner said Santa Fe’s parent company gives less than $20,000 each to legislators in campaign contributions. “They have a contribution program which is ongoing for many years and has not changed in any way for this bill,” he said.

The Long Beach ordinance--approved after a 1980 pipeline accident and fire--increased the fees charged to common carriers, including Southern Pacific Pipe Lines, which is under Santa Fe ownership. Southern Pacific challenged the ordinance, winning in a Superior Court decision but losing on appeal. The appellate court last year ruled that state law does not preempt Long Beach and other charter cities from determining their own rates.

Lobbied to Revise Law

Santa Fe then lobbied to revise the law, citing the specter of cities continually raising their rates. Long Beach charges Santa Fe $58,000 a year for nearly seven miles of right of way under city streets and gets an additional $70,000 annually for another common carrier pipeline.

In Torrance, the Santa Fe and Four Corners pipelines are common carriers whose franchise fees would be affected by the bill. Santa Fe pays $2,400, but city officials were unable to provide the amount paid by Four Corners.

Remelmeyer said other oil companies, including Mobil and Unocal, who own private pipelines that run through Torrance, might open their pipelines for general use to come under the provision that freezes fees for common carriers.

“The problem,” said Remelmeyer, “is that the private oil companies can put their pipelines in separate corporations and make them common carriers,” he said.

Shell Oil took this route recently, switching its pipeline between Ventura and Wilmington from private to public use. The oil company acted after Santa Monica raised its franchise fees and the trial judge in the Santa Fe-Long Beach lawsuit ruled that cities could not regulate common carriers.

No Plans to Convert

Tim Salles, Mobil pipeline operations manager, said Mobil has no plans to convert its 150-mile pipeline from the San Joaquin Valley to Torrance to use as a common carrier.

But in Carson, where franchise fees from private pipelines amounted to $2.7 million in 1988, city officials have received seven applications seeking to switch from private to common carrier. Common carrier pipelines paid $14,370 in franchise fees in 1988.

The city, which has 40 active pipelines and five applications for new pipelines, opposes the Russell bill, according to Ferrell Sneed, who supervises business licenses and franchise fees for Carson.

Russell said his bill contains provisions making it difficult for a firm with a private pipeline to switch to common carrier usage.

The city of Los Angeles receives more than $1 million a year in pipeline franchise fees from 43 lines that stretch 560 miles, including several that cross Wilmington and other Los Angeles areas of the South Bay.

Only two of the lines--the Santa Fe, which paid $13,450 in fees last year, and the Four Corners, which paid $209,000--are common carriers.

“The bill wouldn’t apply to the others, but who knows what will happen next year?” said Ken Cude, division engineer with the Los Angeles Department of Transportation.

Private Pipelines

Russell said in response that he would not favor any proposal to extend his bill to cover private pipelines.

“But,” he acknowledged, “you can’t preclude (the) possibility” that some other legislator would carry such a bill.

Under a compromise hammered out in the six-member conference committee, the rate that Los Angeles charges Santa Fe would be frozen at about $14,000 a year. Ron Cagle, a lobbyist for the city, said the city has been seeking to negotiate a new franchise rate of about $28,000 a year. Los Angeles franchise fees for the Four Corners line, the other common carrier pipeline in Los Angeles, are not due for renegotiation until 2001.

Cagle said the city opposes the Russell bill because “it’s an incursion into the home rule of the city of Los Angeles.”

But Russell said he is “just trying to balance the interests” of cities with the state’s need to ensure that petroleum products are delivered efficiently. He said that if the companies cannot build pipelines, the oil will be shipped by tanker trucks, exacerbating congestion and air pollution.

In El Segundo, Shell, Chevron and Southern California Gas Co. have pipelines that now provide little revenue to the city. The City Council hopes to raise fees when existing franchise agreements expire in several years, according to Donald Harrison, assistant to the city manager.

‘Reluctant’ to Approve

“We’re not a rich city,” Harrison said. “The effect of something like this (bill), especially in the aftermath of the San Bernardino disaster (is) that cities would be reluctant to approve franchises if they can’t get enough revenue to cover the extra (safety) inspections. We were looking to see if we could raise the rates to what these other cities are getting--Santa Monica, Long Beach, Carson.”

Inglewood received $93.10 from Unocal and $639.67 from Mobil in franchise fees last year for the two functioning private pipelines that traverse the city.

Engineering Director Bill Mahar said Inglewood, which has been considering an increase, worries along with Torrance, Carson and Los Angeles that the private lines may become common carriers to get under the bill’s freeze or that the legislation might be broadened to cover the private lines in the future.

“We certainly want to be reasonable, but $93 and $600-and-something is not very much money,” he said.