As reported weeks ago by LBReport.com, section 1502 of LB's City Charter requires City Hall-run utilities to charge rates prevailing for other like utilities. The Charter specifically states:

The rates to be charged users for any services or commodities supplied by any public utility owned and operated by the City shall be based upon the prevailing rates for similar services and commodities supplied or sold by other like utilities whether public or private, operating in the Southern California area.

This verbiage (like much legal language) is susceptible to different interpretations. How it should be interpretted may be disputed, but how it has been applied by LB City Hall is a matter of record.

LB City Hall has repeatedly used Charter section 1502 to justify equalizing LB Gas Dept.'s non-commodity rates (for items like transmission costs and the like) to parallel rates of So. Cal Gas.

In 1998, City Hall used Charter section 1502 to justify raising LB's rates 10% to match So. Cal Gas. In 1999, City Hall used the section to lower LB rates when So. Cal Gas reduced rates. In January 2001, City Hall again lowered LB rates to match So. Cal Gas.

In September 1998, then-City Manager James Hankla used the Charter section to justify a request (which the City Council voted to approve) to raise LB's rates 10.4% to match So. Cal Gas. In his annual budget message, Mr. Hankla wrote in pertinent part:

"Natural gas rates have not been adjusted since 1996, and in the case of residential, rates have not been adjusted since 1995. City Charter Section 1502 requires that City natural gas rates be comparable to other like utilities. Long Beach rates are now below SoCalGas. Therefore, I am recommending that natural gas rates be adjusted by approximately 10.4%..."

A year later, after Mr. Hankla's retirement and replacement by current City Manager Henry Taboada, city staff cited section 1502 to justify lowering LB's natural gas rates to meet So. Cal Gas rates.

On September 21, 1999, city staff advised that So. Cal Gas had enacted new tariff rates "which affect the prevailing rates for services and commodities supplied in the area." Staff advised the Council to lower LB's natural gas rates for residential (-9.2%), small commercial (-6.0%), commercial/industrial (-8.8%) and cogeneration (-3.6%). Staff estimated the net revenue impact of these reductions would be roughly $5.67 million.

The official Council-adopted Resolution measured prevailing rates based on So. Cal Gas rates, reciting in pertinent part:

WHEREAS, Section 1502 of the Charter of the City of Long Beach requires that the rates charged customers for services by the City's gas utility shall be based upon the prevailing rates for services and commodities supplied or sold by other utilities in the Southern California area; and...

WHEREAS, the Southern California Gas Company and other utilities have enacted new tariff rates...which affect the prevailing rates for services and commodities in the Southern California area..."

Two weeks later on October 5, 1999, staff cited So. Cal Gas rates as the basis for reducing LB transportation rates for Schedule 9 gas transportation customers.

And in January, 2001 staff recommended, and the Council approved, a reduction in certain LB gas rates to parallel So. Cal Gas.

These rate adjustments applied to non-commodity items (like transmission costs and the like), relatively small compared to LB's current oppressive commodity rate (actual natural gas charge). LB "passes through" the commodity rate charged by its suppliers to LB consumers; officials stress the commodity rate itself does not produce revenue for the Gas Dept. (although the utility tax collected on it does for the General Fund).

Until recently, LB's commodity rate was comparable to So. Cal Gas, but starting in roughly November or December 2000, LB's commodity rate began to soar past So. Cal Gas. Since then, the two rates have been grossly disproportional.

Because the two rates are no longer similar, Charter section 1502's requirement that LB City run utilities charge "prevailing rates" comparable to like utilities has now become an issue.

So. Cal Gas (which serves Lakewood among other places) currently charges about .65 cents per therm. LB's City Hall-run Gas Dept. currently charges over $1.40 per therm.

If Charter section 1502 were applied to equalize LB's commodity rate, in the same way City Hall has used section to match So. Cal Gas' other rates, LB residents and businesses would receive substantial rate relief. LB's gas bills would basically be halved and rebates would presumably be due for disproportionate amounts charged for the past 90 days.

However, despite weeks of Council meetings dealing with LB gas bills, not one Councilmember has publicly advocated applying Charter section 1502 to provide their constituents with So. Cal Gas. level rates.

Councilman Frank Colonna did make a passing reference to Charter section 1502 during the February 6 City Council meeting, but characterized it as allowing City Hall to pass through increased costs to consumers.

Meanwhile, City Hall's web site has quietly begun asserting a new standard when judging prevailing commodity rates; it compares itself to San Diego Gas and Electric (an investor-owned utility with abnormally high rates similar to LB), not So. Cal. Gas (as City Hall has done for years).

"...Long Beach, San Diego Gas and Electric and numerous other entities purchase most of their gas on the California spot market which, during December and January, experienced extremely high prices as compared to the rest of the country. This is leading to the difference in the commodity prices paid by the utilities and passed through to the consumers."

City Hall's web page doesn't mention City Hall's previous actions equalizing LB's non-commodity rates with So. Cal Gas, not SDG&E.

If one interprets Charter section 1502 to require equalizing current LB bills (including commodity charges) with So. Cal Gas, LB consumers deserve about a 50% reduction in their gas bills and a full rebate of the difference paid for roughly the past 90 days. (We expect City Hall management will resist this interpretation.)

On the other hand, if section 1502 is construed to let City Hall pass through rising commodity costs (as SDG&E is doing), City Hall isn't required to provide rate rollbacks and rebates. However, it could provide them as a discretionary matter (see below).

Even if section 1502 isn't interpretted as mandatory, the Council could provide consumers rollbacks and rebates as a discretionary matter.

City Charter section 1501 provides that Gas Dept. revenue be disbursed in a certain order: to pay interest and principal on bonded debt, then pay annual operating and maintenance expenses, acquisitions, improvements and extensions, then set aside part as a reserve for contingencies in operating the utility; remaining amounts determined by the City Manager to be unnecessary to meet these obligations may be transferred into City Hall's General Fund.

LB's Gas Fund produces revenue because, officials say, the cost of LB's Gas Dept. operations (not the natural gas commodity charge, but the Department's actual operation) is less than So. Cal. Gas; LB City Hall then invokes Charter section 1502 (above) to charge LB consumers the prevailing (higher) So. Cal Gas rate. This generates a de facto "profit" which, for years, City Hall has transferred into City Hall's General Fund. Last year (FY 99-00), the transfer amounted to roughly $13.8 million although it has been higher in the past.

Since the City Council controls General Fund spending, the Council could do (in net effect) what Palo Alto's Council does with its municipal utility: use revenue to provide consumers with lower utility rates instead of feeding the General fund. [One way, of many, the Council could do this would be to add a temporary line item to bills rebating the disproporitonate amount of the commodity cost, effectively lowering consumers' net out of pocket bill.]

Using General Fund revenues to provide ratepayer relief in LB would likely require significant spending changes and budget adjustments. Not one incumbent Councilmember has publicly supported this (at least thus far).

Instead, Councilmembers have taken incremental measures that have little or no General Fund impact and produce roughly nickles and dimes on the dollar for LB consumers.

LBReport.com has posted details of the City Manager/Council's relief package on a link, below. Readers can view a City Manager memo to the City Council which provides many useful details. Highlights of the package include: