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LB Residents & Businesses Paying More Than Twice As Much For Natural Gas Commodity As Lakewood Consumers

Read City Charter section enacted to control LB Gas Co. rates

(January 19, 2001) Although the LB City Charter requires City Hall's publicly owned Gas Department to charge prevailing rates for similar commodities supplied by other like utilities, LB residents and businesses are currently paying more than twice as much for natural gas (the commodity charge on bills) as consumers in nearby Lakewood.

Lakewood is served by the Southern California Gas Co. ("So. Cal Gas"), an investor-owned utility. A So. Cal Gas spokesperson told its current natural gas commodity cost per therm to consumers is 0.65206.

By comparison, LB natural gas consumers are currently charged roughly 1.5 per therm (details below) by the LB Gas and Electric Department.

The LB Gas & Electric Dept. is a publicly owned, City Hall run utility that doesn't produce natural gas but buys it on the open market and transmits it to LB consumers. Instead of paying stockholder dividends, the LB Gas Dept's revenue (after paying debt, funding maintenance, improvements and setting aside a portion in reserve) feeds City Hall's General Fund.

The LB City Charter specifies that "rates to be charged users for any services or commodities supplied by 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."

A Lakewood homeowner adjacent to ELB has told that his per therm commodity charge in December was 0.65307; in November it was 0.56311.

By comparison, the LB Gas and Electric Dept.'s per therm commodity charge on November 1 was 0.5168; on December 1 was 1.446; and on January 1 was 1.624. (LB utility bills issued in mid-month are prorated.)

Meanwhile, LB's soaring natural gas bills have produced a utility tax windfall for City Hall which imposes a 9% utility users tax. When City Hall's natural gas bills go up, City Hall collects more utility tax.

On November 7, LB voters approved Prop J, a petition initiated measure by fiscal reformer Norm Ryan that reduced LB's 10% utility tax to 9% with annual 1% rollbacks until the tax reaches 5%. City Hall opposed Prop J. It passed with nearly 70% of the vote.

On November 1, LB Gas and Electric Department General Manager Elizabeth Wright told City Manager Henry Taboada in a memo for the Mayor and City Council that LB gas bills this winter "may reflect as much as a 40% increase over last winter's bill...The actual increases over the upcoming months will fluctuate along with the market price of natural gas."

LB Gas bills continued to rise even further, in many cases by roughly 200%-300% above last year's levels.

Ms. Wright conceded to that if the LB Gas Dept. had locked in natural gas rates by using long term contracts, before or when they were rising, LB consumers might not be facing such dramatic increases now. However, she pointed out the following:

"You have to realize that as we went along each month and we saw the prices increasing, there were records being broken, and at any time it was unknown with the volatility if the prices were going to continue increasing or if the prices were going to decrease significantly back to the original levels.

And so the City as a practice has had the strategy of buying spot market price gas, which up until these last two months has been a very consistent strategy that has provided the lowest cost possible. So what we're assessing now is what we do from here forward.

And the simple answer to your question is, yes, we could have entered into long term contracts, but those also can be a liability for the city if the market goes in the other direction.

So we have to balance what we do very, very carefully. And so any long-term contracts that we had in the past were indexed or linked to spot market prices, in fact that's the bulk of the long term contracts out there in the industry, they are indexed to spot market prices."

Ms. Wright said So. Cal Gas has access to interstate pipeline transportation agreements giving them access to pipelies leading from the gas producing basins in Texas and New Mexico, which provides them an advantage in price right now.

She said LB Gas buys all of its gas delivered to the CA border because all of the pipeline capacity leading to CA is "essentially controlled by a small number of parties...and that capacity is not available at this time, so we are purchasing as we have for the last 14 years at the southern CA border." (The gas is then transported to LB using So. Cal Gas pipelines.)

Ms. Wright noted that "the disparity in the prices has only occurred the months of December and January. Prior to that, for years our prices have always been comparable to the cost of gas that So. Cal Gas and other utilities in the area had."

For this reason, City Hall has sought to frame the issue in terms of what it calls irregular price increases in the wholesale price of natural gas. As posted on, LB Mayor Beverly O'Neill has written Governor Gray Davis asking for an "immediate review of the wholesale gas market" and requesting action by the CA Public Utilities Commision and Federal Energy Regulatory Commission "to remedy this unfortunate situation." The Mayor's letter said the city would support policies by the Governor or legislature that would "offer emergency assistance consumers currently bearing the direct cost burden of an irregular natural gas market."

( has posted this letter at Mayor's letter to Gov. Davis.)

During public discussion of rising gas rates, no elected official raised the issue of the City Charter requirement that LB Gas Dept. rates be "based upon the prevailing rates for similar services and commodities supplied or sold by other like utilities...operating in the Southern California area."

Although this Charter verbiage may be interpretted in different ways, no elected official suggested it be construed so as to protect LB consumers (instead of protecting City Hall), preventing the LB Gas Dept. from charging LB consumers over twice what Lakewood consumers (and others served by So Cal Gas) are paying for the same commodity.

No elected official proposed that City Hall refund to LB businesses and residents excess sums charged on LB Gas bills (compared to neighboring Lakewood) in December and January as well as the excess utility tax collected on those bills.

And no elected official urged lowering the utility users tax to provide consumers with some immediate out of pocket relief. (No Council incumbents supported Prop J.)

Instead, on January 9, the City Council approved a city staff proposal to grant a temporary 25% discount on natural gas bills to qualifying low income seniors and low income disabled users until April 30. Staff is also also reportedly preparing a "level pay" plan option. ("Level pay" plans generally charge more in summer when natural gas use is low while charging less in winter when use is high, but "level pay" does not actually reduce customers' net out of pocket cost.)

On January 16, 3d district Councilmember Frank Colonna asked City Manager Henry Taboada to report on the feasibility of lowering LB natural gas bills by 5%. (Many LB natural gas bills have already risen by 200%-300% over last year's levels.)

The City Manager's report is not expected for several weeks. Natural gas use is expected to subside as temperatures increase in coming weeks.

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