City Att'y Shannon Delivers Significant Public Statement Giving His Office's Interpretation of Charter Sec. 1502 (rates by City Hall-run utilities), Compares What It Forbids and Allows; We Post It Verbatim
LBCUR co-chair Donaldson and public also speak during Council session; transcript excerpts below
City Attorney Robert Shannon
(June 6, 2001. w/ add'l material June 8) -- In a significant statement, LB City Attorney Robert Shannon has publicly outlined his office's interpretation of City Charter section 1502 (which says City Hall-run utilities must charge rates prevailing among like area utilities.)
After providing the Council and the public with his rationale for what 1502 does and doesn't require, Mr. Shannon ended by making a short but highly significant point. He said at the conclusion of his remarks that Charter section 1502 "does not require a complete pass-through of the cost of the commodity, but it does not prohibit it."
This makes clear (as LBReport.com was first to report among LB media in February) that if the City Council wishes to make a policy decision to provide LB consumers with rebates, it can. In effect, rebates are the Council's call.
This position is consistent with the view Mr. Shannon has expressed for months. He confirmed it for LBReport.com in April (click here, noting he wasn't advocating a view one way or the other on whether rebates would or wouldn't be a wise policy move; that is the Council's decision.
(Such rebates would almost certainly involve significant spending and budget adjustments. To date, the Council has declined to move in that direction.)
The City Attorney did not indicate during the Council's June 5 meeting that Councilmembers couldn't discuss rebates, although none did. A now-pending lawsuit (LBReport.com coverage, click here) challenging City Hall's interpretation of section 1502 deals with what 1502 requires, not what it allows. Despite this, several Councilmembers pleaded with Mr. Shannon to silence them during the meeting if he felt that were called for. (He didn't.)
Mr. Shannon's statement to the Council and the public, below, was delivered during the June 5 Council "budget workshop" session on utility issues. It took place from 6:00 p.m. to nearly 7:45 p.m. in the midst of the City Council meeting.
It was preceded by the Council's regular non-agendized public comment period during which included two plaintiffs in the utility rate lawsuit, LBCUR co-chairs John Donaldson and Ron Noe (named a co-chair June 2). Their transcript excerpts during this period appear below following Mr. Shannon's statement.
In recent months, LB City Hall has passed-through natural gas commodity costs to LB ratepayers exceeding So. Cal Gas rates (charged in neighboring communities like Lakewood). From December 2000 through February 2001, LB natural gas commodity rates were roughly twice as high as So. Cal Gas rates. They dipped below So. Cal Gas in March and April, but rose roughly 50% higher than So. Cal Gas in May and remain so in June.
City Hall has blamed suppliers for the spikes in the natural gas price. On March 20, the City Attorney's office filed a class action lawsuit seeking to recover damages for LB ratepayers from some energy providers it alleges are responsible for LB's disproportionate costs. (Our coverage includes a link to a copy of the actual court complaint: City Hall's Class Action Suit Against Various Natural Gas Suppliers)
Also in March, LB Citizens for Utility Reform (LBCUR) began pressing City Hall to provide rebates and agendize discussion of Charter section 1502. LBCUR repeatedly requested that some Councilmember(s) agendize section 1502, making the request at public Council meetings and in personal meetings with Councilmembers. No Councilmember ever agendized discussion of section 1502.
Instead, on May 22, Vice Mayor Dan Baker suggested during a Council budget workshop that instead of agendizing section 1502, the issue could be discussed during a June 5 budget workshop. No Councilmember opposed this. [When an item is not agendized, the Council cannot take a voted action on it at that meeting.]
On May 31, LBCUR and several LB residents filed a class action lawsuit on behalf of LB ratepayers. The suit requests an injunction preventing City Hall from charging disproportionate rates and seeks City Hall rebates totaling $38 million (and increasing), representing the difference between LB's rates and prevailing area rates.
LBCUR's lawsuit is the pending action to which Mr. Shannon refers at the outset of his statement, below.
Madam Mayor, Councilmembers, ladies and gentlemen. When this agenda was prepared, of course, there had been no lawsuit filed, and I have to tell you candidly that the lawsuit which essentially challenges the interpretation of section 1502 of the Charter essentially involves a legal issue, that is, how to you interpret 1502, and therefore, I am greatly restricted in my ability to comment on 1502.
Now that said, I think a few brief comments are in order.
Section 1502 was passed in 1980, and I think you have to put it in context, because any lawyer, whether it be me or anybody else, has to interpret a legal section both with regard to the language that's used and the intent of the section when the language was formulated.
Now as I say, it was passed in 1980. It was passed at a time when we were in a regulated environment insofar as the energy industry is concerned. It was intended, I believe, that the cost of the commodity to the city, that is the cost that the city pays for the gas that it receives and passes on to the ratepayer, that that cost wouldn't vary in any substantial form, whether it be Long Beach, Southern California Edison, or some other gas company in southern California.
That is, that the actual cost of gas could be passed on to the ratepayer. And in fact, in 1997, certain utilities petitioned the Public Utility Commission and received permission specifically to pass through their cost of commodity to their ratepayers. Southern California Edison, San Diego Gas and Electric and Southern California Gas.
That, I submit, indicates that the PUC recognizes that no gas company should operate at a loss.
Now, in December of last year, December of 2000, the cost of gas rose dramatically. It rose dramatically in Long Beach and it rose slightly everywhere else but it rose very, very dramatically in Long Beach, disproportionate to the rest of southern California, I'm not including San Diego.
We soon learned, that is our office learned, that this rise was not due to a healthy functioning market economy where the law of supply and demand rules, but rather, in our opinion, due to unlawful activity.
Now the damages sustained by Long Beach ratepayers probably exceed $28 million just in the three month period beginning in December and ending in March. We filed our lawsuit, as many of you know. We've alleged anti-trust violations which, if we recover, will entitle us to three times the total damages, so if you assume that the damages are somewhere in the range of $28 million you would multiply that by three.
We sought and approved the permission [assume means: received the approval] of the District Attorney, Steve Cooley, to file a further cause of action against certain energy companies for unlawful practices which if we prevail on will prevent any future illegal conduct and will also entitle us to further damages.
Now I want to emphasize that this lawsuit, unlike virtually all of the other lawsuits we file on behalf of the entity "City of Long Beach," this lawsuit was filed on behalf of the ratepayers of Long Beach, the corporate ratepayers and the individuals. Mr. Lamont [sic: Robert Lamond] is smiling. Mr. Lamont is a party to that lawsuit [name typo in suit too]. He represents a class of people, ratepayers, who were damaged, greatly damaged, by the rise in prices and if and when we prevail, the damages will be passed directly on to people like Mr. Lamont.
Just as a sidelight, I want to indicate to you that we are actively pursuing this lawsuit. There was a motion heard in Washington D.C. just last Friday in which the defendants, listen to this, the defendants requested that the action be transferred from California to Texas because nobody in California could be unbiased in dealing with this situation. The motion failed. [applause]
In essence, what I'm saying is, it was never contemplated that the [City Hall] Gas Company would operate at a loss, particularly of this magnitude. Nor was it contemplated that unlawful activity would cause a reduction in supply which in turn would spike up the price of gas.
In summary, this is a legal issue on which I guess reasonable people can differ. We feel very strongly, however, that section 1502 does not prohibit the pass-through of the cost of the commodity. It does not require a complete pass-through of the cost of the commodity, but it does not prohibit it.
Thank you, Mayor
Reproduced below are excerpts of public comments that were delivered before the budget workshop during which Mr. Shannon made his statement..
LBCUR co-chair John Donaldson
...Long Beach Citizens for Utility Reform is not about lawsuits and lawyers. It's about people and their government. It's about ratepayers and their utility and you are the trustees of our utility.
We had to take the action we had, we did, to protect the interests of the citizens of this city. We would like to resolve this not in the courtroom but in the Council chamber.
It begins with a discussion of the real problems in this community, the kind of pressure that we are seeing on our small business community and the renters in this city. I wish Mr. Grabinski was here, because he and I have talked on many occasions about what is happening to the poor, those who live on a low income.
Almost 1/3 of our city is now either delinquent, received shut off notices, or has imposed a self-shut off on themselves in terms of gas use.
And next month, they are going to get pounded even harder by electric rates.
We are facing a crisis in this city and it's one that you can do something about.
I also wish Councilman Webb was here because I would like to thank him personally for his efforts with us, to talk with us, to bring this to the Council, to agendize it, to put this discussion moving forward so we can address this problem.
We look forward to meeting with you, to talking with you, to resolving the issue, but it begins very simply by following the law.
[Following Mr. Donaldson, LB resident Karl Tiedemann came to the podium and announced he would read from "The Bible." He then read portions of the City Charter governing City Hall run utilities, including section 1502. Mr. Tiedemann was followed by Ron Noe.]
LBCUR co-chair Ron Noe
I would like to address two topics tonight: liberty and common sense. Since December of last year, the ratepayers of Long Beach have suffered a loss of liberty in the form of illegally higher utility bills. Ratepayers representing all socio-economic walks of life have paid the price.
...Higher income ratepayers have undoubtedly been forced to make some sacrifices while lower income ratepayers have not only been forced to make sacrifices, but these sacrifices have also included foregoing purchases for medicine, food and other items, not to mention having to live without heat and or living with the threat of having their gas and water shut off.
Many small businesses have been hanging on by a thread or they have been forced to pass along higher costs to customers, or they have been forced to reduce income.
The loss of liberty is real for people across the board yet their seems to be no sense or urgency emanating from our city government, which leads me to my second topic.
The ratepayers of Long Beach have been paying substantially higher rates for natural gas since December of last year. At about the same time last year, it was known by everybody in this room that we are all going to pay substantially higher rates for electricity. All the while, the city has been reaping windfall profits from the utility tax on the sale of natural gas, which they will also do with electricity once the higher electricity rates kick in.
Where has the Council been? Six whole months has passed and there has been no public discussion about [Charter sections] 1501, 1502 or any potential remedies. I find this to be appalling and completely lacking in common sense.
What have you been waiting for? I ask the Council to not only follow the law as it pertains to the succinctly and adequately worded sections 1501 and 1502. I also urge the Council to start exercising common sense and to start showing some respect for the liberty of Long Beach ratepayers.
And I would also like to make notice to Mr. Webb, I appreciate his openness and his willingness to discuss the issues with me.
[At this point, the Council went into its budget workshop session, during which Mr. Shannon delivered the statement we posted above.]