HomeMy WebLinkAbout12-04-2012 c2 cono co phillips reso of intent to modify franchise ordcouncil M~12/4/12AagEnOa nepoRt
C I T Y O F S A N L U I S O B I S P O
FROM :
J . Christine Dietrick, City Attorne y
Prepared By :Andrea Visveshwara, Assistant City Attorne y
SUBJECT :RESOLUTION OF INTENTION AND SETTING A PUBLIC HEARING FO R
JANUARY 22, 2013, REGARDING PROPOSED TRANSFER OF FRANCHIS E
ORDINANCES FOR TRANSPORTING OIL AND HYDROCARBON GASE S
BY CONOCOPHILLIPS PIPELINE COMPANY TO PHILLIPS 66 PIPELIN E
AND PHILLIPS 66 COMPANY .
RECOMMENDATION
1 . Adopt a resolution declaring the City's intention to authorize the transfer of rights an d
obligations under Franchise Ordinance 1564 from ConocoPhillips Pipeline Company t o
Phillips 66 Pipeline and Phillips 66 Company and setting a public hearing date fo r
January 22, 2013 pursuant to Section 1002 of the City Charter ; and,
• 2 . Adopt a resolution declaring the City's intention to authorize the transfer of rights an d
obligations under Franchise Ordinance 1569 from ConocoPhillips Pipeline Company t o
Phillips 66 and setting a public hearing date for January 22, 2103 pursuant to Sectio n
1002 of the City Charter .
BACKGROUN D
The pipelines, which are the subject of the proposed franchise transfer Ordinances, wer e
previously operated and maintained in the City of San Luis Obispo by ConocoPhillips Pipelin e
Company(CONOCO) under the authority of Ordinances No . 1564 and 1569, adopted June 21 ,
2011 and October 18, 2011, respectively . Each franchise is for a term of 10 years and grants
permission to CONOCO to install and operate oil pipelines and requires payment of a franchis e
fee as authorized by Public Utilities Code Section 6231 .5 . Fees collected by the City fo r
operation of these pipelines are non-negotiable and set by State law, based on internal pipelin e
diameter. The fee ranges from $0 .088 to $0 .66 per lineal foot per year . The existing franchise
agreements limit pipeline diameters to 12 inches, so the maximum annual average fee would b e
$0 .264 per lineal foot, although most of the pipelines are smaller than 12 inches at this time . Las t
fiscal year, CONOCO paid $7,732 in franchise fees to the City .
In addition to the annual franchise fee, the City collected a granting fee of $10,000 per franchis e
($20,000 total) to cover staff costs associated with preparing all necessary documents, advertisin g
the requests, holding the required public meetings (three in total and described below) an d
managing the franchise agreement after adoption .
The primary features of the existing Franchise Ordinances are as follows :
C2-1
Phillips 66 Franchise Agreement Page 2
•
Purpose :
To maintain and operate pipelines for the transportation of oil an d
hydrocarbons within the City of San Luis Obisp o
Tvpe :
Non-exclusiv e
Term :
10 years (from date of original ordinances, since they are being assigned)
Fees :
Annual franchise fee to the City in accordance with Public Utilities Cod e
Section 6231 .5(a fee ranging from $0 .088 to $0 .660 per foot based o n
pipeline diameter )
Bond :
One million dollars faithful performance bond .
Insurance :
Ten million dollars liability insuranc e
Indemnity:CONOCO indemnifies the City for any and all damages to persons o r
property arising out of their operations under the franchises . Include s
indemnity for joint acts with the City .
In addition to the basic points outlined above, the Franchise Ordinances cover all other subject s
commonly found in such franchise documents such as maintenance and operation requirements ,
permitted transfers of the franchise, moving of pipelines to accommodate public works an d
utilities, encroachment permits and pipeline abandonment and removal requirements .
DISCUSSION
With respect to the most recent reorganization of CONOCO, CONOCO became Phillips 6 6
Pipeline LLC, and was owned initially by ConocoPhillips Company . Through steps that wer e
approved by the Internal Revenue Service and the Securities Exchange Commission, th e
ownership of Phillips 66 Pipeline LLC was distributed to Phillips 66 Company while Phillips 6 6
Company was a subsidiary of ConocoPhillips Company . Currently, Phillips 66 Company ha s
been distributed to Phillips 66, a new publicly traded company, as a wholly owned subsidiary ,
along with Phillips 66 Pipeline LLC .
By letter dated March 26, 2012, CONOCO requested transfer of the franchise under Ordinanc e
1569 to Phillips 66 Company, with an effective date of May 1, 2012 . The pipelines unde r
Franchise Ordinance 1569 are proprietary, used to transport the franchisee's own products .
By letter dated May 1, 2012, CONOCO requested transfer of the franchise under Ordinance 156 4
to Phillips 66 Pipeline LLC, with an effective date of April 12, 2012 . These pipelines ar e
common carrier pipelines, in which the franchisee transports other companies' products, as wel l
as its own .
Article 17B of the Franchise Ordinances sets forth the information that the applicant shall includ e
in its application to transfer the Franchise Ordinances . Specifically, the proposed transferee i s
C2-2
•
Phillips 66 Franchise Agreement Page3
• supposed to submit audited financial statements . Unfortunately, neither Phillips 66 Pipeline LL C
nor Phillips 66 Company is able to submit the audited financial statements certified by a n
independent certified public accountant because under the most recent reorganization, they ar e
considered new companies . Despite not being able to satisfy this section of the Franchis e
Ordinances, after doing its due diligence, which included reviewing filings with the Securit y
Exchange Commission and Federal Energy Regulatory Commission, in staffs opinion, Phillip s
66 Company and Phillips 66 Pipeline LLC both have the financial assets for performance .
Phillips 66 Company, which holds Phillips 66 Pipeline LLC, has over fifty (50) billion dollars i n
assets . Furthermore, both Phillips 66 Company and Phillips 66 Pipeline LLC have agreed t o
increase the amount of the performance bond from one million dollars to five million dollars .
Both companies also have submitted the insurance as required by the Franchise Ordinances .
In addition, on April 27, 2012, the California Public Utilities Commission ("CPUC") grante d
CONOCO an exemption from obtaining the CPUC's statutorily required authorization before i t
could transfer its California public utility operations from CONOCO's ultimate parent company ,
ConocoPhillips, to a newly created, publicly traded holding company, Phillips 66, and fro m
CONOCO's direct corporate parent, ConocoPhillips Company, to Phillips 66's principa l
operating subsidiary, Philips 66 Company . The CPUC found that this was a change in lega l
control, as opposed to actual control, and found that no change, alteration or sale of the pipelin e
infrastructure was anticipated, nor would there be any change in day-to-day operations an d
management .
• Accordingly, based on the foregoing, staff recommends that Council waive the requirement tha t
the transferees submit financial statements audited by an independent certified public accountant ,
and adopt the resolutions of intention to transfer the Franchise Ordinances, and initiate th e
process to transfer the Franchise Ordinances .
Before granting or modifying any franchise, Section 1002 of the City Charter requires the Cit y
Council to pass a resolution declaring its intention to grant the same, stating the name of th e
proposed grantee, the character of the franchise and the terms and conditions upon which it i s
proposed to be granted . Such resolution shall set forth a date where any person having an interes t
therein or objection to the grant of franchise may appear and be heard and shall direct the Cit y
Clerk to publish said resolution within fifteen(15) days of its passage . The time fixed for suc h
hearing shall not be less than twenty (20) nor more than sixty (60) days after the passage of sai d
resolution.
At the time set for the hearing, the Council shall proceed to hear and pass upon all protests, an d
its decision thereon shall be final and conclusive . Thereafter, the Council may grant or deny th e
franchise subject to the right of referendum of the people . The attached resolutions satisfy the
requirements of Charter Section 1002 and set a public hearing date for January 22, 2013 .
CONCURRENCE S
The Public Works Department has reviewed its file and verifies that no further information i s
required to approve the transfers and Finance Director has reviewed the financial document s
relating to the successor company and verifies that the company appears to be financially soun d
to satisfy the obligations of the franchises .
C2-3
Phillips66Franchise Agreement Page 4
•
ADOPTION PROCES S
The process for adoption of a new franchise agreement is prescribed by the Public utilities Cod e
(Section 6232-6234). The following schedule is proposed :
•December 4, 2012 -Introduce and pass resolution of inten t
•January 22, 2013 -Hold public hearing and introduce ordinanc e
•February 5, 2013 -Second reading and final adoption of ordinanc e
•March 7, 2013 -Ordinance becomes effective(franchise transfer is retroactive to th e
dates specified in the ordinance
FISCAL IMPAC T
The annual franchise fee to the City will be paid in accordance with Public Utilities Code Sectio n
6231 .5 . This fee will generate approximately $7,732 per year in discretionary income to th e
General Fund . In addition, CONOCO has paid an additional $10,000 per ordinance, for a total o f
$20,000, to cover staff costs to transfer the ordinances from CONOCO to Phillips 66 Pipelin e
LLC and Phillips 66 Company .
ALTERNATIVE S
1.Decline to approve the transfers . Staff does not recommend this action because the asset s
transfers have already been completed among the companies and determined exemp t
from CPUC authorization .
2.Direct staff to renegotiate the Franchise agreements if specific changes to the agreemen t
are desired .
ATTACHMENT S
1.Resolution of Intent to Approve the proposed ConocoPhillips Pipeline Compan y
franchise transfer to Phillips 66 Pipeline LLC and setting a public hearing date fo r
January 22, 2013 .
2.Resolution of Intent to Approve the proposed ConocoPhillips Pipeline Compan y
franchise transfer to Phillips 66 Company and setting a public hearing date for Januar y
22, 2013 .
3.Acceptance of Franchise Ordinance No . 1564 and Assumption of Obligation s
4.Acceptance of Franchise Ordinance No . 1569 and Assumption of Obligations
•
C2-4
Attachment 1
RESOLUTION NO .
(2012 Series )
•
A RESOLUTION OF CITY OF SAN LUIS OBISPO DECLARING THE CITY'S INTEN T
TO APPROVE THE TRANSFER OF FRANCHISE ORDINANCE 1564 TO OPERAT E
AND MAINTAIN PIPELINES FOR THE TRANSPORTATION OF OIL AND OTHE R
SPECIFIED MATERIALS IN THE CITY OF SAN LUIS OBISPO FROM
CONOCOPHILLIPS PIPELINE COMPANY TO PHILLIPS 66 PIPELINE LLC AN D
SETTING A PUBLIC HEARING FOR JANUARY 22, 201 3
WHEREAS,the City of San Luis Obispo adopted Ordinance No . 1564 on June 21,201 1
granting a franchise to ConocoPhillips Pipeline Company, a Delaware Corporation, for a term o f
10 years for the transportation and distribution of oil and other specified materials in the City o f
San Luis Obispo ; an d
WHEREAS,as a result of a corporate reorganization, Phillips 66 Pipeline LLC ha s
assumed all of ConocoPhillips Pipeline Company's properties, rights and obligations, includin g
its pipeline operations in the City of San Luis Obispo and expressly agreed to assume the right s
and obligations of ConocoPhillips Pipeline Company under Franchise Ordinance 1564 ; and
WHEREAS,the agreement approved by Ordinance 1564 contains the following ke y
provisions :
Purpose :
To maintain and operate pipelines for the transportation of oil an d
hydrocarbons within the City of San Luis Obispo .
•
Type :
Non-exclusiv e
Term :
10 years (expiring June 20, 2021 )
Fees :Annual franchise fee to the City in accordance with Public Utilities Cod e
Section 6231 .5(A fee ranging from $0 .088 to $0 .66 per foot based o n
pipeline diameter )
Bond :
One million dollars faithful performance bond
Insurance :
Ten million dollars liability insuranc e
Indemnity:Franchisee to indemnify the City for any and all damages to persons o r
property arising out of operations under the franchise . Includes indemnit y
for joint acts with the City .
In addition, the Franchise covers all other subjects commonly found in such franchise document s
such as : the type of maintenance and operation of the pipelines, permitted transfers of th e
franchise, requirements for moving pipelines to accommodate public works and utilities ,
encroachment permits, and pipeline abandonment and removal requirements ; and
WHEREAS,in lieu of providing audited financial statements certified by an independen t
certified public accountant, which are unavailable due to Phillips 66 Pipeline LLC being a new
company, Phillips 66 Pipeline LLC has agreed to increase the amount of the faithful performanc e
bond from one million dollars to five million dollars .
R
C2-5
Attachment 1
Resolution No . (2012 Series)
Page 2
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Lui s
Obispo as follows :
SECTION I . Pursuant to Section 1002 of the Charter of the City of San Luis Obisp o
and Article 17 of Franchise Ordinance 1564,the City Council hereby declares its intention to
consent to the transfer of Franchise Ordinance number 1564 from ConocoPhillips Pipelin e
Company to Phillips 66 .
SECTION 2 .A public hearing will be held on January 22, 2013 at 6 :00 p .m . in th e
Council Chambers of City hall, located at 990 Palm Street, San Luis Obispo, California . Any
persons having an interest in the franchise transfer or any objection to the approval of th e
franchise transfer may appear before the Council and be heard thereon . This date is not less than
twenty (20) or more than sixty (60)days after the passage of this resolution, in compliance wit h
Section 1002 of the City Charter .
SECTION 3 .The City Clerk shall publish this resolution at least once within fifteen (15 )
days of its passage in a newspaper in the City of San Luis Obispo .
Upon motion of
,seconded by
and on the following vote :
AYES :
NOES :
ABSENT :
The foregoing resolution was adopted this day of 2012 .
Mayor Jan Mar x
ATTEST :
Maeve Grime s
City Clerk
APPROVED AS TO FORM :
J . Christine Dietrick
J . Christine Dietric k
City Attorney
•
•
C2-6
Attachment 2
RESOLUTION NO .
(2012 Series )
•
A RESOLUTION OF THE CITY OF SAN LUIS OBISPO DECLARING THE CITY'S
INTENT TO APPROVE THE TRANSFER OF FRANCHISE ORDINANCE 1569 T O
OPERATE AND MAINTAIN PIPELINES FOR THE TRANSPORTATION OF OIL AN D
OTHER SPECIFIED MATERIALS IN THE CITY OF SAN LUIS OBISPO FRO M
CONOCOPHILLIPS PIPELINE COMPANY TO PHILLIPS 66 AND SETTING A
PUBLIC HEARING FOR JANUARY 22, 201 3
WHEREAS,the City of San Luis Obispo adopted Ordinance No . 1569 on October
18,2011 granting a franchise to ConocoPhillips Pipeline Company, a Delaware Corporation, fo r
a term of 10 years for the transportation and distribution of oil and other specified materials i n
the City of San Luis Obispo ; and
WHEREAS,as a result of a company reorganization, Phillips 66 Company has assume d
some of ConocoPhillips Pipeline Company's properties, rights and obligations, including it s
pipeline operations in the City of San Luis Obispo and expressly agreed to assume the rights and
obligations of ConocoPhillips Pipeline Company under Franchise Ordinance 1569 .
WHEREAS,the agreement approved by Ordinance 1569 contains the following ke y
provisions :
Purpose :
To maintain and operate pipelines for the transportation of oil an d
hydrocarbons within the City of San Luis Obispo .
•
Type :
Non-exclusiv e
Term :
10 years (expiring October 17, 2021 )
Fees : Annual franchise fee to the City in accordance with Public Utilities Cod e
Section 6231 .5 (A fee ranging from $0 .088 to $0 .66 per foot based o n
pipeline diameter )
Bond :
One million dollars faithful performance bond
Insurance :
Ten million dollars liability insuranc e
Indemnity:Franchisee to indemnify the City for any and all damages to persons o r
property arising out of operations under the franchise . Includes indemnit y
for joint acts with the City .
In addition, the Franchise covers all other subjects commonly found in such franchise document s
such as : the type of maintenance and operation of the pipelines, permitted transfers of th e
franchise, requirements for moving pipelines to accommodate public works and utilities ,
encroachment permits, and pipeline abandonment and removal requirements .
WHEREAS,in lieu of providing audited financial statements certified by an independen t
certified public accountant, which are unavailable due to Phillips 66 Company being a ne w
R
C2-7
Attachment 2
Resolution No . (2012 Series )
Page 2
company, Phillips 66 Company has agreed to increase the amount of the faithful performanc e
bond from one million dollars to five million dollars .
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Lui s
Obispo as follows :
SECTION 1 .Pursuant to Section 1002 of the Charter of the City of San Luis Obisp o
and Article 17 of Franchise Ordinance 1569,the City Council hereby declares its intention t o
consent to the transfer of Franchise Ordinance number 1569 from ConocoPhillips Pipelin e
Company to Phillips 66 .
SECTION 2 . A public hearing will be held on January 22, 2013 at 6 :00 p .m . in the
Council Chambers of City hall, located at 990 Palm Street, San Luis Obispo, California . Any
persons having an interest in the franchise transfer or any objection to the approval of th e
franchise transfer may appear before the Council and be heard thereon . This date is not less than
twenty (20) or more than sixty (60)days after the passage of this resolution, in compliance wit h
Section 1002 of the City Charter.
SECTION 3 . The City Clerk shall publish this resolution at least once within fifteen (15 )
days of its passage in a newspaper in the City of San Luis Obispo .
Upon motion of , seconded b y
and on the following vote :
AYES :
NOES :
ABSENT :
The foregoing resolution was adopted this day of
2012 .
Mayor Jan Marx
ATTEST :
Maeve Grime s
Interim City Cler k
APPROVED AS TO FORM :
J . Christine Dietrick
J . Christine Dietric k
City Attorney
•
C2-8
Attachment 3
Mona a Hebert, SRWA, Adviso r
PTRRC Western Regio n
Real Estate, Right-of-Way Property Tax & Claim s
3900 Kilroy Airport Way, Suite 21 0
Long Beach, CA 9080 6
Phone : (562) 290-151 9
Fax : (562) 290-1580
Email: mona .heberl@p66.com
November 13, 201 2
Andrea Visveshwara, Assistant City Attorne yCity of San Luis Obisp o990 Palm Stree tSan Luis Obispo, California 9340 1
Dear Ms. Visveshwara:
Re :Transfer of Franchise Ordinance Nos . 1564
• Phillips 66 Pipeline LLC, a Delaware corporation, accepts and agrees to be legally bound by th e
terms and conditions of the City of San Luis Obispo ("City") franchise Ordinance No . 1564 for ter m
expiring June 20, 2021 and agrees to provide a Five Million (5,000,000 .00) Dollars faithful performance
bond, which will be required by the new proposed franchise ordinance, transferring the franchise to th e
Company .
The Limited Liability Company further agrees to assume all rights, duties, liabilities an d
obligations of ConocoPhillips Pipeline Company under said Ordinance No . 1564 . The Limited Liability
Company represents and warrants that it is the duly authorized successor in interest to ConocoPhillip s
Pipeline Company with regard to Franchise Ordinance No . 1564 and is the current owner of the pipeline s
covered by Ordinance No . 1564 .
The undersigned represents and warrants that he is authorized to execute an Acceptance o f
Franchise Ordinance and Assumption of Obligations on behalf of Phillips 66 Pipeline LLC .
Dated :/1—/Y•2012 PHILLIPS 66 PIPELINE LLC, a Delawar ecorporation
By :13..x,'/-/C -
Bill A . HallettAttorney-In-Fact
C2-9
Phillips 6 6Pipeline LLC
Attachment 4
Mona D . Hebert SR/WA, Adviso r
PTRRC Western Regio n
Real Estate, Right-of-Way Property Tax & Claim s
3900 Kilroy Airport Way, Suite 210
Long Beach, CA 9060 6
Phone: (562)290-1519
Fax: (562) 290-158 0
Email: mona .hebert@p66 .com
November 13, 201 2
Andrea Visveshwara, Assistant City Attorne y
City of San Luis Obispo
990 Palm Stree t
San Luis Obispo, California 9340 1
Dear Ms . Visveshwara :
Re :Transfer of Franchise Ordinance Nos . 156 9
Phillips 66 Company, a Delaware corporation, accepts and agrees to be legally bound by th e
terms and conditions of the City of San Luis Obispo ("City") franchise Ordinance No . 1569 for ter m
expiring June 20, 2021 and agrees to provide a Five Million (5,000,000.00) Dollars faithful performanc e
bond, which will be required by the new proposed franchise ordinance, transferring the franchise to th e
Company .
The Company further agrees to assume all rights, duties, liabilities and obligations o f
ConocoPhillips Company under said Ordinance No . 1569 . The Company represents and warrants that i t
is the duly authorized successor in interest to ConocoPhillips Company with regard to Franchis e
Ordinance No . 1569 and is the current owner of the pipelines covered by Ordinance No . 1569.
The undersigned represents and warrants that he is authorized to execute an Acceptance o f
Franchise Ordinance and Assumption of Obligations on behalf of Phillips 66 Company.
Dated :!/^/9"%O/2 PHILLIPS 66 COMPANY,a Delaware
corporation
•
•
By
Bill A. Hallett
Attorney-In-Fact
C2-10