Wednesday, May 26, 2010

$15,000 for the (passage of) 109,500,000 barrels of oil?

06.08.10 Update to the original post
After some digging (and with the help of County Councilman Ken Mann and County Prosecutor Daniel Gibson, I learned this:
"We do charge a franchise application fee which is intended to recoup our costs for processing an application for a new franchise or a franchise renewal.  State law allows franchise fees only to the extent necessary to recoup administrative costs incurred by the government, which explains our franchise application fee.  The Council could reset that application fee upward but would have to be able to justify the fee by reference to a demonstrable and reasonable administrative cost that it has incurred or will incur in the processing of the application and/or administration of the franchise agreement.  Here is what the Municipal Research Services website says on the topic:
Franchise Fees
Note that franchise fees allowed under current state laws are limited to the recovery of actual administrative expenses incurred by the jurisdiction. Cities can, however, impose a utility tax on the revenue of the company from services provided within the jurisdiction (see RCW 35.21.860 and RCW 35.21.865)."

So currently, according to WA state law, and unlike CA state law, we cannot collect anything like an "energy transit fee".  If true, this needs some reconsideration at the state level.  If Whatcom County could collect fees on the basis of "energy transit", we would a have a significant new source of county and possibly city revenue. I have created a page on this subject to continue research.

05.28.10 Update to the original post:
Here is the original 1985 Franchise document with Trans Mountain. 
Here is the 2010 Bill C18814 passed on March 25, 2010.

Original Post
There are clearly moments in the life of a citizen of Bellingham and Whatcom County where you wake up wondering whether or not you are living in some shadowy, age-old, patriarchal universe; where "old boys" sit in quiet boardrooms glad-handing one another the public's wealth  while deciding the fate of the entire city. The public,  apparently lulled to compliance by the commercial news outlets that seem to publish/broadcast to a sixth grade education level, often sit like quiet lambs awaiting their economic slaughter.

This week has been one of those moments for me.  Cascadia Weekly Editor/Publisher Tim Johnson and Jess  Worth published an excellent environmentalist article "Tarmaggedon" on the destructive  effects of the Albertan oil sands whose product the refineries in Whatcom and Skagit County are now adding to their international mix of oil imports.  The destructiveness of the oil sands mining is hardly novel.  National Geographic Magazine published a blistering and controversial photo-shoot  of the place in March of 2009.  Nor is it news that American refineries are now importing and becoming reliant on this environmentally and energy expensive bitumen goo.  What was astounding to me is that the city of Bellingham, with 2 miles of the recently upgraded Trans-Mountain pipeline buried beneath Whatcom Falls Park, apparently missed a golden opportunity to gather lucrative franchise fees for the ~109 million barrels of oil (300,000 bo capacity * 365 days??)  that may pass under our park next year. Let me explain.

Energy transit fees have created a lucrative worldwide market. From every third world country (like Ukraine) to the major American cities (like Los Angeles), government entities have learned how to take material advantage of their strategic geo-locations. Here is an example from the "city of angels":

"Starting in fiscal year 2005-06, the Administrative Code also allowed council members to pad their respective trust funds by collecting half of the franchise fees paid by companies running oil pipelines in their districts. It required, however, that the money be used solely for street and sidewalk infrastructure improvements. Greuel's audit showed council members have collected a combined total of $7.3 million in such revenues so far.The largest share - 30 percent, or $2.12 million - went to the 15th District represented by Hahn."

So what franchise fee did the city of Bellingham settle for with this newly upgraded "Trans Mountain" pipeline now capable of carrying 300,000 barrels of oil per day across our fine city? :  $15,000 per year. for each of the next ten years.   Bill C18814 was approved 6-1 (with only Jack Weiss opposed.) on Tuesday as Ordinance #2010-05-032.

On Monday, I had e-mailed the entire city council and two county council member in response to my disbelief; I wanted to find out how this number was chosen.  Was it by law, by foot, by SWAG? Only city council member Michael Lilliquist was concerned enough to write me back and his answer was that the city attorney thought that $15K was "market value" for such a franchise fee at the time of negotiation and that the city had secured  $100M liability insurance from the Trans-Mountain company. (I would think they would be materially liable and insured in any event of spill regardless.)  I am astounded that we settled for such a low franchise fee. As I wrote both council members Mann and Lilliquist:

"(300K Barrels/day * $80/Barrel * 365 days ) = $8,760,000,000 of product value per year?   
(As a note, $15K is 1.7123287671232876712328767123288e-6 percent of $8.7B !)"

As far as I am concerned, or until someone explains to me otherwise, this is our good money that COB  left on the table. I can imagine an appropriate fee could have easily been seven figures for each of the next ten years for such a valuable commodity's passage.   What exactly are the economic counter-arguments for negotiating such lightweight franchise fees in times of economic crisis? The council members and the mayor's office may not have been caught red-handed taking brown bags of cash from the oil industry, but they are certainly doing them (not us) a great favor.


J said...

Thank goodness someone has the guts to address this issue! Many thanks for being an advocate for the citizens of Bellingham!!

Ryan M. Ferris said...

Thanks J! -RMF