Audit of the City’s Natural Gas Utility Franchise Agreement

2016 Office of Petroleum and Natural Gas

Audit of the City’s Oversight and Management of its Natural Gas Utility Franchise Agreement

In the City of Los Angeles (the City), the Southern California Gas Company (SoCalGas) holds the franchise rights to store, distribute and sell natural gas. As part of a nearly 25 year-old franchise agreement, SoCalGas agreed to pay an initial sum of $6 million, and a quarterly franchise fee based on 2% of its gross receipts from selling and distributing natural gas within the City. This has averaged $17.6 million annually. The agreement was in accordance with California’s framework for regulating the gas utility industry, and similar agreements are common throughout the United States.

The Los Angeles Department of Transportation is in charge of overseeing the City’s franchise, but relies on State and Federal entities to regulate and monitor the natural gas industry. For instance, the California Public Utilities Commission (CPUC) monitors safety and regulates the operations of private utility companies in the state; the United States Department of Transportation also requires utility companies to report on natural gas transmission and distribution systems.