REPORT TO COUNCIL
SUBJECT
Title
Introduction of an Ordinance to Renew a Franchise Agreement Granted to Air Products Corporation and Air Products and Chemicals, Inc. for the Distribution of Nitrogen Gas Within the City of Sunnyvale
Report
BACKGROUND
On September 12, 1978, the City Council adopted Ordinance No. 1906-78 granting Air Products and Chemicals, Inc., a 15-year non-exclusive franchise for the conveyance of nitrogen through pipelines under, along, and across public streets in the City of Sunnyvale.
Ordinance No. 2090-83, adopted on December 20, 1983, allowed the assignment of the franchise to Air Products Manufacturing Corporation, a wholly owned subsidiary of Air Products and Chemicals, Inc.
Ordinance No. 2373-91, adopted on September 3, 1991, amended the franchise agreement to allow both Air Products Manufacturing Corporation and Air Products and Chemicals, Inc. to be listed as franchisees.
On July 11, 1995, the City Council adopted Ordinance No. 2507-95, granting a 15-year franchise renewal to Air Products, which expired on December 31, 2010.
On December 7, 2010, the City Council adopted Ordinance No. 2945-10, granting a 15-year renewal to Air Products, which expires on December 31, 2025.
EXISTING POLICY
Policy 5.1.4 Incentives to Attract and Retain Businesses.
ENVIRONMENTAL REVIEW
Approving an Ordinance to renew a franchise agreement is not considered a Project under the California Environmental Quality Act (“CEQA”) pursuant to section 15301 in that it involves no expansion of an existing use and section 15378(b)(5) in that approval of a franchise is a governmental and administrative activity that will not result in any direct or indirect changes to the environment.
DISCUSSION
Air Products has had a nitrogen gas franchise with the City since 1978, and the current franchise term expires on December 31, 2025. Air Products Manufacturing Corporation and Air Products and Chemicals Incorporated (Air Products) have requested a renewal of their non-exclusive franchise to transmit nitrogen gas within the City of Sunnyvale. The attached ordinance would grant such a renewal for fifteen years. Nitrogen gas is used by many major electronics companies in the area for the production of electronic components and packaging. Pipeline transmission is the preferred method for delivering nitrogen rather than shipping it by tanker truck. Nitrogen is an inert, non-combustible gas. The nitrogen gas pipeline within the City is made of carbon steel and is pressurized to no more than 150 pounds per square inch.
Air Products has followed all requirements for the current franchise, submitting franchise estimates and final payments on time and has providing the City with the appropriate documents. The agreement for the new franchise term reflects updated rates that are similar to those charged by other local municipalities for nitrogen franchises. The franchise fee will increase to $1.72 per lineal foot of each gas-carrying pipe, plus an additional annual fee equal to $1,749.95 multiplied by the pipe's internal diameter in inches, for each customer's property line, which represents and increase of approximately 230% of the current fee. The proposed rate is based on a rate study conducted for the City of San Jose, the City of Santa Clara, the City of Fremont, and the City of Milpitas. The rate and escalation match those of Fremont and Milpitas. The fee will be subsequently be increased by 7% annually, and in no event shall Air Products pay less than $10,000 annually.
FISCAL IMPACT
Franchise fees are accounted for in the General Fund. The City collected $42,649.60 in Franchise Fees for nitrogen gas in FY 2024/25. The recommended increase would result in approximately $100,000 in additional annual revenue, bringing total annual revenue to approximately $143,000.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
ALTERNATIVES
1. Introduce an Ordinance awarding a fifteen-year extension to an existing non-exclusive franchise for the distribution of nitrogen gas by Air Products Manufacturing Corporation and Air Products and Chemicals, Inc.
2. Do not introduce an Ordinance to renew the franchise agreement granted to Air Products for the distribution of nitrogen gas.
3. Do not introduce an Ordinance and direct staff to negotiate different terms with Air Products.
STAFF RECOMMENDATION
Recommendation
Alternative 1: Introduce an Ordinance awarding a fifteen-year extension to an existing non-exclusive franchise for the distribution of nitrogen gas by Air Products Manufacturing Corporation and Air Products and Chemicals, Inc.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
_X_ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
___ Contract between public agencies
___ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: Sherine Nafie, City Property Administrator
Reviewed by: Chip Taylor, Director, Public Works
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. Ordinance to Renew a Franchise Agreement Granted to Air Products Corporation and Air Products and Chemicals, Inc. for the distribution of nitrogen gas within City of Sunnyvale