CONTRACT 2323 Other 1 r
0-1A 3
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ADMINISTRATIVE AGREEMENT c- ' "- -
REGARDING GAS TAX COLLECTION
THIS AGREEMENT is entered into between a
Pennsylvania corporation ("Chevron") ; and The City of El Segundo,
a municipal corporation ("City") ; on the J day of
Y E-D(ma7 , 1994.
RECITALS
A. City imposes a gas users tax pursuant to section
3.24.040 of the El Segundo Municipal Code. Said tax involves
payment of a percentage of the charges for gas used in the City
of El Segundo. Chevron owns and operates a refinery for
petroleum products within the City boundaries. Chevron obtains
natural gas from a variety of different sources, including
natural gas produced from its own wells. Chevron uses the
natural gas for a variety of purposes, including generation of
electricity, use of natural gas as feedstock to a steam methane
reformer which produces hydrogen which in turn becomes a
component part of manufactured products produced by the refinery,
and as fuel for the refinery utility system.
B. Section 3.24.040 of the El Segundo Municipal Code was
drafted for application to the typical situation where gas is
purchased from the Southern California Gas Company and used for
ordinary utility purposes (i.e. , heating and cooking fuel) in the
City. The complex acquisition and use of gas at the El Segundo
LAX:75462.4
CONTRACT
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Refinery creates a number of unresolved issues concerning the
application of the gas users tax. These unresolved issues
regarding the implementation and application of gas users tax
have given rise to disputes between Chevron and City over the
amount of tax due from Chevron to City. While the parties have
successfully agreed upon a monetary settlement of taxes imposed
in past years, both Chevron and City still disagree over the
interpretation of El Segundo Municipal Code section 3.24.040.
C. El Segundo Municipal Code section 3.24.100(c) provides
that the City tax administrator may enter into administrative
agreements to " . . . vary the strict requirements of this
chapter so that collection of any tax imposed here may be made in
conformance with the billing procedures of a particular service
supplier so long as said agreements result in collection of the
tax in conformance with the general purpose and scope of this
chapter."
D. Given the difficulty of enforcing the gas users tax
within the context of Chevron's customary acquisition and
consumption of gas, which is unique within the City, it is
appropriate for the City to invoke its power to enter into an
Administrative Agreement in order to avoid further disputes
concerning the application of gas users tax on Chevron's refinery
operations.
NOW, THEREFORE, parties hereto do agree as follows:
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1. Authority for Agreement - This Agreement is entered
into under the authority vested in the tax administrator under El
Segundo Municipal Code § 3.24.100(c) . The appropriateness of the
application of this chapter is based upon the facts recited
above. It is the determination of the tax administrator that the
custom employed by Chevron in acquiring and consuming gas does
not conform to the normal pattern of gas use for which El Segundo
Municipal Code § 3.24.040 was drafted and that therefore, it is
necessary and in the best interest of the City to enter into an
Agreement to simplify and formalize payment of gas users tax by
Chevron.
2. Term - This agreement shall become effective
retroactively to June 1, 1993. The amounts due for the 1993
fiscal year shall be prorated to that date and shall be payable
by March 1, 1994. City shall, upon execution of this Agreement,
immediately notify Southern California Gas Company to cease
collecting the gas users tax from Chevron. Any amounts paid by
Chevron to Southern California Gas Company in satisfaction of gas
users tax charges assessed against Chevron for gas use after June
1, 1993 shall be credited against the amount due hereunder. The
parties have elsewhere agreed to resolution of all disputes
concerning taxes due prior to June 1, 1993. This agreement shall
continue so long as El Segundo Municipal Code § 3.24.040 shall
continue in its present approximate form. If § 3.24 .040 is
amended to reduce or increase the tax imposed thereunder the
amount payable under this agreement shall be reduced or increased
on a pro rata basis to correspond to the reduction or increase in
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the tax. If Chevron's gas use, in two consecutive years shows a
twenty-five (25) percent increase (for each year) over its
average annual gas use from September 1989 to May 1993, then the
City may elect to terminate this Agreement and either impose the
tax calculated on actual gas use or negotiate a new
administrative agreement with Chevron. If Chevron's gas use in
two consecutive years shows a twenty-five (25) percent decrease
(for each year) from its average annual gas use from 1989 to
1993, then Chevron may elect to terminate this Agreement and
either pay the tax calculated on actual gas use or negotiate a
new administrative agreement with Chevron. The term "gas use"
for purposes of this section shall mean all gas purchased from
third parties and used in the refinery fuel system for utility
purposes but shall not include gas used for cogeneration or
feedstock.
3. Assignment - Chevron shall not assign this agreement or
any part thereof to any other party without the express consent
of the City of El Segundo.
4. Payment of Tax - Chevron's tax shall be based upon the
average amount of tax paid on gas purchases and transportation
charges from Southern California Gas Company as averaged over the
period from September 1989 to May 1993. The parties agree that
this sum ("the base tax") is $150,000 per calendar year. The
base tax shall be subject to annual adjustment as provided for
hereafter.
5. Payment In Lieu of Gas Users Tax - The payment provided
for hereunder by Chevron to City shall be in lieu of any and all
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CO Q i U r:CT
sums which would, in the absence of this agreement, otherwise be
due from Chevron to the City under El Segundo Municipal Code
§ 3.24.040 for Chevron's consumption of gas of all types and for
all purposes in the City of El Segundo.
6. Annual Adjustment - On January 1st of each year the
amount payable to the City under this agreement shall increase by
an amount equal to the percentage increase in the Department of
Labor Consumer Price Index for the Los Angeles/Long Beach
Standard Metropolitan Statistical Area from January of the
previous year.
7. Time for Payment - Payment for the 1993 calendar year
as prorated from June 1, 1993, shall be due on or before March 1,
1994. Thereafter, payment shall be due from Chevron to the City
on March 1st of each year.
8. Delinquent Payment - Failure by Chevron to make payment
of the amount due hereunder to City by March 10th of each year
shall result in said amount becoming delinquent at midnight on
March 10th. Upon delinquency there shall become due and owing a
late payment equal to ten percent (10%) of the non-delinquent
payment due hereunder for every month, or portion thereof, for
which the amount remains delinquent.
9. Governing Law - This agreement shall be governed under
the Laws of the State of California.
10. Attorneys Fees - In any action in law or equity
concerning the rights, duties, obligations or interpretation of
this agreement, the prevailing party shall be entitled to
attorneys fees.
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11. Severability - If any portion of this agreement shall
be found to be invalid or unenforceable, the remaining provisions
of this agreement shall continue to be in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
CHEVRON, INC.
A Pennsylvania Corporation
By:
CITY OF EL SEGUNDO, A
Municipal Corporation
By:
STEVEN KLOTZCHE,
TAX ADMINISTRATOR
APPROVED AS TO FORM:
BY:
LELAND C. DOLL'E , CITrOTTORNEY
LAX:75462.4 -6=
SETTLEMENT AGREEMENT AND
MUTUAL GENERAL RELEASE
THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE (hereinafter
referred to as "Agreement") is made and entered into on this
.�.lC
day of ribr r , 1994, by and among the following
parties: Chevron USA, Inc. , a Pennsylvania Corporation
("Chevron") and THE CITY OF EL SEGUNDO, a Municipal Corporation,
("City") , with reference to the following facts:
RECITALS
A. City contends that Chevron has underpaid the gas user
tax imposed by section 3.24 .040 of the El Segundo Municipal Code
and that unpaid tax is due to the City. Chevron contends that it
has overpaid that tax and is due a refund. Chevron, at the
request of City has disclosed information concerning gas consump-
tion at the Chevron Refinery. The Parties have agreed upon the
underlying facts concerning volumes of gas used, applications for
which gas has been used and sources of gas used. However the
Parties disagree on the interpretation and application of El
Segundo Municipal Code § 3 .24.040 to the procurement and use of
gas at the Chevron El Segundo Refinery (the "dispute") .
B. Discussions between Chevron and City have isolated the
following legal issues as points of contention concerning the gas
users tax:
LAX:77997.1
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i. The statute of limitations -- Chevron contends that a
strict three-year statute of limitations regarding recovery of
unpaid taxes applies. The City takes the position that Chevron's
unwillingness to cooperate with Municipal Resource Consultants in
an audit should extend the statute of limitations beyond three
years.
ii. Feed Stock gas -- Chevron takes the position that the
ordinance applies only to utility use of gas and that the feed
stock use is not a utility use since it involves the gas becoming
a component part of a manufactured product. The City contends
that the ordinance applies to gas use generally and that it is
not limited to use for utility purposes only.
iii. Cogeneration -- Chevron objects to paying a tax both
on the gas-consumed and on the electricity generated. It
contends that this is double taxation prohibited by California
law. The City contends that the use of gas and the use of
electricity, even when linked by the co-generation process, are
sufficiently distinct as to avoid being classified as double
taxation under the cases which define that term.
iv. Equity Gas -- It_ is Chevron's position that equity gas
is not taxable because the ordinance anticipates a sales
transaction and provides no method for valuing such gas. The
City's position is that no distinction is made in the ordinance
regarding the origin of gas used within the City. Since Chevron
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itself values the gas for internal accounting purposes, there is
an easily available and reasonable method for determining the
amount of the tax.
v. Valuation of Equity Gas -- As indicated above, Chevron
is concerned about the methodology used to value equity gas for
purposes of calculating any utility users tax. The City has
agreed that Chevron's internal accounting methodology which
values gas based upon prices prevalent at the California border
is sufficiently related to the market value of the gas as to be
reasonable and acceptable.
vi. Penalties -- Chevron argues that it should not be
subject to any delinquency penalties due to the fact that the
ordinance is vague and ambiguous with respect to various issues
raised above and that the City has not asserted any assessment of
the tax, which therefore cannot yet be delinquent. The City
asserts that the ordinance is clear and the tax was clearly due
on •both equity and feed stock gas and that therefore penalties
may be assessed.
Based upon its position as articulated above, Chevron
contends that it has overpaid its tax and is due a credit of
$503,217. not including interest. Chevron has filed a written
claim under El Segundo Municipal Code § 3.24.130 for refund of
this amount. City asserts that Chevron owes unpaid gas users tax
LAX:77997.1 -3-
of three-million four-hundred-thirty-one-thousand six-hundred
dollars ($3,431, 600) .
C. Both parties are willing to settle finally and fully
their differences and claims arising out of and relating to the
dispute, and to provide for the mutual release of the parties as
more fully set forth hereinbelow.
AGREEMENT
NOW, THEREFORE, in consideration of the terms, covenants,
conditions and agreements set forth hereinbelow, Chevron and City
agree as follows:
1. Chevron agrees to pay the sum of eight hundred thousand
dollars ($800,000) to City as satisfaction in full of any and all
alleged gas user tax liabilities (including penalties) under El
Segundo Municipal Code § 3 .24.040 from the inception of said tax
through May 30, 1993.
2 . City agrees to enact an ordinance in substantially the
form of Exhibit A attached hereto and incorporated herein by this
reference by which Chevron is granted a credit against future
payment of the business license tax imposed under section
5. 08. 195 of the El Segundo Municipal Code equal to six hundred
thousand dollars ($600, 000) . Said credit shall be available for
a period of three years beginning in 1994, however Chevron may
LAX:77997.1 -4-
apply no more than two hundred thousand dollars ($200,000) of
credit in any given year. This agreement is conditional upon the
passage and continued existence of this ordinance for a period of
at least three years. If City fails to adopt said ordinance
within sixty days of full execution of this Agreement, it shall
be null and void and any amounts paid hereunder by Chevron to
City shall be refunded. If City should revoke said ordinance or
amend it to reduce the credit during the three year period
beginning in January, 1994, this Agreement shall be null and void
and Chevron shall be entitled to a rebate of any amounts paid
hereunder to which the credit granted by the ordinance was not or
will not be applied. Said rebate shall be due and payable at the
time the ordinance is rescinded or amended.
3. City and Chevron agree to enter .into an administrative
tax agreement pursuant to the authority of El Segundo Municipal
Code section 3.24. 100(c) in substantially the form of Exhibit B
which is attached hereto and incorporated herein by this
reference. Said agreement shall provide for an annual charge of
• one hundred and fifty-thousand dollars per year (subject to
consumer price index adjustment annually) in satisfaction of
Chevron's gas users tax liability.
4. City will, in the near future, amend the gas user tax
to clarify that no tax is to be imposed on gas not purchased
from third party vendors and gas used for non-utility purposes.
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5. Based upon a review of Southern California Edison
electric bills for the El Segundo Refinery for the 1990, 1991,
and 1993 calendar years, City finds no evidence that Chevron has
failed to pay or underpaid its telephone or electric users tax
through June 1, 1993, and accepts those taxes as fully paid for
those periods.
6. City agrees that all information disclosed to City by
Chevron during negotiation of this Agreement concerning its gas
consumption and electricity generation will be kept strictly
confidential.
7. This Agreement is conditional upon satisfactory
resolution of all claims by Municipal Resource Consultants
against City resulting from Chevron's alleged or actual liability
for gas users tax to June 1, 1993 .
8. With regard to tax liability under the El Segundo gas
users tax through June 1, 1993, Chevron, for and on behalf of
itself and its predecessors, successors and assigns, does fully
and forever remise, release and discharge City, its employees,
agents and representatives of and from any and all causes of
action, damages, claims, demands, agreements, contracts,
covenants, torts, actions, suits, causes of action, obligations,
controversies, debts, costs, expenses, accounts, damages, losses
and liabilities of whatever kind or nature, in law, equity, or
otherwise, whether known or unknown, which against it they have,
LAX:77997.1 -6-
may have had, now have, or which any of their heirs, executors,
administrators, predecessors, successors, assigns, agents or
other representatives hereafter can, shall or may have for or by
reason of any matter, cause or thing whatsoever to and including
the date hereof, which may relate to or arise out of the action
and the transaction which is the subject of the above-referenced
dispute. However, this release is not intended to and shall not
be construed as a release of the rights, obligations or duties of
City under this Settlement Agreement and General Release.
9. With regard to tax liability under• the El Segundo gas
users tax through June 1, 1993, City, for and on behalf of itself
and its predecessors, successors and assigns, does fully and
forever remise, release and discharge Chevron, its officers,
former officers, employees, agents and representatives of and
from any and all causes of action, damages, claims, demands,
agreements, contracts, covenants, torts, actions, suits, causes
of action, obligations, controversies, debts, costs, expenses,
accounts, damages, losses and liabilities of whatever kind or
nature, in law, equity, or otherwise, whether known or unknown,
which against them or any of them it has, may have had, now has,
or which any of its heirs, executors, administrators, predeces-
sors, successors, assigns,_ agents or other representatives
hereafter can, shall or may have for or by reason of any matter,
cause or thing whatsoever to and including the date hereof, which
may relate to or arise out of the Action and the transaction
which is the subject of the above-referenced dispute. However,
LAX:77997.1 -7-
this release is not intended to and shall not be construed as a
release of the rights, obligations or duties of Chevron under
this Settlement Agreement and General Release.
10. Each party hereto understands that the facts in respect
of which this Agreement is made may be other than or different
from the facts now believed by each party to be true; each party
hereto accepts and assumes the risk that said facts, or any of
them, may be different from the facts now believed by each party
to be true; and each party hereto agrees that this Agreement and
the release given in covenants made hereunder shall be and will
remain in effect as fully, complete and legally binding, notwith-
standing the discovery or existence of any additional or differ-
ent facts, or of any claims with respect thereto.
11. The parties hereto acknowledge that they have been
advised by legal counsel and are familiar with the provisions of
California Civil Code Section 1542, which are expressly
understood by each party hereto to provide as follows:
* * *, * *
"A general release does not extend to claims
which the creditor does not know or suspect
to exist in his favor at the time of execut-
ing the release, which if known by him must
LAX:77997.1 -8-
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have materially affected his settlement with
the debtor. "
This Agreement shall act as release of all future claims for
tax liability or refunds under the El Segundo gas users tax that
may arise from the above-mentioned disputes, whether such claims
are currently known, unknown, foreseen or unforeseen. The
parties understand and acknowledge the significance and
consequences of the specific waiver of California Civil Code
Section 1542 above, and hereby assume full responsibility for any
injuries, damages, losses or liabilities they may hereafter incur
from the above-mentioned dealings, disputes and litigation.
12. Each party hereto agrees to execute all documents which
may be required to facilitate the provisions of this Agreement
including deeds, conveyances or any other legally binding agree-
ment which is consistent with the provisions contained herein and
to make their best efforts to facilitate effecting the terms of
this Agreement. Failure to do so shall be considered a material
breach of this Agreement.
13. Each party hereto represents and warrants that he has
full power to enter into this Agreement, and that the individual,
if any, executing this Agreement on his, her or its behalf is
fully empowered to bind it and fully authorized to enter into
LAX:77997.1 -9-
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this Agreement. Each party represents and warrants that he has
not assigned, encumbered or in any manner transferred all or any
portions of the claims, causes of action, or other matters
released by him herein. Each party hereto acknowledges and
agrees that the warranties and representations made by each party
in this paragraph are each an essential and material term of this
Agreement, without which the consideration given herein would not
have been given by any of them.
14. Each party hereto acknowledges and represents that, in
effecting and executing this Agreement, it has received from
legal counsel full legal advice as to its legal rights; that it
or the individual executing this Agreement on its behalf, has
read all of this Agreement and fully understands its content and
legal effect.
15. Each party hereto acknowledges and agrees that this is
a compromise settlement of the hereinabove mentioned action,
which is not in any respect to be deemed, construed or treated as
an admission or a concession of any liability whatsoever by any
party hereto, including any person, firm, partnership or corpora-
tion for any purpose whatsoever.
16. Each party hereto acknowledges and agrees that no
representation, statement or promise not expressly set forth
herein has been made by or on behalf of any of the other parties
hereto or by any of its agents, servants, employees, representa-
LAX:77997.1 -10-
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tives or attorneys, and that no representations, statements or
promises that are not expressly set forth herein have been made
or relied on by any party hereto.
17. All of the covenants, releases and agreements herein
contained in favor of the persons or entities released are made
for the express benefit of each and all of the said persons or,
entities, each of whom has the right to enforce such provisions.
18. If any action in law or equity, including an action for
declaratory relief, is brought to enforce or interpret provisions
of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees, which may be determined by
the court in the same action or any separate action brought for
that purpose in addition to any other relief to which the party
may be entitled. Unless judgment goes by default, the attorney
fee award shall not be computed in accordance with any court
schedule, but shall be such as to fully reimburse all attorneys'
fees actually incurred in good faith, regardless of the size of
the judgment, it being the intention of all parties to fully
compensate for all attorneys' fees paid or incurred in good
faith.
19. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective partners,
heirs, successors, representatives and assigns.
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20. This Agreement is made and entered into in the State of
California and shall be interpreted, applied and enforced under
and pursuant to the laws of the State of California.
21. Each party has made such investigation of the facts
pertaining to this Agreement and all matters pertaining hereto as
he has determined necessary. This Agreement is intended to be
final and binding between the parties hereto, regardless of any
claims or misrepresentations, promises made without the intention
of performing them, mistakes of fact or law, or any other circum-
stances whatsoever, and under no circumstances shall any party be
entitled to set aside this Agreement, either in whole or in part.
In entering into this Agreement, each party assumes the risk of
any misrepresentation, concealment or mistake,. whether or not any
party should subsequently discover or assert for any reason that
any fact relied upon by such a party in entering into these
releases was untrue, or that any fact was concealed from any
party hereto, or that such party's understanding of the facts or
of the law was incorrect or incomplete.
22. This Agreement constitutes the entire agreement of the
parties with respect to the matters set forth herein, and no
other agreement, statement or promise made by any party, or made
to any employee, officer or agent of any party shall be valid or
binding.
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23 . Should interpretation of this Agreement, or any portion
thereof, be necessary, it is deemed that this Agreement was
prepared by each of the parties hereto jointly and equally and
shall not be interpreted against any party on the ground that the
party drafted the agreement or caused it to be prepared.
24. If any term of this Agreement is held to be void or
unenforceable, the remainder of the contract terms shall remain
•
in full force and effect and shall not be affected.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
"CHEVRON" Chevron USA, Inc. , a
Pennsylvania Corporation
By: -
Or-
"CITY" CITY OF EL SE, I D4
_
BY: L �
C. ` ACOBSON
MAYOR
LAX:77997.1 -13-
Cl i e r' --
ATTEST:
f
BaL7Z72: 27 ,
CIN I,/ OR E N
CIT CLERK
APPROVED AS TO FORM:
By: e
4, LELAND C. LEY L
CITY ATTORNEY
LAX:77997.1 -14-
■
ORDINANCE NO. Cl
AN ORDINANCE OF THE CITY COUNCIL OF
THE CITY OF EL SEGUNDO, CALIFORNIA
AMENDING SECTION 5.03.195 OF THE EL
SEGUNDO MUNICIPAL CODE TO GRANT A
CREDIT AGAINST THE BUSINESS LICENSE
TAX FOR CERTAIN BUSINESSES IN AN
AMOUNT EQUAL TO A PERCENTAGE OF
PAID DELINQUENT OR DISPUTED UTILITY
USER TAXES
WHEREAS, as an inducement to businesses subject to
existing Section 5.08.195 of the E1 Segundo Municipal Code which
owe delinquent utility users taxes to the City or dispute amounts
owed to the City to pay those taxes or settle those disputes and
give the City the benefit of cash in hand it is in the best
interest of the City to grant a credit in the amount of a
percentage of delinquent or disputed utility users taxes which
are now paid.
SECTION 1. Section 5.08.195 of the El Segundo
Municipal Code shall be amended to add a new subsection (g) to
read as follows:
"(g) Any person subject to this section
paying a delinquent utility user tax or a tax
concerning which, in the opinion of the City
Manager, a Good Faith dispute exists may
enter into a settlement agreement to be
ratified by the City Council which entitles
the taxpayer to a credit equal to 75% of the
paid delinquent or disputed utility user tax
(excluding penalties and interest) . Said
credit must be applied within three tax years
from the date of payment. The maximum credit
to be applied against the business license
tax in any year shall not exceed one-third
(1/3) of the total credit available
hereunder.
SECTION 2. Severability. If any section, subsection,
subdivision, paragraph, sentence, clause, or phrase of this
ordinance is for any reason held to be invalid or
unconstitutional by a decision of any court of competent
jurisdiction, such decision shall not affect the validity of the '
remaining portions of the ordinance or any part thereof. The El
Segundo City Council hereby declares that it would have passed
each and every section subsection, subdivision, paragraph,
sentence, clause, or phrase, irrespective of the fact that any
one or more sections, subsections, subdivisions, paragraphs,
sentences, clauses, phrases be declared invalid or
unconstitutional.
SECTION 3. This ordinance shall become effective
immediately upon adoption.
SECTION 4. The City Clerk shall certify to the passage
and adoption of this ordinance; shall cause the same to be
entered in the book of original ordinances of said city; shall
make a note of the passage and adoption thereof in the records of
the meeting at which the same is passed and adopted; and shall
within 15 days after the passage or adoption thereof cause the
same to be published or posted in accordance with the law.
LAX:67642.3 -1-
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PASSED, APPROVED, AND ADOPTED this day of '
1993.
MAYOR
ATTEST:
CITY CLERIC
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss.
CITY OF EL SEGUNDO
I, , City Clerk of the City
of El Segundo, do hereby certify that the foregoing Ordinance No.
was regularly introduced and placed upon its first reading a
at a regular meeting of the City Council on the day of
, 1993. That thereafter, said ordinance was
duly adopted and passed at a regular meeting of the City Council
on the day of 1993, by the following
vote, to w t:
AYES: COUNCILMEMBERS:
NOES: COUNCILMEMBERS:
ABSENT: COUNCILMEMBERS:
CITY CLERK
APPROVED AS TO FORM:
CITY ATTORNEY
tAx:67652.3 -2-