Wednesday, August 13, 2008

Franchise Fees 101

What are franchise fees?

Well it depends on whom you ask.

If you ask Ga Power, they consider it a "local tax imposed on utilities for the privilege of providing a service within city limits". Georgia Power, like everyone else, recognizes that each individual customer does not, and many cannot, pay the full cost of delivering electricity to their individual home or business. That is why these fees had been rolled into the rate structure and hidden from the rate payers.

But if you ask the Georgia Municipal Association they consider franchise fees " rent paid for the use of city public property by a utility ". They will assert this 'rental' costs the utility less than free market acquisition of rights of way or condemnation. This conveniently ignores the facts:

  • this 'rent' is paid in perpetuity, and always increases
  • however, an outright purchase is a one-time cost amortized over the same period
  • the municipality provides no service for this 'rent'
  • most municipal easements have been in place for a long time
  • new cities are taking over existing assets without compensation

The bottom line is that utility franchise fees levied by municipalities are little more than a tax on the revenue earned by a utility within that municipality.

But how do they work?

Georgia Power pays municipalities a sum of 4% of the power sold within that municipality. Georgia Power, like all successful businesses, does not pay taxes, they collect taxes, so they pass this cost along to their customers. In total Georgia Power collects and pays municipal taxes totalling over $100 million annually which no one sees on their power bill. In the past the statewide municipal franchise fees were simply rolled into the rate structure, appearing nowhere on any customer's power bill.

That has recently changed: siding, at least to some degree, with the "it's a tax" point of view, the Georgia Public Service Commission ruled in 2006 that Georgia Power should get one half of these municipal fees exclusively from rate payers in those municipalities with the rest remaining hidden in the rate structure. This resulted in municipal customers paying approximately 2.9% of their usage while unincorporated customers (or those living in cities forgoing the franchise fee) pay only 1.1%.

Needless to say the Georgia Municipal Association took the issue to court and after losing the case (and more of our tax dollars) the ruling took effect in January of 2008.

But all is not lost. City-folk are still getting a free ride on the backs of other rate payers, and not just those in unincorporated areas. All municipal customers pay the 2.9% tax including commercial and industrial users. And they pay proportionally more than residential users because they use proportionally more electricity. Since they don't get a vote in city elections it is politically expedient to institute taxes that hit the business community harder than residential users. That is already being leveraged by candidates and elected officials in recently formed Georgia cities.

Now this is just for electricity, which is by far the largest. However, franchise fees apply to gas, cable and telephone as well, but these are just other verses of the same song. All these bills are going up on December 1.

What does this have to do with Dunwoody?

Georgia Power franchise fees appear in the Carl Vinson study under 'other' franchise fees despite it being second only property taxes and representing over 13% of the budget. Given statements from the Citizens for Dunwoody that they directed the CVIG to include $1.5 million to cover potentially lost HOST funds, it seems likely this deceptive categoriziation was also at their direction.

Dunwoody is new. At the time of this writing, the city is not even in operation. All those power poles, transmission lines and substations pre-date the city, and presumably Georgia Power already owns the property and easements. Yet this new city proposes to charge them rent (which we will pay) for assets Georgia Power already owns.

We, the citizens of Dunwoody, have already paid for these assets through our past power bills, cable bills and phone bills. It was on the county's watch that our water lines were punctured installing fiber. But now, because of reckless city financial planning, we will be forced to pay for these again, and again, and again.

But what can we do?

Contact the Georgia Public Service Commission demanding that they complete the job they started in 2006. Ask them to:
  • require that new cities compensate utilities for properties and easements that they intend to 'rent' back via franchise fees.
  • change the franchise fee structure so that 100% of municipal fees are paid by rate payers in that municipality.
Vote for city councilmen who support not assessing these fees. But be very skeptical: they have 2.4 million reasons to lie.