Franchise agreement vs. service territory agreement

LCEC-substation-cape-coralThere is often confusion about what a franchise agreement is, and what it is not. So let’s set the record straight: A franchise agreement is a contract between the local government and a utility. It provides the utility with the right to use the government’s public rights of ways for utility equipment and infrastructure.

At times, the city or county will impose a franchise fee as part of the agreement. The utility is obligated to collect the fee from customers within the government’s jurisdiction and turn the collected funds over to the city or county. LCEC does not retain any part of franchise fees collected. The City of Cape Coral currently receives an approximate average of $6 million in franchise fees from its citizens annually.

A franchise agreement does not determine what utility serves a specific geographic area and it does not establish the rates utilities charge for electric service. In Florida, the Florida Public Service Commission (FPSC) has jurisdiction to approve and assign territorial agreements. Utilities are obligated to provide service to the customers within their assigned service territory.

cape-coral-substationLCEC was incorporated in 1940 and began serving North Fort Myers, Sanibel, and Pine Island. Eventually, before the first home was built in Cape Coral in 1958, LCEC received a proposition from local developers to build the electric infrastructure.

Florida regulators agreed to assign the territory to LCEC and construction began. No other utility was interested in the venture.

According to the law, no other utility may serve any substantial portion of LCEC’s service territory without the approval of the FPSC. The current franchise agreement says the City of Cape Coral can choose to purchase LCEC assets used to serve customers within the City upon expiration of the agreement (with the agreement of 2/3 of LCEC members). Although the City may, in turn, try to sell the assets to another party, it is unlikely that the economics involved would make it feasible.

First, the price tag for purchasing the system from LCEC would be hefty. The legal and consultant expenses alone could be extreme – for both parties. It is LCEC’s understanding that the City of Boulder Colorado has spent approximately $15 million in legal and consultant fees in an unsuccessful effort to purchase the electric system from Xcel Energy – a battle that has continued for years.

Franchise agreements are common, but they are not required. Not all cities and utilities choose to use them. They do not change service territories or the utility’s obligation to provide service to customers. LCEC has franchise agreements with Lee County Government, Everglades City, the City of Marco Island, the City of Sanibel, and the City of Cape Coral.

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  1. Pingback: What are electric franchise agreements? - LCEC Cape Coral Franchise Agreement Resource Center

  2. Pingback: Electric franchise agreements grant authority to serve area.

  3. Pingback: Franchise agreement between a utility and a governmental body

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