The making of a franchise agreement

(July 26, 2016) — With franchise agreement discussions now underway, we thought it would be helpful to provide general information about common elements found in negotiated franchise agreements.

A franchise agreement is simply a contract between a utility and a governmental body for the use of rights of way. A franchise agreement is not required for electric services and many cities/counties choose not to use them. Governmental bodies have the right to exercise “reasonable terms” for the use of rights of ways and which often include a franchise fee that is collected by the utility and delivered to the government. The terms of a franchise agreement are not regulated by the Florida Public Service Commission (FPSC). The FPSC does, however, designate exclusive service territories of utilities who are obligated to provide service to customers within those areas. So how are “reasonable terms” established? Negotiation takes place between the two parties to reach an agreement.

Thousands of utility franchise agreements exist throughout the nation. Most franchise agreement terms are standard and are not related to utility rates, service standards, business practices or other policy decisions. Typically, parties focus negotiations on the amount of the franchise fee – which in Florida typically ranges between 3% and 6%. The current franchise fee imposed by the City of Cape Coral is 3% of electric revenues, which equates to approximately $5 million LCEC collects from customers and delivers to the City annually. Currently, the highest franchise fee in LCEC service territory is Lee County Government at 4.5%, and on the other end of the spectrum the franchise fee set by the City of Marco Island is zero.

Another common element negotiated is the length of the agreement. Typically agreements are long-term. Planning for power supply, transmission, substations, automation, and on-going system maintenance requires multi-decade forecasts and massive commitments of capital. Long-term agreements assure that resources are planned effectively to achieve the lowest rates possible. LCEC’s mission is to deliver reliable power and quality service and cost-competitive rates.

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