THE FPL FRANCHISE FEE EXPLAINED
C.A.S.E. Citizens Allied for Safe Energy, Inc. * 10001 SW 129 Terrace, Miami, FL 33176 305-251-1960 casemiami@att.net
POSITION PAPER: FPL Franchise Agreements
What is a Franchise Agreement?
A
Franchise Agreement (FA) is a document signed by Florida Power and
Light Company (FPL) and a municipality in the area FPL serves whereby
the municipality authorizes FPL to add a franchise fee (FF) to the
electric bills in its municipality of homeowners and businesses and of
its own government. FPL passes through the funds to the municipality
collected from homeowners and businesses; it does not pass through the
FF on the municipality's own electric bill and makes other deductions as
well. A typical FF is 5.9% of the monthly electric bill. FPL will say
that this is a licensing agreement but it is not; it is only a
pass-through even though FPL shows it as revenue and expense; it is
neither.
Most FA's were signed around 1980 for a thirty year period and are now expiring. New municipalities come under Miami Dade County's FA which expires in a few years. Several municipalities have stated they will not renew their FA.
Why do FA's exist?
By allowing FPL to
collect a FF the municipality can reduce its millage rate by the amount
collected thereby giving the illusion that the consumer is paying less
in municipal taxes.
Myths: Franchise Fees must be "negotiated", and the amount collected is a "fee", and the FA is a contract.
The
amount collected by FPL on behalf of the municipalty can be whatever
the municiplaty wants it to be: 1%, 6%, 10% or 0%. It is up to the municipality;
it makes no difference, as stated by one of their attorneys in a
hearing in the City of Sarasota, FL, to FPL since it does affect their
bottom line. So to speak of "negotiation" on the amount with FPL is only
part of the mind game they play to support the myth that there is
something to negotiate; there is nothing.
The amount collected is not
a fee; it is a tax on the electric bill collected by FPL on behalf of
the municipality. It is a tax, as are all other "franchise fees", on
utility bills which can amount to over 20% of the Ad Valorem taxes.
These are hidden taxes pure and simple.
The Franchise Agreement is
not a contract; there is no consideration on the part of FPL. They are
not giving up or contributing anything material to the arrangement
except the small service of collecting the money and passing it on,
which as noted elsewhere in this paper, gives them a float of about
$157,000,000 per year. FPL is not providing any service or equipment
which it would not be required to do as part of delivering energy to the
area; they are adding nothing which would constitute consideration
regardless of what they say.
What do the municipalities give up to FPL for this agreement?
In
the agreement the municipality gives FPL the following concessions:
-the municipality gives up its sovereign rights of easements and
right-of-ways -the municipality commits to a 30 year agreement with
almost no way out - the municipality gives up the opportunity to take
advantage of new technology or methods of energy distribution for 30
years. -the municipality cannot produce, store or distribute power
-FPL can put its power lines and equipment almost any place unless the
municipality can find a reason to challenge such placement or use; it
puts the city in a negative position having given up its sovereignty
-the municipality must give FPL an opportunity to match any
competitive offer of power thereby discouraging any viable competition 2
-FPL
keeps the FF charged to the municipality on its own electric bill.
-there is no provision for arbitration in case of dispute -the
municipality must pay for an audit of the FF collected, if it wants one;
no accounting is provided automatically by FPL; no contingency based
fee is allowed by FPL -the municipality gives FPL the right of first
refusal if another power company offers a better deal -the FA says the
franchise rate can increase if similar rates in the County increase BUT
FPL WILL NOT MATCH BETTER TERMS INCLUDED IN OTHER FA'S NOT RELATED TO
THE RATE. But the rate is just a pass through amount with nothing added
by FPL -FPL derives income from phone and cable lines on their poles,
but the municipality receives nothing. Miami-Dade County included in
their franchise agreement a revenue sharing clause, because the
right-of-ways are owned by the County; municipalities should have the
same provision -there is no 'buy-back' clause. If a municipality ever
wanted to power its own street lights, it would need the poles on its
Right-of-Way
What do the homeowners give up?
A franchise fee is
not deductible from Federal Taxes; municipal property taxes are. So, by
moving the tax from the homeowner's municipal property tax bill to
their electric bill, they lose the deduction and lose whatever their tax
rate percentage would save them.
What does FPL give up?
Nothing.
FPL only collects the money and passes it on. No additional benefit or
service is provided to the municipality. A contract requires
consideration, something of value, to be given by both parties. FPL
gives up nothing of value. If it did, it would be called a contract, not
an agreement. As an FPL attorney said in a Sarasota FA hearing, the FF
does not impact FPL's bottom line. True, except as noted elsewhere in
this paper.
Does the municipality give anything of value to FPL?
Yes. Soverignty over its land and production and distribution of energy in 3
the
municipality. Also, FPL immediately adds to its cash flow by collecting
FF's and holding them without interest for 60 to 90 days. FPL does not
pass through FF's collected from municipalities. FPL shows FF as revenue
in its financial prospectus. There is value in being given no-compete
and right of first refusal regarding power production and distribution.
FPL keeps the FF collected from the municipality for the municipality's
own electricity usage. And, if the municipality wants an accounting or
audit of the fees collected and remitted by FPL, the municipality must
pay the cost of the audit.
Dark provisions of Franchise Argeements
Some
FPL franchise agreements have a provision that delinquent bills of
local subscribers can be deducted from the franchise fees due to the
municipality. This can amount to from tens to hundreds of thousands of
dollars depending on the size of the municipality. Not only is this a
questionable practice, if they do so, FPL should provide detailed
information on the deductions to the municipality so they can seek
restitution from the FPL customer.
The FPL Franchise Agreements
provide that the cost of permits that FPL must obtain to do work will
absorbed by the municipality. So the municipality must cover the costs
of reviewing FPL's plans and inspecting the work.
Another provision
in some franchise agreements is that, even if the municipality decides
not to renew or sign a franchise agreement following expiration of the
agreement, FPL would still collect the fee and pass it on to the County.
This might be the case with the Miami-Dade County FA. Reportedly new
municipalities formed in Miami-Dade County which came in under the
County's FA will not receive the FF revenue from their municipality if
they do not sign a FA with FPL; the fee will still be collected but it
will go the County. This is a critical issue which must be resolved.
FPL
takes 60 to 90 days to transmit the Franchise Fee money to the
municipalities thereby having free use of the funds for that time while
depriving the municipalities of the money for that time period The
float is tens, if not hundreds, of millions of dollars; discussion
below.
Starting over 30 years ago, FPL's sea of attorneys
drafted the FA's to serve FPL then and now taking advantage of newly
elected officials and either uninformed or compromised staff to place
these time bombs with the municipalities. We are only now learning about
their nefarious provisions.
The Float
The FPL Annual Report for
2009 shows $629 million on the line for Franchise Fees. In their new
FA's , FPL has extended the pass through time from 60 to 90 days. So, if
FPL holds the money for 90 days, they have a $157 million average
float. If they had to borrow that money to use in their business at 6%,
they are saving over $9,000,000 a year in interest expense. Also, they
are depriving the municipalities of the funds for 90 days, funds which
would help their cash flow.
Broward Cities Sue FPL for deducting property taxes
In
1993 and in 2001 Broward County, FL cities sued FPL to recover
deductions from Franchise Fees by FPL for property taxes which FPL paid
to the municipalities. In 1993, Hollywood, FL was given permission by
the court to sue FPL to recover such fees. In 1997 Hollywood noted that
it had received $1.3 million as a settlement with FPL in that case. In
2001 five Broward County cities sued to recover what they held to be
improper property tax deductions over a twenty year period, about $1
million to $2.5 million per city. We are researching the final outcome
of that lawsuit.
No Accounting
FPL does not automatically and
regularly provide a detailed accounting of all FF's collected and every
deduction being made. If the municipality wants this information, they
must pay for it When the City of Hollywood Broward County needed
detailed and itemized information on the FPL deductions from the
Franchise Fees transmitted, it required protracted legal and
administrative action to obtain it. And there was not clear agreement on
that could be deducted; FPL cited State and Federal statutes and rules
of questionable relevance. The Franchise Fee is not worth this
protracted litigation and conflict; the staff time alone makes the
municipality a loser while FPL has millions of dollars to fight, our
millions. 5
Franchise Fees: Like drug addiction and loan sharking
Municipalities
who might want to wean themselves from Franchise Fee revenue find they
are often up against their legal millage cap. They might be able to
replace the revenue by a small increase in the miilage rate, or by
increasing another tax or by saving money in other parts of their
budege, but if the are already at their legal millage rate limit, they
cannot. FPL knows this so they know the municipalities are hooked on
the revenue and can not get off.
Do any municipalities NOT have franchise agreements with FPL?
Yes.
Parkland, Florida in Broward County let its FA expire in 1993 and did
not sign a new one. Parkland does not pay a FF to FPL on Parkland's own
electric bill; a FF on a municipality's own electric bill is not passed
through (rebated).; FPL keeps it. This also means that homeowners and
businesses in Parkland do not pay a FF. Nor is the municipality subject
to all of the restrictions and costs related to the FA. Parkland is
still provided with electricity and has repairs, service and required
upgrades.
How does a municipality wean itself from FPL Franchise Fee revenue?
It
the municipality is not near its millage rate limit, it can raise the
millage rate enough to cover the net amount being received annually.
However, it might be better only to raise the millage rate enough to
cover say 50 or 75% of the amount and try to save the difference through
energy conservation throughout the municipality, an immediate savings
from going green.
Also, as decentralized/distributed production of
renewable energy on our homes and business increases, the FPL bills will
decrease and, correspondingly, will the FF revenue. Better for the
municipality to end the dependency on FF revenue now and move the
revenue source to the millage rate. Tying to the source for 30 years
makes no sense.
One Caveat
If a municipality has hospitals, churches or schools which do not pay taxes 6
but
do pay the FF on their telephone bills, the municipality will no long
receive that revenue. Replacement of that revenue should be negotiated
directly with the entity, possibly offering a reduction in the annual
amount now being paid.
Should a municipality sign a FA with FPL?
No.
There is absolutely no reason to do so. FPL is only giving the
municipality back its own money, with strings, and costs. There is no
requirement to have a FA for FPL to provide power to a municipality. No
change will occur in the delivery of electricity or the related
functions and services. Parkland, Florida has had no FA for over 15
years and there has been no interruption in service. And, since FPL does
not pay back the municipality the FF on its own electric bill, they
will no longer be paying it, a net savings to the municipality. The FA
only encumbers a municipality with no real benefit, except to FPL.
An example of what loss of sovereignty can do:
FPL,
as of the summer of 2011, wants to run a new power line in Miami Dade
County, Florida. Their preferred route for gigantic 130 foot towers is
up U.S.1, the main north-south corridor in south Miami-Dade. The lines
would go through at least six municipalities. Because of the rights
signed away under the Franchise Agreements, FPL is under no obligation
to comply with local zoning ordinances or rules. They have not even
advised them of the final design or actual amount of power to be sent
along the route, or any alternative route. FPL told Miami-Dade County
that they will give them those details later, when they are ready to do
so. Corporate audacity and intransigence.
Even though FPL already has
a major power line route and right-of -way which could be used to move
the power to the same point as the route along U.S.1, despite opposition
from the municipalities, FPL has designated the U.S.1 route as its
preferred route. This could be because, at rate payers expense it will
give them excess capacity to move power northward for possible sale to
other parts of the state and nation. By increasing power by 1/6 on the
existing right of way that crosses SW 97 Avenue at SW 136 Street,
FPL would have sufficient capacity for any anticipated new need. With
an upgraded transmission line along U.S.1 they would have to double the
current amount of power now on that route. But, since FPL does not pay
for all of this, the rate payers do, there is no downside for them in
seeking redundant route.
In the Spring of 2011 CASE and its
associates met with the Miami-Dade County Department of Planning and
Zoning and the Office of Sustainability. CASE also met with the staff
of the Regional Planning Council for South Florida. We learned that they
had no real influence over the placement and nature of power lines
either because of Franchise Agreements or because of the Power Line
Siting Act.
Diminishing FA revenue as renewables proliferate
The
movement to decentralized production of renewable energy on our homes
and businesses is inevitable and immanent as renewable technology and
ways of financing it evolve. So, for a municipality to tie itself to a
thirty year agreement with one source of power is not to its advantage.
As the power demand from the grid declines, so will the net revenue from
Franchise Fees so a municipality will not continue to receive budgeted
revenue from that source. And good riddance to a hidden tax.
Conclusion
There
is no benefit to the municipality in having a Franchise Agreement with
FPL. It only imposes a hidden tax on its residents while giving FPL
valuable concessions including sovereignty over its land and
rights-of-way and the free use of the Franchise Fee money. Because of
FPL arbitrary holdbacks, the municipality does not always receive all of
the FF revenue. With energy technology evolving rapidly, it is only to a
municipality's disadvantage to be bound to a restrictive and limiting
30 year agreement regarding energy production and distribution; only FPL
benefits. It is time to stop playing this game. The Franchise
Agreements should be phased out.
©
This report is copyrighted by CASE. It may be used and quoted freely
provided full and prominent attribution is made. Revised December 4,
2011.