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 

www.case-fl.org

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.