ELECTRIC FRANCHISE AGREEMENT EXPIRATIONS BEGIN TO FACE MANY CITIES
September 27, 2024
Most customers of electric service in the US are provided the service by investor-owned utilities with the framework of service governed by franchise agreements with cities. The franchise agreement provides for the utility to use the public right of way and other factors. Often the franchise agreements have been structured with long-dated terms with limited features to allow the agreement to be changed or terminated. But when franchise agreements expire, it raises the opportunity for the city to urge changes including for example acceleration of clean energy objectives.
Electric service franchise agreements expire soon in Portland, Oregon in 2027; Corpus Christi, Texas in 2028; St. Paul, Minnesota 2026; Las Vegas, Nevada 2025; Aurora, Colorado 2028 or Peoria, Illinois in 2028 among hundreds of other cities facing expiration.
Local governments in states where local government franchise agreements are authorized have unique leverage when the franchise agreement expires, and the city and investor-owned electric utility have to agree to continue the contract. Through this process, improvements to existing electric services are possible through negotiated changes to the agreement. Progress on a settlement is dependent on the tolerance of local governments, possibly influenced by affordability of electric service or reliability performance of the investor-owned utility. Lack of progress on such discussions often leads to full municipalization assessments.
Some recent examples of successful negotiations include in Chicago, where the city received numerous concessions to improve service, new infrastructure investments and moving further towards cleaner energy.
Some of the items to be considered in the franchise agreement review at expiration include:
1-Better alignment of clean energy objectives between local government’s goals with past and forecasted IOU performance. For example, encouragement of electrification of transportation and building sector objectives for the city or how low income programs are managed.
2-Renegotiation of the franchise fees with specific performance objectives and to improve reliability and price.
3-Evaluation of the condition of the utility infrastructure for reliability enhancements including how EV charging can be incorporated into local distribution grid
5- Franchise agreement assessment can be used to better achieve changes in the rate structure and weigh public policy considerations such as equity and fairness in rate setting.
6-Improvements to customer service such as in storm restoration.
As the US electric industry continues to transition to cleaner energy, electrification of buildings and transportation and maintaining affordability, city and utility leadership needs to consider the franchise process as an important approach to improvement.
Dan Aschenbach
AGVP Advisory
September 27, 2024