Electric Franchise Fees and My Hometown: Understanding the Process

It may not be a well-known fact but it is true: a building’s address, and nothing else, defines the source and cost of an essential unit of power. The only option for energy ratepayers wanting to shop for electric companies is to consider relocation. However, if they play their cards right, using their franchising power, Iowa towns can hold some leverage with the powerful utilities. Cities like my town, Elkader, are entitled to the best deal given to other Iowa towns.

Like my business Jansen Products Web Development, Elkader’s electricity provider, Alliant Energy, aims to sell as many product units, at a maximum unit price, for as long as possible. Web development businesses, like most businesses, are subject to competitive market forces. Electric companies, like Alliant Energy, are not in competition with other electric companies; their service territories are defined by the Iowa Utilities Board, which also regulates the unit price of kilowatt-hours.

Alliant Energy serves communities in 88 Iowa counties and has franchise agreements with 700 Iowa towns, 200 of which are electric franchise agreements. 140 of the 200 electric franchises assess a franchise fee. With only five years until it expires, the Elkader city council would like to exercise their legal right and add a revenue-generating franchise fee to the current Alliant franchise agreement.

Simply put, the nonprofit Clayton County Energy District (CCED) wants local citizens to know most quarter-century-long franchise agreements with utility companies are taking power and opportunity away from communities.

According to Iowa Code Section 364.2, “Vesting of power –Franchise:” Electric franchises are contracts issued by the municipalities to the monopoly investor-owned electricity provider to operate their utility in the city-owned right of way.

A city may grant to any person a franchise to erect, maintain, and operate plants and systems for electric light and power, heating, telegraph, cable television, district telegraph and alarm, motor bus, trolley bus, street railway or other public transit, waterworks, sewer services, or gasworks, within the city for a term of not more than twenty-five years. When considering whether to grant, amend, extend, or renew a franchise, a city shall hold a public hearing on the question. Notice of the time and place of the hearing shall be published as provided in section 362.3. The franchise may be granted, amended, extended, or renewed only by an ordinance, but no exclusive franchise shall be granted, amended, extended, or renewed.
-2020 Iowa Code Title IX - LOCAL GOVERNMENT Chapter 364 - POWERS AND DUTIES OF CITIES Section 364.2 - Vesting of power — franchises.

Elkader’s Current Proposal Needs Tweaks

Elkader electric ratepayers need to know the electric company would like the city to drop the current deal with only five years remaining on the term and replace it with a new 25 year-long agreement with an added 1% franchise fee expiring in 2046. And the city could only consider terminating the agreement a single time after 15 years in 2036. So this plan has room for improvement. 

What Happens in West Union

The City of West Union states in their utility franchise fee’s revenue purpose statement; the income can be used toward public property maintenance and improvement, public safety, public works, public transportation, public utilities, streets, bridges, highway construction, economic development activities, and low-income energy conservation and weatherization projects.

What Happens in Decorah and elsewhere

In 2020, after two years of a lapsed franchise agreement with Alliant Energy, the City of Decorah landed on a new franchise agreement with the company. The terms of that agreement are a franchise fee of 3% for FY 2022 and 4% for FY 2023; the funds will legally be split between streets and a sustainability fund. This agreement is only a 15-year term and has outs built-in at years 5, 7, and 12. Decorah added these windows of termination consideration to have the freedom to consider their local energy options. Other towns such as Cedar Rapids, Newton, Elma, Clear Lake used their leverage in the State Code to maximize opportunities for their citizens have deals with multiple windows to terminate the agreements with Alliant.

This is a big deal; slowing the process will maximize outcome

This franchise agreement debate is a big deal for Elkader and other towns, and the process should not be rushed. Long-term no-out contracts are limiting, not future-ready, and relinquish power to a company that already has a monopoly. Elkader, the local municipality, is the franchiser and should set terms and conditions based on the precedent set in other Iowa cities like Decorah. City officials can be confident the company will agree to a good deal because they agreed to the same good deal made with other towns who asked…that is how negotiations work. Maybe the franchise fee revenue could be directed toward clean energy projects like low-income energy efficiency assistance or tax-reducing solar powering public infrastructure projects.

What Can You Do?

Elkader citizens and businesses should let the city know they want a future-ready franchise agreement with Alliant Energy. We want an arrangement as good as Decorah’s and other towns.

The best option is to amend the current ordinance as allowed in Iowa Code 364.2 (4), which expires in 2026, adding a franchise fee—giving the town five years to study and prepare a new electric franchise ordinance.

Or, start over and enact a new 15-year franchise agreement with a franchise fee used for community betterment purposes and has built-in outs at years 5, 7, and 12.

Regardless of how Elkader proceeds, residents should know the revenue purpose for the new franchise fee.

About the Author

Joleen Jansen is the Clayton County Energy District director and works as a coach for the non-profit Clean Energy Districts of Iowa. For almost 20 years, she has owned and operated Jansen Products in rural Elkader and is a member of the Elkader Area Chamber of Commerce.

Clayton County Energy District is an Organizational Member of IEC.

1. member org