To: Honorable Mayor and Members of Town Council
From: Kristin Read, Assistant Town Manager
Title
Ordinance Approving a Franchise Agreement Between the Town of Castle Rock, Colorado, and Black Hills Colorado Gas Inc. (Second Reading - Approved on First Reading on December 7, 2021, by a vote 7-0)
Body
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Executive Summary
The Town has a franchise agreement with Black Hills Energy that was renewed in 2011 for a 10-year term that expires at the beginning of 2022. The purpose of this item is to approve an ordinance to renew the agreement for another 10-year term.
There are no recommended changes to the financial aspects of the agreement, as staff conveyed to Council in an August update on the renewal process. Some details of the proposed franchise have been changed to reflect current and desired practices, as mutually agreed to by the Town and Black Hills. Staff recommends approval of the agreement as presented.
Notification and Outreach Efforts
State law requires franchises to be published in the local newspaper once a week for three weeks prior to first reading. This requirement has been completed.
History of Past Town Council and Other Discussions
Town Council at its August 17 meeting received an update on this franchise renewal process, including that staff was not seeking financial - nor any other substantial - changes to the current agreement with Black Hills. Council did not at that time provide any direction to the contrary.
Discussion
The Town and other municipal entities require franchise agreements for utility and cable companies to use public rights of way to provide service to their customers. These agreements outline requirements for using rights of way, which are property interests the Town holds to maintain roads, trails, drainageways and other public infrastructure. The agreements also provide for a franchise fee, which the Town charges for overall use of its rights of way in lieu of charging for each use of a Town right of way or easement.
The authority to grant franchises is provided in the Town Charter, which places a 10-year limit on the duration of any franchise. The Town currently has franchise agreements with Black Hills Energy, Comcast and CORE (IREA). Franchise agreements benefit both these entities and their customers, as the entities would otherwise have to purchase themselves the property necessary to provide their services, driving up their costs and their resulting charges for services. Co-locating utility infrastructure in Town rights of way also helps limit disruptions to the public when the infrastructure needs to be repaired, replaced or moved.
From a high level, the proposed franchise agreement outlines these aspects of the Town’s business relationship with Black Hills: the terms of the Town’s compensation under the franchise; how the Town is to notify Black Hills of any annexations during the agreement’s term; Black Hills’ obligations related to extending, relocating and maintaining its infrastructure; and laws and other requirements applicable to the agreement. Staff has worked for most of 2021 to reach agreeable terms with Black Hills with regard to these items and recommends approving the franchise as it is proposed.
If approved by Council, the agreement would begin in January 2022 - once approved by the Colorado Public Utilities Commission - and run through January 2032. The Town’s current agreement with Black Hills expires January 8, 2022. It is unlikely the Utilities Commission will approve the agreement by then, with approval anticipated sometime later in January. Black Hills has committed in writing to continue serving the Town under the terms of the 2011 agreement until the 2022 agreement takes effect.
Budget Impact
As previously stated, the financial terms have not changed from the current agreement to the one being proposed: Black Hills would pay to the Town as a franchise fee 3% of its gross receipts derived from the sale, distribution or transportation of natural gas within Town limits. For 2022, this fee is expected to generate roughly $376,000 in Town revenues.
Staff Recommendation
Staff recommends approval of the ordinance as presented.
Possible Motions
“I move to approve the ordinance as introduced by title.”
“I move to approve the ordinance as introduced by title, with the following conditions: (list conditions).”
“I move to continue this item to the Town Council meeting on (date) to allow additional time to (list information needed).”
Attachments
Attachment A: Ordinance
Exhibit 1: Franchise Agreement