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 Intermountain Rural Electric Association (Second Reading - Approved on First Reading on November 3, 2020 by a vote of 6-0)
Body
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Executive Summary
The Town has a franchise agreement with Intermountain Rural Electric Association (IREA) that was renewed in 2010 for a 10-year term that expires at the end of this year. 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. The only substantial changes seek to strengthen the Town’s service response from IREA when issues arise.
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 October 20 meeting received an introduction to this item and unanimously directed staff to place the ordinance on tonight’s agenda for approval. Further, IREA’s board on October 15 approved the franchise as presented in Exhibit 1.
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 IREA, Black Hills Energy and Comcast. Franchise agreements benefit both these entities and their customers, as the entities would otherwise have to purchase the property necessary to provide their services themselves, 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 two major areas: how access and repairs are to occur, and the terms of the Town’s compensation under the franchise. Staff has worked for most of 2020 to reach agreeable repair terms with IREA that strengthen the Town’s position. These changes are generally reflected under Article II, Sections 3 through 6, of the attached draft agreement. Public Works staff, who is most impacted by these instances, led on changes in this area and can respond to any questions from Council on their necessity.
Budget Impact
As previously stated, the financial terms have not changed from the current agreement to the one being proposed: IREA would pay to the Town as a franchise fee 3% of the first $10,000 of annual gross revenue derived from the sale of energy at any one location, plus 2% of sales in excess of $10,000. For 2020, this fee is expected to generate nearly $1.3 million in Town revenues.
Further, IREA each year would allow the Town 1% of the previous year’s adjusted gross revenue as an allotment toward any needed public electrical improvements. The draft agreement contains a “most favored status” provision, meaning that if another area jurisdiction receives increased payments from IREA in its franchise while the Town’s agreement is in effect, the Town can request the same increase. If approved by Council, the agreement would begin January 1, 2021, and run through December 31, 2030.
Staff Recommendation
Staff recommends approval of the ordinance as presented.
Proposed Motion
“I move to approve the ordinance as introduced by title.”
Attachments
Attachment A: Ordinance
Exhibit 1: Franchise Agreement
Attachment B: Certification of Publication