Isaac M from Montgomery, AL. Alabama Power territory. Working on a federal government facility — a VA hospital complex. The electric bills include a city franchise fee of 6% on total charges. For a facility using $45,000/month in electricity, that is $2,700/month in franchise fees. Federal facilities are exempt from local franchise fees under federal supremacy doctrine — you cannot tax the federal government through a municipal franchise agreement. But Alabama Power has been assessing this fee on the VA bills for at least 5 years.
Federal facility being charged city franchise fee — should be exempt
Isaac, federal franchise fee exemption is well-established law. The utility is collecting the fee on behalf of the city, not for itself, but the utility still has the obligation to correctly identify exempt accounts and exclude them. A VA hospital is as clearly federal as it gets. This should be a straightforward correction with a substantial refund.
Isaac, I dealt with this same issue on a federal courthouse in Huntsville with Huntsville Utilities. The franchise fee exemption was not applied because the billing system codes exempt accounts by tax ID number and the federal EIN had a typo in the system — one digit off. Once the EIN was corrected, the exemption applied automatically and we recovered 3 years of franchise fees. Check whether the federal EIN is entered correctly in Alabama Power system.
Albert, good idea. Asked Alabama Power to verify the tax ID on the account. They confirmed the EIN matches the federal government. The problem is simpler — the account was never flagged as a federal government account. It is coded as a commercial customer. Nobody at Alabama Power set the government exemption flag when the account was established.
The billing department says they need a formal exemption request from the VA facility administrator along with documentation of federal ownership. I provided a letter from the VA medical center director on VA letterhead plus the GSA property record confirming federal ownership. Alabama Power is processing the exemption and backdating the franchise fee refund.
Isaac, make sure they backdate the full lookback period. I have seen Alabama Power try to limit refunds to 12 months even when the error goes back further. The Alabama PSC allows 3-year lookbacks for billing errors. At $2,700/month for 3 years that is $97,200.
Wanda, exactly what happened. Alabama Power initially offered 12 months. I cited the PSC rule and they came back with 24 months. I pushed for 36 months with the PSC regulation reference. They agreed to 36 months. Credit: $97,200. The VA facility administrator was stunned — she had no idea the franchise fee was improper. She is now asking me to review all 6 VA facilities in Alabama.
$97,200 on a franchise fee exemption at one VA hospital, and the door is open to 5 more facilities. Isaac, federal government accounts are an enormous untapped market for auditors. Military bases, VA hospitals, federal courthouses, post offices — all should be exempt from local franchise fees and many are being charged. This is a national-scale opportunity for auditors willing to work with federal procurement.
Randy, already looking into it. The VA procurement process is different from private sector — they use GSA schedules and have specific requirements for contractor qualifications. But the savings potential across hundreds of VA facilities nationwide is staggering. If even 20% of them are being charged franchise fees incorrectly, we are talking about millions in annual overcharges across the system.