Just wrapped up a massive franchise fee audit for one of our Phoenix municipal clients. APS had been incorrectly applying the 2.5% franchise fee to transmission charges for over three years. The tariff clearly states franchise fees only apply to distribution services under Schedule E-32. Found $180,000 in overcharges dating back to 2008. Anyone else seen utilities trying to franchise fee transmission costs? This seems to be a growing trend.
APS franchise fee calculation error - $180k recovery!
Great catch Sarah! We've seen similar issues with NV Energy here in Nevada. They were applying franchise fees to federal power costs which is completely improper. Recovered about $45k for a casino client last year. The key is really understanding what constitutes "gross receipts" under the franchise agreement. Most utilities try to cast too wide a net.
Duke Energy tried the same trick here in Charlotte. They were including demand response credits in their franchise fee calculation base, which inflated the fee. Filed a formal complaint with the NCUC and got it reversed. The franchise agreement specifically exempted credits and adjustments from the calculation. Always read the fine print in those municipal franchise agreements!
TVA doesn't have franchise fees per se, but we see similar overreach with local distribution cooperatives here in Tennessee. They'll try to apply franchise-like charges to wholesale power costs. The key principle is the same - franchise fees should only apply to retail distribution services, not wholesale or transmission. Good work on the recovery Sarah!
Westar Energy (now Evergy) in Kansas had a creative interpretation too. They included storm recovery charges in the franchise fee base. Took six months of back-and-forth but we proved storm costs are extraordinary expenses exempt from franchise calculations. Recovered $12,500 for a school district. These utilities will try anything to boost revenue.
Thanks everyone for sharing your experiences. It really helps to know this is a widespread issue. I'm putting together a white paper on franchise fee overcharges for our next AAUBA conference. Would love to include some of these case studies if anyone is willing. The $180k recovery is going to make our client very happy!
Count me in Sarah. The Duke Energy case would be perfect for your white paper. I have all the documentation from the NCUC filing. These utilities need to understand that franchise fees have specific legal boundaries. We can't let them turn every line item into a revenue opportunity.