Durango is planning a series of public hearings to identify possible cuts to plug a $600,000 hole in the city’s annual budget now that voters have rejected a 20-year franchise extension for La Plata Electric Association.
LPEA’s franchise fee, which it passed on to city consumers, generated $900,000 annually for the city, but because the current franchise agreement does not expire until May 1, the shortfall is expected to be $600,000, City Manager Ron LeBlanc said.
Because electric bills generally cover the previous month’s energy usage and billing is staggered because meters are not read all on the same day, consumers in Durango should not be billed the 4.67 percent franchise fee after May 15, said Indiana Reed, a spokeswoman for the power cooperative.
The franchise fee would have expired a year ago – May 1, 2011 – if the City Council had not voted to extend the current franchise agreement twice within the last year.
City Councilor Paul Broderick contends the council never had the authority to extend the current franchise agreement because the city charter “clearly” says that all franchise agreements are subject to approval by city voters who own property in Durango.
Broderick regrets voting for the first extension in April 2011, saying he should have read the charter.
“I didn’t do my homework,” he said.
City Attorney David Smith said he respects Broderick’s position but argues that the charter also gives the council broad authority to regulate a franchise to protect the public interest.
So the current franchise was extended at the urging of renewable-energy groups who wanted more time to vet the proposed franchise agreement for the next 20 years, Smith said.
The extensions also made it possible for the city to schedule public hearings about the proposed franchise, which was meant to give LPEA a monopoly to provide electricity for Durango.
Smith also said the city had to be reasonable when making the extensions, saying it could not extend it for as long as five years or after a franchise agreement had expired.
The fact that the city was pursuing a new franchise agreement was another rationale for extending the old franchise, he said.
Because voters on April 3 rejected a new franchise agreement, Smith said there is “no way” for the council to extend the current franchise before it expires May 1.
But Smith said consumers should not expect a refund for having paid the franchise fees under the one-year extension made by City Council. The city’s vote for a new franchise agreement was “prospective, not retroactive,” Smith said.
Broderick, who does not believe the one-year extension was legal, believes the city should refund consumers, but it would take a legal challenge.
“It’s tough to sue the city,” Broderick said. “If I had my way, I would say ‘Yeah, we need to refund it,’ but I’m just one (vote on City Council).”
The franchise fee was justified by the city as compensation for giving LPEA access to the public right of way to work on city streets and infrastructure.
But revenue from the fee went into the city’s general fund for general expenses. So Broderick had argued that it was really a tax and not a fee, which typically is charged for a specific service.
The franchise fee was responsible for a fraction of the city’s annual total budget of $52 million, Broderick said.
“If they have a need for that $900,000, they can come back to the city and try again,” he said but added that he’s “not sure the franchise fee is the mechanism to raise those funds.”