Franchise Agreements: An Opportunity to Promote Clean Energy in Illinois Alexis Cain USEPA, Region 5

What is a Franchise Agreement? Contract between municipal government and electric or gas utility Allows utility to operate within city limits Often provides payment to municipality (can be thought of as compensation for use of public lands for utility distribution infrastructure)

Unbilled Energy Under an FA Unbilled energy service arrangements may be unique to Illinois Numerous Illinois cities have unbilled energy services arrangements. Not all do, however. Typically, Illinois municipalities receive unbilled electricity for government buildings and/or street lighting, but not for water pumping/treatment

Region 5 Report, 2011 Based on interviews with municipal government staff, unbilled energy a disincentive to EE Unbilled energy is an important benefit; financial value and protection against energy price increase Evanston– estimated $600,000 in free gas and electricity in 2010– 0.7% of the city budget.

2015 Report Prepared for Illinois Department of Commerce and Economic Opportunity Evaluation of Illinois Energy Now Public Sector Custom, Standard, and New Construction Incentives Programs: June 2013 through May 2014 Municipalities participating in EE programs despite unbilled energy Is participation reduced by unbilled energy disincentive? Is unbilled energy a barrier to renewable energy investment

Alternative Approaches Municipalities that currently receive unbilled energy services could benefit from switching to an approach where they receive cash compensation instead Use cash to: Pay energy bills Finance investments in EE/RE (including solar)

Available Alternatives: Gas Nicor/Northshore– municipalities are entitled to a given number of therms based on population Municipalities can accept equivalent cash in lieu of free gas: therms allowed x average price of gas over previous 3 years 110 out of 485 municipalities take cash; roughly half of those that take free gas do not use their full allotment of therms 100 took cash in 2010. Some increased financial exposure to spikes in gas prices (because of the 3 year averaging). Seems like a good deal, especially for municipalities that don’t use their full allotment. Why don’t more cities take this deal? Are they not aware?

Available Alternatives: Electricity Illinois Infrastructure Maintenance Fee Law (35 ILCS 645) Cities above 500,000 population: declining block per kwh fee structure– added to each customer’s bill. Collected fees transferred to City gov. Cities below 500,000 population: same as above, except compensation is limited to value of existing franchise agreement Ameren seems to be replacing free electricity (and gas) with cash payments in new agreements The fees don’t seem to adjust for inflation. Law was enacted in 1997. Flexibility? Can compensation adjust for inflation as long as the fees don’t exceed the specified fee structure? “the rates established for these kilowatt-hour categories for such infrastructure maintenance fee during the term of the franchise agreement shall not exceed rates reasonably calculated, at the time such infrastructure maintenance fee is initially imposed, to generate an amount of revenue equivalent to the value of the compensation received or provided under the franchise agreement.” --this seems to apply only during the term of an existing franchise agreement. What about when a new FA is negotiated?

Investing in EE/RE A FA “cash-out” would make it feasible for municipality to utilize energy services companies (ESCOs) or solar power purchase agreements– no money down option– by creating a potential stream of energy cost savings FA “cash-out” could also enable municipalities to utilize cash payments to meet energy efficiency grant match requirements

For More Information Contact: Alexis Cain cain.alexis@epa.gov (312) 886-7018