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

2. 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)

3. 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

4. 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.

5. 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

6. 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)

7. 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?

8. 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?

9. 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

10. For More Information Contact: Alexis Cain cain.alexis@epa.gov
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