Arkansas Oklahoma Gas Corp. (AOG) has responded to Van Buren Mayor Bob Freeman’s call for a franchise fee increase and the message is clear: Any rate hikes will be passed along to the customer.
Freeman informed council members Monday night (Aug. 22) that AOG and Van Buren have had a $49,500 annual flat rate in place since 1979. Meanwhile all the other city franchise fees operate on a percentage of revenue basis. Freeman wanted council members to look at switching over to the percentage system to generate additional revenue for the city.
Using 2015’s numbers, Freeman said AOG did $6.156 million in sales. From that number, Van Buren only saw $49,500, but could have seen exponentially more had it been on the percentage system.
Freeman said that a 1% rate would have resulted in $61,566 to the city (an increase of $12,066 from the flat rate). A 2% rate would have meant $123,132 (a $73,632 increase); a 3% rate, $184,697 (a $135,197 increase); and a 4.25% rate — the max allowed by law — $261,655 (a $212,155 increase).
In comments to Talk Business & Politics on Wednesday, Aug. 24, Shannon Mirus, AOG’s senior vice president of general counsel, said that any rate increases would “pass through” to customers. While AOG “takes no position on whether the Van Buren City Council should or should not make changes to the franchise fee as proposed by Mayor Freeman,” Mirus said, “we do want to be sure that it is clear to all parties how the application of the franchise fees works.”
“The statute governing franchise fees charged by municipalities to utilities states in part: ‘Nothing in this section shall limit the authority of the public utility to collect from its customers residing in each municipality an amount that equals the franchise fee assessed by the municipality on the public utility,’” Mirus explained, citing state law (A.C.A. § 14-200-101 (b) (2)). “This statute allows AOG to ‘pass through’ to customers in each municipality the amount of the franchise fee charged by the municipality. If an increase in franchise fees is approved by the City Council, it will be passed through directly to customers in Van Buren.”
Mirus said AOG – which is in the process of being sold to Littleton, Colo.-based Summit Utilities – wanted to be “very transparent with our customers” and be sure they understand AOG “is not increasing their natural gas rates and plays no part in the decision making about the Van Buren franchise fee.”
“AOG will simply implement the change, if any, in franchise fee rates charged by the City of Van Buren,” she added.
Mirus confirmed that other municipalities charge a franchise fee of 4.25% to AOG and that Van Buren was “the only municipality that currently charges the franchise fee as an annual flat rate.” Mirus concluded: “AOG values its relationship with the City of Van Buren and is pleased that the City is looking at ways to improve the structure of the franchise agreement with AOG. We are willing to work with Mayor Freeman, the City Council, and AOG customers in Van Buren to provide any information we can to help them during the decision making process.”
Freeman suggested that city council members increase the franchise tax rate to the full 4.25% on AOG effective Jan. 1, 2017, in order to help with upcoming costs for housing inmates at the new Crawford County Jail, tentatively set to open in November.
Freeman said in comments to Talk Business & Politics following Monday’s meeting that the Van Buren Police Department estimates “six-figure overhead” that it doesn’t have once the jail opens because it will be utilizing the jail more for individuals with delinquent fines. To date, the county hasn’t had room to house such inmates, so many fines have gone unpaid due to an ineffective “honor system” that has grown out of the lack of space.
Adjusting the franchise tax rate with AOG could offset the expected overhead, Freeman noted.