AOG estimates impact per customer if Van Buren City Council raises franchise fees

A franchise rate increase proposed by Van Buren Mayor Bob Freeman would add just under $6 to the monthly bill for commercial natural gas customers of Arkansas Oklahoma Gas Corporation (AOG).

Freeman suggested the 4.25% change to city council members at the August meeting, recommending the change take effect on 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.

AOG reviewed usage for its Van Buren customers for the 12-month period of September 2014 through August 2015 and found applying the 4.25% tax rate to the average usage would result in an increase of $1.07 per month to Van Buren residential customers and an increase of $5.77 per month to Van Buren small commercial customers.

“The impact of the proposed increase would vary based on actual natural gas usage of each customer in Van Buren,” said Shannon Mirus, AOG’s senior vice president of general counsel.

Mirus said AOG would take “no position on whether the Van Buren City Council should or should not make changes to the franchise fee as proposed by Mayor Freeman,” but advised 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, A.C.A. § 14-200-101 (b) (2).”

Mirus continued: “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 confirmed other municipalities charge a franchise fee of 4.25% to AOG and said Van Buren was “the only municipality that currently charges the franchise fee as an annual flat rate” of $49,500, which was established by resolution in 1979 and has not changed in 37 years.

SOLUTION TO ‘SIX-FIGURE OVERHEAD’
Freeman said in comments to Talk Business & Politics following the meeting the Van Buren Police Department estimates “six-figure overhead” it currently 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. Fixing the franchise tax rate with AOG could offset this upcoming overhead, Freeman noted.

Using 2015’s numbers, Freeman said AOG did $6.156 million in sales. From the number, Van Buren only saw the $49,500 flat rate, but could have seen exponentially more had it been on the percentage system.

Freeman said 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 4.25% — the max allowed by law — $261,655 (a $212,155 increase).

Talk Business & Politics recently requested to speak with Mayor Freeman on the rate increase calculations and any opposition to the plan. He did not respond directly, but Administrative Assistant Jennifer Froud said, “Mayor Freeman is aware of the numbers and doesn’t have any comment at this time regarding this issue.”

The Van Buren City Council is expected to consider the percentage of revenue model at either its September or October meetings to allow any changes to take effect by the start of 2017.