Lawrence City Commission to consider increasing fees charged to Black Hills Energy to use public property

photo by: Mike Yoder

Lawrence City Hall, 6 E. Sixth St., is pictured Thursday, July 7, 2016

Lawrence leaders will soon consider increasing some of the fees the city charges a natural gas provider to use city property, potentially affecting the rates the company charges its Lawrence customers.

As part of its meeting Tuesday, the Lawrence City Commission will consider adopting fee changes in the city’s franchise agreement with Black Hills Energy. Under its current agreement with the city, Black Hills does not pay permit fees to use the city’s right of way, and the city is recommending it begin paying such fees so as to be in line with other such agreements the city has, among other changes, according to a city staff memo to the commission.

If approved, the new permit fee for Black Hills would generate approximately $20,000 to $26,000 in revenue per year for the city, according to the memo. City staff is recommending that Black Hills start paying the permit fee so that the company is being treated the same as other franchisees in the city. For example, telecommunications providers Midco and AT&T and electricity provider Evergy all pay such fees. City staff is supportive of a suggestion from Black Hills that the maximum fee for its permits be capped at $25,000 during a one-year agreement period.

Although Black Hills does not currently pay permit fees for using the city’s land, the city’s current franchise agreement with Black Hills does include another kind of fee, called a franchise fee. Like the permit fee, this is a type of fee that the city charges private companies to use city-owned rights of way for their infrastructure and operations. However, unlike the permit fee, the franchise fee is based on the company’s monthly gross receipts from Lawrence customers.

In addition to the new permit fees, city staff is also recommending that Black Hills’ franchise fee be increased in the future. Currently, the fee sits at 3% of Black Hills’ monthly gross receipts, but city staff is recommending that it eventually be increased to 5%. However, city staff doesn’t want such an increase to take place this year, because it could potentially cause customers’ bills to rise during the COVID-19 pandemic. Staff is recommending that instead of the usual five-year contract, the city adopt a one-year contract with the intent of revisiting negotiations in a year.

A report of the fees charged by other cities in Kansas indicates that Lawrence’s 3% gas franchise fee is one of the lowest in the state. Should the fee eventually be increased to 5%, it would generate approximately $1.2 million annually for the city.

The city also calculated the approximate impact of such an increase on the utility bills of Black Hills customers. The city estimates that it would lead to a $12 annual increase for residential customers, a $31 annual increase for commercial customers and a $37 annual increase for industrial customers.

The city staff’s memo to the commission states that franchise fees are essential to help the city fund the purchase and ongoing maintenance of public rights of way. All of the franchise fees the city collects from private companies account for about $7.6 million of the city’s 2020 general fund budget, according to the memo. The memo doesn’t include information about how much money it collects from utility and telecommunications providers in permit fees.

The memo states that Black Hills Energy is not in agreement with the proposed changes. When asked if Black Hills would pass any city fee increases onto its Lawrence Black Hills customers, Blacks Hills spokesperson James Williams said in an email to the Journal-World that Black Hills is working to keep any passthrough costs like franchise fees or permit fees “at a minimum” for its customers. At this time, Williams said that Black Hills is confident a solution will be identified that is in the best interest of its customers and community.

The City Commission will convene virtually at 5:45 p.m. Tuesday with limited staff in place at City Hall, 6 E. Sixth St. The city has asked that residents participate in the meeting virtually if they are able to do so. A link to register for the Zoom meeting and directions to submit written public comment are included in the agenda that is available on the city’s website, lawrenceks.org.

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