|
Item 1.K.
|
| City Council Regular | |
| Date: | 03/22/2021 |
| Title: | Second Reading on Ordinance Granting Franchise to MDU |
| Presented by: | Gina Dahl |
| Department: | Legal |
| Presentation: | No |
RECOMMENDATION
Staff recommends that Council adopt the proposed ordinance granting a non-exclusive franchise to Montana Dakota Utilities ("MDU") for the operation of a gas distribution system within the City of Billings
BACKGROUND (Consistency with Adopted Plans and Policies, if applicable)
MDU was provided a franchise to operate a gas distribution system within the City of Billings via Ordinance 4232 in 1979. That franchise was renewed on April 24, 2005 via Ordinance 05-5325 for 15 years which expired May 9, 2020.
The proposed franchise is a non-exclusive franchise to operate for 15 years that addresses issues related to relocation, system development, and other key operational areas. City staff worked with Brandon Lance, Regional Director of MDU in Billings to ensure there were no issues which needed to be addressed in the language of the proposed ordinance. The proposed ordinance has been reviewed by both Legal and Public Works and there have been no substantive changes made to the Ordinance granting the franchise.
Montana law provides that utilities may assert some statutory rights to use public rights-of-way for utility lines and facilities. Permit fees can be charged for work done in the ROW but franchise fees have been found to be illegal by the Supreme Court. The Montana Supreme Court held gross-revenue fees on public utilities for use of the ROW is an impermissible tax. This was a lawsuit brought by several public utilities and telecommunications corporations (specifically, MDU, Montana Power Co., Yellowstone Valley Electric Coop, and Touch America) against the City of Billings in 2000-2001. These utilities had transmission lines, cables, pipelines and other facilities located within the City of Billings' public ROWs and they challenged the franchise fee as an illegal tax. The Court held that the City could not unilaterally impose a gross revenue based fee (which the court found was effectively a tax). This case was decided Dec. 2003, which was before the previous franchise was granted in 2005. Therefore, the City of Billings has not collected any fees other than permit fees since that time.
It is unclear from the Supreme Court case whether some type of fees would be permissible if they are related to specific costs and are mutually agreed upon by the parties. It is possible some type of fee could be based on costs to the City in providing a service to MDU If the fee were based on some regulatory purpose. Accordingly, we asked all major cities in Montana, including Helena, Bozeman, Missoula, Kalispell/Whitefish, and Great Falls, and none charge similar fees to public utilities. Also, the fact that the utilities have occupied the City’s ROW for decades hinders the ability of the parties to negotiate additional fees. This ordinance simply allows the City to regulate MDU's use and to establish terms and conditions of MDU's use of the public rights-of-way.
The proposed franchise is a non-exclusive franchise to operate for 15 years that addresses issues related to relocation, system development, and other key operational areas. City staff worked with Brandon Lance, Regional Director of MDU in Billings to ensure there were no issues which needed to be addressed in the language of the proposed ordinance. The proposed ordinance has been reviewed by both Legal and Public Works and there have been no substantive changes made to the Ordinance granting the franchise.
Montana law provides that utilities may assert some statutory rights to use public rights-of-way for utility lines and facilities. Permit fees can be charged for work done in the ROW but franchise fees have been found to be illegal by the Supreme Court. The Montana Supreme Court held gross-revenue fees on public utilities for use of the ROW is an impermissible tax. This was a lawsuit brought by several public utilities and telecommunications corporations (specifically, MDU, Montana Power Co., Yellowstone Valley Electric Coop, and Touch America) against the City of Billings in 2000-2001. These utilities had transmission lines, cables, pipelines and other facilities located within the City of Billings' public ROWs and they challenged the franchise fee as an illegal tax. The Court held that the City could not unilaterally impose a gross revenue based fee (which the court found was effectively a tax). This case was decided Dec. 2003, which was before the previous franchise was granted in 2005. Therefore, the City of Billings has not collected any fees other than permit fees since that time.
It is unclear from the Supreme Court case whether some type of fees would be permissible if they are related to specific costs and are mutually agreed upon by the parties. It is possible some type of fee could be based on costs to the City in providing a service to MDU If the fee were based on some regulatory purpose. Accordingly, we asked all major cities in Montana, including Helena, Bozeman, Missoula, Kalispell/Whitefish, and Great Falls, and none charge similar fees to public utilities. Also, the fact that the utilities have occupied the City’s ROW for decades hinders the ability of the parties to negotiate additional fees. This ordinance simply allows the City to regulate MDU's use and to establish terms and conditions of MDU's use of the public rights-of-way.
ALTERNATIVES
City Council may:
- Approve; or,
- Not Approve
FISCAL EFFECTS
None
SUMMARY
This ordinance allows the City to set terms and conditions for MDU to use the public right-of-way as approved by the City pursuant to this franchise and city ordinances. Regardless of the approval of this franchise, a public utility must have the ability to use the public right-of-way for utility lines and facilities and this grant of franchise allows the City to set terms and conditions for MDU's use of the public right-of-way.