Consideration and Approval of Franchise Agreement and Adoption of Resolution No. 2020-16:  A resolution of the City Council of the City of Flagstaff, Arizona, calling a Special Election to be held on August 4, 2020, in conjunction with the City's Primary Election, declaring a proposed gas franchise beneficial to the City of Flagstaff; designating the text of a question authorizing the City of Flagstaff to enter into a franchise agreement and setting forth the proposed franchise agreement in full, to be voted on by the qualified electors of the City of Flagstaff, pursuant to the Constitution and laws of the State of Arizona and the Charter of the City of Flagstaff

UNS Gas, Inc., an Arizona public service corporation doing business as UniSource Energy Services ("UES" or "UniSource"), has a franchise to use the public rights-of-way and easements in the City of Flagstaff to construct, operate and maintain facilities for the handling, production, manufacturing, transporting, storing, sale and distribution of natural gas. This franchise expires in October 2020.

UniSource has submitted a proposed franchise (see attached) and requested a franchise election in August 2020 to seek voter approval.  The Arizona Constitution provides that only voters may approve a franchise, and the term may not exceed 25 years. 

The final negotiated franchise agreement will be provided prior to the April 7, 2020 Council Meeting.

UniSource will be paying its fair share of the election costs.

It is Council policy to set rates or refer certain rates to the Flagstaff voters for consideration.

Enhance community outreach and engagement opportunities.
It is recognized that natural gas extraction may pose additional climate risk.

There was a Work Session on March 10 that provided Council with information about the proposed franchise and UniSource.

Council requested additional information from UniSource and this has been provided:  (1) Yes, UniSource has an exclusive right to serve northern Arizona, per the Arizona Corporation Commission.  See enclosed map.   (2) UniSource believes the new law codified in A.R.S. Sections 9-468 and 9-810 will not affect its franchise operations in Flagstaff. See enclosed new law.

1. Adopt the Resolution, and find the granting of a franchise is beneficial to the City;
2. Not adopt the Resolution (Not Recommended). In this case we may not be able to meet election deadlines for the August 4, 2020 election, and the franchise would expire. 

UniSource, as successor in interest to Citizens Utilities, has been serving Flagstaff customers for many years. The current franchise was approved in 1995.

Council previously inquired about recent legislation governing the utility. The recent law, codified at A.R.S. Section 9-457 and 9-810, applies to all utility services (water, wastewater, natural gas, including propane gas, and electric service).  It prohibits municipalities from restricting a person's ability to use the services of a utility provider that is capable and authorized to provide utility service at the person's property. It also requires that building permit fees be the same for all utility providers (not be discriminatory).

Flagstaff residents and businesses rely on natural gas for energy. 

The 2% franchise fee currently generates about $430,000 in revenues for the General Fund. The franchise fee payment is "passed through" to UniSource customers. Council can consider increasing the franchise fee however, the current timeline for the August election would not allow for additional negotiation with Unisource.

The 2% franchise fee is standard in all northern Arizona communities where UniSource does business.  Arizona Public Service (electric company) pays a 2% franchise fee to the City. Each additional 1% increase in the franchise fee will bring in an additional $215,000 to the City’s General Fund. 

Renewal of the UniSource franchise will be beneficial to the Flagstaff community that relies on natural gas as an energy source.

The public will be allowed to submit For or Against statements as to the ballot question.
Flagstaff voters will be able to approve or deny the franchise renewal as part of the election process.