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Why The Metro Council Debate Over LG&E's Franchise Fee Matters

city hall
J. Tyler Franklin
Louisville City Hall

The Louisville Metro Council will spend the next two weeks on summer break.

When the 26-member legislative body returns to City Hall, they'll likely focus on establishing a natural gas franchise agreement with Louisville Gas and Electric. That will set parameters the utility provider must abide by to use the public rights of way for natural gas transmission.

And it will likely determine how much ratepayers have to pay for it.

Council discussions on the agreement earlier this year were met with contention. Some members believe past agreements have put an undue burden on the city's poorest residents.

The most recent franchise agreement, which expired in March, carried with it a 2 percent franchise fee, which was passed on to customers. The council earlier this year voted against continuing that agreement.

Councilman Kevin Kramer, a Republican from District 11 and chair of the council's minority caucus, said the agreement is unfair because it passes the cost of the franchise fee on to the residents living within the jurisdictional boundaries of Louisville Metro government.

Under the past agreement, those living in more affluent suburban cities -- like Prospect and St. Matthews -- were excluded from the higher fees, while those living in poorer areas -- like Smoketown and Chickasaw -- saw gas bills increase.

Kramer will call on LG&E to pass on any costs related to a franchise agreement to all users within the utility's service area, not just those living in Louisville Metro.

He likens the agreement to the rent the utility provider pays for using city property. That rent, he said, should be considered a regular cost of business for the utility provider, thus pushing the added cost burden on to everyone within the service area.

It's unclear if officials at LG&E will agree to the plan. A spokesman for the company said collecting a fee on behalf of Louisville Metro from all users within the provider's service area "is illegal under the law."

Any fee associated with a franchise agreement would first need approval from the Kentucky Public Service Commission. Andrew Melnykovych is a spokesman for the commission. He said there is no law that specifically addresses this issue.

"But based on past [Public Service Commission] practices, that is not something that the [PSC] would permit, unless there is some new and compelling reason to do so," he said. "In the past, those customers who benefit from the franchise are the ones who pay for it."

Melnykovych said because Louisville Metro is benefiting from the fee, the users within Metro boundaries would be required to cover the cost.

But Kramer said the benefit of using the city's rights of way goes beyond the boundaries of Louisville Metro.

"There are certain costs of doing business that you spread out to all of your customers, and rent is typically one of those costs," said Kramer.

He said building and fleet costs are also included in the corporation's regular cost of business and passed on to users across the service area.

Kramer said the fee imposed on the utility company would be calculated based on the amount of gas transmitted through lines within city right-of-ways. He said the revenue generated from such a rent structure would likely be less than that generated from the previous agreement's 2 percent fee.

Funding For Housing?

Mayor Greg Fischer is pushing the council to reinstate the 2 percent fee. During his initial budget proposal in May, he said such a fee could help bolster the city's affordable housing trust fund.

The city's recently approved $822 million budget sets aside $2.5 million for the Louisville Affordable Housing Trust Fund. Fischer said an additional $2.5 million could be generated from the 2 percent fee.

Council members seem opposed to reinstating the fee.

Council President David Yates, a Democrat from District 25, said such a franchise fee is a "regressive tax, a pass through."

"I'm not for that," he said.

Councilman Kelly Downard, a Republican from District 16, said the utility provider "should be paying us rent." He said revenue collected through the rent could help city crews repair roads that some council members argue have been destroyed by LG&E contractors performing gas line repairs.

Councilman Bill Hollander, a Democrat from District 9 and chair of the council's majority caucus, said it’s “very important to the community” to ensure the utility company is held to a certain standard when it comes to keeping roads, sidewalks and the rights of way in good shape.

Kramer said he's hopeful the PSC will rule that the fee imposed for laying gas lines in the city's rights of way will be considered "a cost of doing business."

"And they can charge that off the same they charge off any other cost of doing business," he said.

Jacob Ryan joined LPM in 2014. Ryan is originally from Eddyville, Kentucky. Email Jacob at jryan@lpm.org.