New city fee would cost Gas Co. customers

New city fee would cost Gas Co. customers

February 27th, 2011 by Cliff Hightower in News

Jack Benson

GRADUATED INCREASE

Chattanooga Gas has said it will add a franchise fee on customers' bills to pass along higher contract rates with the city.

• 2011: 3.15 percent

• 2012: 3.15 percent

• 2013: 4.15 percent

• 2014: 4.15 percent

• 2015 and beyond: 5.15 percent

Source: Chattanooga

Chattanooga gas users could see their gas bills go up almost $23 a year if the City Council passes a proposed new contract with Chattanooga Gas Co.

Chattanooga and the gas company are renegotiating a 30-year-old franchise agreement that ran out last year.

The gas company pays for the right to operate in the city. Last year it paid about $355,000; under the new agreement it would pay $1.2 million this year. Over five years, its annual payment would rise to $2.2 million.

The gas company says it will pass that increase along to customers in the form of a franchise fee on their monthly bills.

Larry Buie, region manager for Chattanooga Gas, said the fee would start at 3.15 percent and rise to 5.15 percent over time.

"It is an impact, but we want it to be a gradual impact," Buie said. "We don't want to put a one-time burden on the customer."

Buie said the Tennessee Regulatory Authority, which sets rates for the gas and other utilities in the state, will examine the contract. But because the increase is a fee that goes to the city rather than a rate increase that goes to the gas company, the TRA likely will look at the franchise agreement as a whole and give approval.

City Councilman Jack Benson on Friday said he wishes the franchise agreement had been worded so Chattanooga Gas would have to ask TRA for a rate increase rather than just pass along the fee to customers.

"They need to go to the TRA and let them decide what it takes to do business in this city," Benson said.

The City Council held a public hearing on the franchise agreement last week and voted 8-0 to approve it on first reading. The second and final reading is set for Tuesday night.

BY THE NUMBERS

• 26,648: Number of Chattanooga Gas Co. customers in Chattanooga

• $711.96: Average yearly bill for residential customers

• $59.33: Average monthly bill for residential customers

• $1.87: Average monthly residential franchise fee in first and second years

Source: Chattanooga Gas Co.

Buie said Chattanooga Gas has more than 26,000 customers in the city and the average residential customer pays $59.33 a month. The first year of the fee would raise that by $1.87 per month, he said.

Commercial and industrial users would pay more in a tiered system, he said.

TRA officials did not return repeated phone calls last week or answer an e-mail with questions about the process.

"some revenue there"

Dan Johnson, Mayor Ron Littlefield's chief of staff, said the city aims to recoup costs associated with the gas company's using the city's rights of way. Those include inspecting streets to make sure they are repaved to the same standard as before, as well as administrative costs.

He couldn't say what those costs are but said they are only part of the $1.2 million.

"There's some revenue there we haven't had," he said.

Resident Jim Folkner, a key player in last year's efforts to recall Littlefield, attended the public hearing.

"In essence, what the City Council has done is given us another tax," Folkner said.

City officials said the expired agreement charged Chattanooga Gas a flat fee of $355,000. The new fee is a percentage of gross revenues.

The city also will deduct $60,000 to $65,000 from Chattanooga Gas' annual payment to reflect the purchase of inspection permits by the gas company.

Johnson said the rate is still low compared with other cities.

"Five percent is standard," he said. "We're phasing into it to give businesses and residences a chance to absorb it easier."

Tim Spires, executive director for the Chattanooga Regional Manufacturers Association, said Friday he wanted to study the impact to industry more closely. He said he planned to talk to the TRA and Chattanooga Gas Co.

"Any increase is tough," he said. "We're still working to come back in this tough economy."

COUNCIL REACTS

Councilman Peter Murphy said he thinks the TRA can decide whether Chattanooga Gas can impose the franchise fee.

"Maybe the full amount is given; maybe not," he said.

Councilwoman Deborah Scott said she read the contract and fully understood a fee would be tacked on to customers' bill. But she said it costs the city to do business with the company.

"There has to be something," she said. "There has to be something to offset the costs."

Councilwoman Pam Ladd said that although the city will earn more from the franchise agreement, she doesn't like the idea of customers being charged more.

"I don't know if we had a better option," she said.

GAS FEE VOTE

The Chattanooga City Council will hold the second and final reading at its meeting Tuesday of a new agreement that will boost gas customers' bills. The council meets at 6 p.m. in its chamber on Lindsay Street.

DOCUMENT DOWNLOADS

PDF: Chattanooga Gas ordinance