City Could Get $1M Annually from BWL Customers

Sunday, March 12, 2017, 12:45 pm
By: 
Alice Dreger

Above: a BWL tree-trimming truck in the Glencairn neighborhood last fall

East Lansing’s City Council is considering a franchise agreement with the Lansing Board of Water and Light (BWL) that would allow the City to obtain over $1.1 million annually from BWL electric customers who live in East Lansing.

If the franchise agreement ordinance is passed on March 21 as it has been drafted, BWL customers living in East Lansing will see a 5% increase on their monthly electric bills, representing a “franchise fee” charged by the City of East Lansing. The franchise fee funds collected would be sent by BWL to the City of East Lansing every three months.

Steve Serkaian, Executive Director of Public Affairs for BWL, tells ELi that, "In those townships that have requested a franchise fee, the BWL assesses the fee to the customers of that township, and the franchise fee revenue is returned to those townships.” Serkaian explains further, “a line-item is added to the electric bill that names the franchise fee municipality in which the customer lives.”

ELi broke the news last year that City Council would be considering a franchise agreement with BWL after coming to the realization that, even though one has been required by the state’s constitution for decades, East Lansing does not have a franchise agreement with BWL. The issue appears to have come to light in relation to a lawsuit BWL brought against East Lansing homeowners who challenged BWL’s tree-trimming plan for their property.

The option of a franchise fee with BWL represents a significant potential source of revenue for East Lansing, which is looking to deal with a ballooning debt of nearly $200 million. Since seeking advice from a specially-appointed Financial Health Team, East Lansing’s City Council is also set to be looking into the possibilities of an East Lansing income tax and an increase in property taxes.

Serkaian tells ELi that in Fiscal Year 2015, BWL electric service sales to East Lansing came to $22,545,341. Had East Lansing been charging a 5% franchise agreement at that time, it would have obtained revenue of over $1.1 million from East Lansing BWL customers that year.

Local governments decide the BWL franchise fees for their BWL service areas. At ELi’s request, Serkaian provided the following information about BWL franchise fees collected for Fiscal Year 2016 by neighboring townships:

 

Entity

Percentage basis for franchise fee

Franchise payment to BWL

Delphi Township

4%

$137,764

Dewitt Township

3.5%

$96,705

Lansing Township

5%

$600,008

Meridian Township

5%

$162,299

 

East Lansing’s City Council is set to hold a public hearing on the matter at its meeting on Tuesday, March 21. That night, Council will also be holding a public hearing on an electric utility franchise agreement ordinance with Consumers Energy, but that proposed franchise agreement with Consumers Energy would not lead to increases in the bills of Consumers Energy customers in East Lansing.

According to Terry DeDoes, Senior Public Information Director for Consumers Energy, “Consumers Energy does not [collect and] pay franchise fees to the City of East Lansing, and to its knowledge, has not paid franchise fees anywhere else in the State of Michigan.”

Consumers Energy does provide revenue to the City of East Lansing in the form of property taxes. According to DeDoes, “in 2015 we paid nearly $386,000 in taxes based on our facilities located in East Lansing. Those taxes we paid went to the City of East Lansing, Clinton and Ingham counties, local schools, libraries, the ISD and the State of Michigan.”

BWL pays no property taxes in the City of East Lansing for properties like its substations. Serkaian explains, “BWL is property tax-exempt throughout its service territory because BWL is a municipally owned utility.”

BWL is a highly unusual utility in that it is owned by the City of Lansing and is used by that city as a major source of revenue. The result of this is that all BWL customers—whether or not they live in the City of Lansing—support the City of Lansing through their BWL bills.

Serkaian tells ELi that the current agreement between BWL and Lansing “sets an annual payment by the BWL to the City in the amount of 6.2% of BWL revenue from total retail and wholesale sales of electric, water, steam and chilled water utilities.” In the last fiscal year, the City of Lansing obtained about $21 million from BWL, providing about 14% of Lansing’s income for that year.

The draft East Lansing franchise ordinance with BWL provided in last week’s City Council agenda refers to BWL being regulated by the Michigan Public Service Commission but, in fact, BWL is not regulated by that agency. That’s because it is publicly-owned by Lansing. (Consumers Energy is subject to state-level oversight and regulation by the Michigan Public Service Commission.)

Asked by ELi about why the draft BWL franchise agreement ordinance has this error, Mayor Mark Meadows answered, “We caught [that error] but outside counsel prepared it and is on vacation and we figured we would just amend it at the public hearing.” Meadows tells ELi the ordinance was drafted by law firm Secrest Wardle and that the City opted to hire outside legal counsel for this because “Utility litigation is highly complicated. Secrest Wardle has that expertise.”

In the proposed agreement with BWL, BWL is given “the right to trim trees if necessary in the conducting of such business, subject, however, to the supervision and reasonable control of the City’s Department of Public Works and Environmental Services or its successor.” This appears to refer specifically to public right-of-ways on land owned by the City, and not to wires carried over private property.

 

Related:

  • For a map showing which areas of East Lansing obtain electric service from BWL and which from Consumers energy, click here.
  • To see the proposed franchise agreement with BWL, click here.
  • To see the proposed franchise agreement with Consumers Energy, click here.
  • For our “Ask ELi” on how tree-trimming policies differ between BWL and Consumers energy, click here.

 

To write to City Council, click here.

 

 

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