Franchise Agreements: Two Pen Strokes Could Help Wean Washington Off Natural Gas

Decarbonizing the Northwest’s economy may seem like a herculean challenge, but local governments are well-positioned to advance on some key fronts. One prime opportunity for cities is figuring out how to gradually transition away from heating houses and businesses with oil and gas and instead use clean electricity. An obvious route is to simply ban fossil fuel infrastructure in new buildings, a strategy already adopted by several California cities. A more subtle—and probably more politically viable—route is for local governments to leverage their “franchise agreements” with natural gas utilities.

Franchise agreements are contracts between local governments and utilities. They spell out the rules governing how private utilities can use the public right-of-way to build and operate infrastructure, including the natural gas pipelines that service many homes and businesses around the Northwest. Governments interested in decarbonizing could strategically modify their franchise agreements to pressure gas providers to be better stewards of ecological and public health, and perhaps even compel them to mitigate environmental impacts of using gas. All that is possible within the framework of existing laws.

In Washington, restrictive state laws stymie more powerful contract changes by limiting how cities and towns can make use of franchise fees and taxes. Oregon takes a more permissive approach. It allows local governments to charge franchise fees and set utility tax rates, so long as ratepayers are given a transparent accounting of fees on their utility bills.

Read on: How franchise agreements can free cities from fracked gas

If Washington’s laws were like Oregon’s, local governments would be more empowered to slow the spread of climate-wrecking fracked gas. Communities that could establish franchise fees or more generous utility tax rates could generate new revenue for a variety of good purposes. Consider just a few possibilities:

• Expanding renewable energy supports
• Investing in measures to conserve gas
• Providing financial assistance to lower-income ratepayers who want to transition their homes from gas to clean electricity.

Plus, slightly raising the cost of installing gas would help tip the scales away from fossil fuels, perhaps even forestalling the gas industry’s inexorable expansion in residential developments.

Fortunately, it would be straightforward for the Washington legislature to fix the law. There are two places to focus:

RCW 35.21.860 prohibits cities and towns from charging a franchise fee beyond recovery of actual administrative expenses. (Recoverable administrative expenses include only a narrow set of activities like receiving and approving permits, licenses, and franchises; inspecting plans and construction documents; and preparing state-required environmental statements.)

RCW 35.21.870 caps the taxes that a city may collect from utilities at 6 percent of gross sales, though it does allow for higher rates if approved by voters. For Puget Sound Energy customers, for example, this tax is passed on to ratepayers and is shown as a “utility tax” line item on the monthly bill.

The state legislature needs only a couple of strokes with a black sharpie to amend the former to exclude natural gas businesses from the exemption of franchise fees. Like so:

1. No city or town may impose a franchise fee or any other fee or charge of whatever nature or description upon the light and power , or gas distribution businesses, as defined in RCW 82.16.010, or telephone business, as defined in RCW 82.16.010, or service provider for use of the right-of-way, except:
   • a) gas distribution businesses, as defined in RCW 82.16.010.

Similarly, the legislature can amend the latter to strike out language including natural gas businesses in the limits on utility tax rates. It would look like this:

1. No city or town may impose a tax on the privilege of conducting an electrical energy, natural gas, steam energy, or telephone business at a rate which exceeds six percent unless the rate is first approved by a majority of the voters of the city or town voting on such a proposition.

These targeted fixes would help communities in Washington untangle themselves from fossil fuels while leaving electric utilities and others completely untouched. Extracting, transporting, and burning fracked gas yields a legion of environmental injustices—and just two simple changes to make Washington state law more like Oregon could help.

Laura Feinstein is a Sightline Fellow, researching energy policy. She spent 11 years in the utility industry, working in energy conservation and engineering.

Eric de Place is Sightline’s Director of Thin Green Line. He is a leading expert on coal, oil, and gas export plans in the Pacific Northwest, particularly on fossil fuel transport issues, including carbon emissions, local pollution, transportation system impacts, rail policy, and economics.

For questions or media inquiries, contact Anna Fahey.