What are Franchise Fees?

By Ted Baggett
Carl Vinson Institute of Government (CVI)
University of Georgia

This is in response to a request for clarification about franchise fees and how each utility’s billing would be impacted by franchise fees contemplated in the CVI report, Revenue and Expenditure Estimates for a Proposed City of Brookhaven, as potential revenue sources for a newly incorporated city.

The study calculated cable franchise fees based on the ratio of population of the study area to unincorporated DeKalb. Cable franchise fees are collected either by the county or a city. Because cable subscribers within the study area are currently paying cable franchise fees to DeKalb County, this revenue would merely be diverted to a new city. It was assumed that the same fee imposed by DeKalb would be used in a new city and thus no increase in costs on cable bills was anticipated.

With respect to natural gas, Atlanta Gas Light (AGL) maintains infrastructure throughout much of metro Atlanta, and the cost of franchise fees paid to municipalities are spread across all rate payers whose gas marketers utilize AGL infrastructure. Thus, all natural gas customers, inside or outside of city limits, using AGL infrastructure would absorb this comparatively small cost of doing business through their existing rates.

Land line telephone franchise fees are usually calculated at 3% of costs for service and are an add-on only paid by municipal customers in the city with the franchise fee, so an increase of slightly less than 3% is a reasonable approximation.

Georgia Power’s standard electric franchise agreements call for a 4% fee on gross sales (less fuel costs and sales taxes) of electricity within a city. The Georgia Public Service Commission determined in 2006 that half of that fee should be added on to the municipal customer’s bill and the rest should be paid out of the rate base of all Georgia Power customers statewide. So generally speaking, most municipal customer’s electric bills would increase by approximately 2%.

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