Council chooses to reject franchise agreement with Atmos Energy

Town out $30k in rent and…

The Town Council of Crested Butte has decided it is better to not enter into a franchise agreement with the town’s gas supplier rather than have an agreement that doesn’t include the town being listed as “additionally insured” under the gas company’s liability insurance.

A franchise agreement is a general contract between the town and public utilities that allows utilities operating in town to utilize town right of ways for certain compensation.
Citing citizen protection and a principled stand, the council went against the recommendations of the town staff and rejected the franchise agreement by a 4-3 vote at its January 18 meeting. The action will essentially allow the gas utility to utilize the town’s public right of ways but the utility will not have to pay “rent” for such use of public property.
In a memo to the council dated January 21, town finance director and risk manager Lois Rozman outlined some immediate concerns and impacts. Among the ramifications cited in the memo, the town will lose a minimum of $25,000 in annual franchise fees (3 percent of the company’s Crested Butte revenues) that went to the town’s General Fund. The town will release any claim to a $5,000 bond that was held by the town to guarantee performance. The town will immediately lose indemnification protection given the town from Atmos under the agreement.
The town’s liability is actually increased since the town no longer has the “hold harmless clause or the $10,000,000 insurance policy.”
Despite those protections in the proposed agreement, it wasn’t good enough for the majority of the council.
The town will now be expected to issue individual permits to the utility before it can do any work in the town’s rights of way. Under the proposed agreement, if the town needed any of the gas company’s infrastructure moved as a result of a town project, the company had to absorb the cost. The town will now be charged for such situations; a two-block replacement of water mains is scheduled for this summer that could involve moving some gas lines.
Given the number of meetings over the franchise agreement and stalemate between the two sides, town manager Susan Parker had negotiated a ten-year contract with two five-year renewable options instead of a straight 20-year contract. That too was not good enough for the council.
The majority of the council was adamant that the company list the town as “additionally insured” with their insurance coverage. They felt without that specific language, the town and its citizens were exposed and put at risk.
“Our insurance carrier is not allowed to do that,” Atmos Energy representative Brian Martens told the council. “They are our general insurer for the corporation and they only insure utilities, not municipalities.”
“I see no reason to go further with this until they name us as additionally insured,” responded Councilperson John Wirsing.
“With the liability insurance we have, you are covered,” responded Martens. “You are held harmless with our insurance coverage and it is stated in the franchise agreement.”
“It is substantially less than we’ve had in the past,” said Wirsing. “It is hard to take from this side of the table. I wasn’t elected to sit up here and leave our citizens exposed.”
Atmos had purchased Greeley Gas, Crested Butte’s gas supplier, 17 years ago and took over the gas service to the town. The franchise agreement with Greeley had the town listed as additionally insured and so Atmos was obligated to continue that level of coverage for the term of the agreement. Martens explained that Atmos does not normally provide that level of coverage with any of its municipal accounts. “It’s a corporate policy,” he said.
Councilperson Jim Schmidt read a prepared statement citing the bank explosion of 1990. That tragedy was blamed on leaking propane and killed three people and injured 17. “They were friends of mine and we as a council are responsible for the health, safety and welfare of the citizens of this community,” he said. ”I agree with what Reed [Betz] said a few weeks ago. This feels like a big company bullying a small town. We are being backed into a corner and Atmos is putting more liability on the town and less on them. It’s all about money. I’ll probably reluctantly vote for this but what it would cost to do this for the town is minimal. I’d rather see a one-year extension of the current agreement so we can settle this.”
The franchise agreement had expired June 25, 2010 and was continued until Tuesday for negotiations.
“I empathize with what you went through,” said Martens. “But don’t paint Atmos as just a large, faceless corporation. A lot of the people that helped build the system here are still here running it. We care about our customers. We feel strongly that they need to be protected and we have $10 million in liability insurance that is there. No town has ever had to pay out for action. The town is adequately insured and we are willing to show you the $10 million certificate every year. We built you a safe system and we take care of it and we value you as customers.”
“There are other benefits in this franchise agreement,” mayor Leah Williams said of the 11-page document. “The council has to look at and decide what’s in the best overall interest of the public.”
Local business owner Peter Maxwell said the town should hold firm. “Asking for additionally insured coverage is not that big of a deal. If you are doing this because there is no other competition to serve the town then shame on you guys,” he told Martens.
“It doesn’t sound like we as a town are protected,” added business owner Davin Sjoberg.
Williams said this was the most difficult issue she has faced as a member of the Town Council, “and we are simply not in a good negotiating position. But everyone says it’s in the best interest of the town to have a franchise agreement.” She too said she would probably reluctantly vote for the agreement but then encourage lobbying at the state level to force the insurance issue.
Town attorney John Belkin, who brought the insurance issue to the council’s attention during negotiations with Atmos, explained that the franchise agreement is “basically a blanket permit. Without the franchise agreement there will be more administrative issues for the town. It will be a more rigorous permitting process. There will be times everyone will be put in a difficult position. With the agreement you are the landlord and you can make them do certain things. I want to be clear, I think the town is best with the blanket permit in the franchise.”
Martens said that with or without the franchise agreement, “we are here for the long-term. Without an agreement, we’ll be here. We’re not cutting off your gas. We’re not leaving.”
“It blows my mind that we have a multi-million dollar company walking in here trying to be a buddy but the scale is way out of balance,” said councilperson Reed Betz.
“It sucks we’re not in a maneuverable position,” said councilperson Phoebe Wilson. “I worry about the price of the gas going up. I worry about the additional demands of the town work force if we don’t have an agreement.”
“I feel backed in a corner and I’m not happy with the proposal,” said councilperson Roland Mason.
“Just because the bad deal coming our way is the only deal, doesn’t mean we have to take it,” said Wirsing.
“We all want a franchise agreement but I can’t give you that one clause,” said Martens. “The town is held harmless in this proposal. We’ll cover you and the community if there is any occurrence. And we’ve not had any occurrences. No town has ever paid out a dime.”
“So it should be easy to name us,” responded Wirsing.
A vote was taken with Williams, Schmidt and Wilson voting to enter the agreement and Wirsing, Betz, Escalante and Mason voting against.
Martens emphasized again on Monday, January 24, that the customers in Crested Butte would not notice much of a change and the gas company was committed to serving customers in Crested Butte. “They will see a reduction in their bill because we won’t charge the 3 percent franchise fee,” he explained. “But we are here for the long run and we will continue to provide a great service. We have plenty of liability insurance in case of a mishap.
“We probably won’t have to get a permit very often but we will go through the process when we have to,” continued Martens. “We like having franchise agreements with the towns we serve. It defines a good partnership and we feel we’ve had a good partnership with the town. The price of gas won’t go up in Crested Butte as a result of this. We’ve negotiated ten such agreements in Colorado this year and none have the clause that the Crested Butte council wanted. It’s a corporate decision. We are confident we have the needed insurance to cover any situation. We still want to have a good relationship with the town and its citizens. Our door is always open if the Town Council wants to revisit the issue.”
Public works director Rodney Due said the town and Atmos have a great relationship and the company has gone out of its way to be a good partner. “From the public works department perspective, I now have to issue a permit every time they want to break ground,” explained Due. “I can’t even say what the ramifications of the work load will really be since they’ve never had to do that under the franchise agreement. They essentially had a blanket permit to do work in our alleys.
Due said he was more than comfortable with the proposed agreement that was rejected by the council. “I think the council overlooked what was in there when they focused on additionally insured language. We were held harmless under the franchise agreement. We had coverage under the agreement. We were indemnified under the agreement. Now we’re not. We have absolutely nothing. If something happens in a town alley, they could come back and blame it on us. It leaves us open for more liability and litigation, not less. We also lost our leverage to force [Atmos] to quickly respond to emergencies. I’m sure they’ll be professional but we don’t have formal language covering emergencies.”
According to a memo given to the council from town manager Susan Parker before the January 18 vote, approximately 309 Colorado communities purchase natural gas from a commercial supplier and five municipalities didn’t have franchise agreements. Crested Butte now makes six, joining Berthoud, Boulder, Craig, Fort Collins and Wellington.