Franchise Compensation Rule
UPDATED: March 6, 2020
On December 5, 2020, the WA State Supreme Court reached a decision that allows King County to charge such a fee: Slip Opinion. Please note that a slip opinion is not necessarily the court’s final written decision. Slip opinions can be changed by subsequent court orders. Nonetheless, the Court held that “King County may charge franchise compensation”, which it finds “is not a tax,” but rather “is one term of a bargained-for exchange.”
By Notice of Appeal filed September 24, 2018, King County petitioned the Washington State Supreme Court to review the Summary Judgment Order entered by the King County Superior Court (see below). The Supreme Court Case Number is 96360-6. The Supreme Court accepted direct review of the following issue: Whether King County has authority to charge public and private utilities rent for the utilities’ use of rights-of-way along county roads? King County filed its Opening Brief on March 1, 2019 (KC Brief). The Districts filed their consolidated Response Brief on May 15, 2019 (Districts’ Response Brief). Oral arguments were heard by the Court on September 17, 2019. The TVW video recording of oral arguments may be viewed here: Oral Arguments in 96360-6. This matter is now under consideration and the Court’s opinion is pending.
Read the September 4, 2018, Order and Judgment of the King County Superior Court invalidating the County’s Franchise Compensation Rule: KCSupCt_Final Judgment_09 04 2018 .
“Court Rules on Rent to Utilities for Use of Rights-of-Way By: VOICE of the Valley August 2, 2018
On August 1, 2018, King County Superior Court Judge Samuel Chung issued an oral ruling granting summary judgment to water, sewer and electric utilities that King County cannot charge the utilities rent for the use of county roads and rights-of-way. A formal order reflecting the Court’s decision will be prepared and presented to the Court in the near future.
On November 7, 2016, the King County Council adopted Ordinance 18403 purporting to authorize the imposition and collection of “rent” from water, sewer, gas and electric utilities using county roads and rights-of-way. KC Ordinance #18403 . The County anticipated the Ordinance would generate $10,000,000 per year for the County’s general fund. On December 29, 2017, King County’s Facilities Management Division adopted Rules for Determining Franchise Compensation intended to implement the Ordinance. The Rules went into effect on January 29, 2018.
On January 25, 2018, King County filed a lawsuit in King County Superior Court (Case No. 18-2-02238-0 SEA) against 21 water-sewer districts that had opposed the County’s adoption of the Ordinance and Rules. The County sought a declaratory judgment that the Ordinance and Rules were valid. The water- sewer districts filed counter-claims against the County challenging the validity of the Ordinance and Rules, including a claim that water-sewer districts have the right to locate their facilities in county roads and rights-of-way without having to pay rent to the County. A group of non-profit water associations and an electric utility intervened in the lawsuit and also challenged the County’s ability to charge rent for their use of county roads and rights-of-way. The Court granted the motions for summary judgment filed by the water-sewer districts and the intervenors and ruled that the County cannot charge rent for the use of county roads and rights-of-way.”
BELOW IS BACKGROUND INFORMATION AND LINKS RELATED TO THE FRANCHISE COMPENSATION RULE
King County and several Special Purpose Districts/Water Associations are currently engaged in litigation to determine the validity and/or applicability of this new Rule. King County Superior Court Case No. 18-2-02238-0. KC v Districts_Docket_ 02 27 2018 KC v Districts – Complaint for Declaratory Judgment KC v Districts – Answer to Complaint Read a very good article written by Jessica Lee and published on February 28, 2018, in The Seattle Times: Utility Customers Face Monthly Bill Increases . Also, read the letter filed by Puget Sound Energy in opposition to the franchise fee: PSE – Comment Letter .
Summary Judgment hearing in this case is currently scheduled for July 27, 2018, before Judge Samuel S. Chung, Courtroom W-1060, Seattle Courthouse. Following is the King County Superior Court docket information regarding the Franchise Compensation Rule litigation (essentially a declaratory judgment action testing the validity of this Rule):
Case Number: 18-2-02238-0
Plaintiff: King County
Defendants: Cedar River Water & Sewer District; Coal Creek Utility District; Covington Water District; Fall City Water District; Highline Water District; King County Water District No. 20; Lakehaven Water & Sewer District; Midway Sewer District (dismissed); NE Sammamish Sewer & Water District; Sammamish Plateau Water & Sewer; Skyway Water & Sewer District; Southwest Suburban Sewer District; Valley View Sewer District; Vashon Sewer District; Woodinville Water District.
Intervenors: Ames Lake Water Assn; Dockton Water Assn; Foothills Water Assn; Sallal Water Assn; Tanner Water Assn; and Union Hill Water Assn.
Franchise Compensation Rule – Effective January 29, 2018
FMD completed a draft process in October 2017, and issued it in the form of a proposed public rule. After reviewing comments submitted through the FMD website, email, U.S. mail, and a public meeting, FMD finalized the public rule, which became effective on January 29, 2018. Under authority granted in King County Code 6.27.080.D, the purpose of the rule is to describe a standardized approach for determining franchise compensation. The final promulgated Rule and related guidance documents may be viewed here: Final Franchise Compensation Rule Decision Summary Final Rule FAQs Policy and Guidelines Estimation Worksheet Inputs and Formulas Estimation Worksheet Text Explanation Franchise Compensation Methodology Inputs
Franchise Compensation Public Rule Proposal
The King County Facilities Management Division (FMD), part of the Department of Executive Services (DES), intends to adopt administrative rules for the purpose of implementing the provisions of King County Code (KCC) Chapter 6.27.080, which requires that each franchise for electric, gas, water, or sewer utilities granted by King County include the requirement that the utility provide reasonable compensation to the County in return for the right to use the County road rights-of-way for the purpose of constructing, operating, maintaining, and repairing utility facilities and related appurtenances. Under authority granted by KCC Chapters 2.98 and 6.27.080.D., the purpose of these rules is to describe the processes for determining franchise compensation.
NOTICE OF PUBLIC MEETING/HEARING ON PROPOSED FINAL RULE
Franchise compensation public rule
In November 2016, the King County Council passed Ordinance 18403, which requires that electric, gas, water, and sewer utility providers compensate King County in return for using County road rights-of-way to construct, operate, maintain, and repair utility facilities and related appurtenances.
The Facilities Management Division (FMD) was assigned responsibility for implementing the ordinance, and issued a proposed public rule for comment. The initial public comment period ran from October 23 to December 7, 2017. As a result of the feedback, FMD revised the proposed rule and has now issued a final proposed public rule for implementing the ordinance. FMD is also proposing a department policy to complement the rule. The revised public rule and department policy are scheduled to become effective January 29, 2018.
A public meeting on the final proposed public rule and department policy is scheduled for January 19, 2018 from 2:15 to 4:15 p.m. at the Maleng Regional Justice Center, Room 2E, 401 Fourth Ave. N. in Kent. Each speaker will have two minutes to provide comments.
In addition, any interested person can submit written comments about the final proposed rule and/or department policy using the form below. Comments must be received by FMD no later than 5 p.m. on January 22, 2018. Comments previously submitted on the public rule have been considered, and do not need to be resubmitted or restated.
For More Information, visit: http://www.kingcounty.gov/depts/facilities-management/real-estate-services/public-rule-proposal.aspx
BACKGROUND INFORMATION
In response to the request for information from the GMVUAC’s Corresponding Secretary, Peter Rimbos, the following correspondence from Terri Hansen, King County Franchise Project Manager, gave this further more detailed explanation of the Franchise Compensation Rule:
Dear Mr. Rimbos,
Thank you for taking the time to review information related to the proposed rule for determining franchise compensation. I will answer as best I can here, and I am also happy to meet or otherwise discuss additional questions or details.
Last November, the King County Council passed an Ordinance requiring that utility providers (electric, gas, water, and sewer utilities) compensate King County in return for using the County road rights-of-way to provide utility service in unincorporated King County areas. The Ordinance assigns the responsibility for creating a process for the determination of franchise compensation to the Facilities Management Division (FMD). FMD completed a draft process in October of this year, and utility providers using King County road rights-of-way in unincorporated King County were notified of the proposed rule you saw on the FMD website, so that FMD could hear comments.
The end result of what is described in the proposed rule is a general estimate that is intended to be a starting point for discussions/negotiation between the County and utility provider. K.C.C. 6.27.080.D guarantees utility providers a “reasonable opportunity to suggest amendments to the estimate in order to reach agreement with King County as to the amount and type of franchise compensation.” Our expectation is that franchise compensation would begin to accrue when the proposed rule becomes effective, however the actual amount and type of franchise compensation is subject to negotiation and agreement between King County and the utility.
The estimate calculates a per square foot value of the County road rights-of-way in unincorporated King County for each franchise area. The process does not include roads in incorporated areas or private roads in the calculation. King County currently does not collect a utility tax or franchise fee from utility providers as I understand some cities do. I am not familiar with what utilities use to develop their rates, so I’m not able to answer questions about authorized charges and dispute mechanisms.
The proposed rule also authorizes FMD to apply a financial impact protection cap to the estimate before it is provided to the utility provider. If the estimate shows a financial impact of more than a designated cap amount per month to residential utility customers in unincorporated areas, a formula will be applied to cap the estimate that the County provides to each affected utility. The financial impact protection for residential customers was meant to operate as a cap on the estimate that the County will provide to each affected utility, and does not operate as a requirement about what amount the utility provider charges its customers. The designated cap amount is currently set at $5 per month, and would apply to each affected utility. If the estimate shows a financial impact less than $5 per month per residential customer in unincorporated King County, the estimate will be provided to the utility without further adjustment.
FMD is in the process of reviewing a substantial number of comments, and will finalize the rule after making appropriate adjustments based on the comments. This portion of FMD’s process that I’m working on does not include the authority to revoke or change Ordinance requirements that were previously approved by the King County Council.
Thank you again for contacting me. In light of the volume of comments, I was not able to respond as quickly as I would have liked, and I appreciate your patience. Please let me know if you have additional questions.
Terri Hansen
Franchise Project Manager
King County Facilities Management Division
206 477 9435