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BMA to approve new agreement with AEP

Matthew Lane • Feb 1, 2016 at 11:30 AM

KINGSPORT — A new power franchise agreement working its way through city hall could generate as much as $3.3 million in new revenue for the city, money that city staffers are recommending go toward a sustainable paving program, economic development and streetscape aesthetic improvements.

However, the new franchise fee will likely result in a 5 percent increase in the monthly power bills of residential and commercial customers.

American Electric Power has been operating under a franchise agreement with Kingsport since 1917, granting the energy provider exclusive rights to operate within the boundaries of the city.

The 99-year contract is set to expire in May 2017, and for the past year, Kingsport officials have been working to negotiate a new agreement with AEP, one more advantageous to the city and its residents.

Earlier this month, City Manager Jeff Fleming told the Kingsport Economic Development Board the city was planning to continue with AEP for the next 20 years under a new agreement, though at the same time continuing to evaluate its long-term power options.

Last week, Ryan McReynolds, assistant city manager for operations, provided more details on the new agreement to the Board of Mayor and Aldermen. The BMA approved the agreement on first reading and is expected to offer final approval on Tuesday.

Under the original agreement, AEP pays Kingsport a percentage of its assessed value, which in 2013 amounted to $443,000. By comparison, Johnson City, Bristol and Elizabethon receive much more from their respective power providers.

In 2013, Johnson City received $3.5 million, Bristol $1.65 million and Elizabethton $750,000. All three are municipal utilities that purchase power from the TVA.

Under this new agreement, AEP is projected to pay Kingsport $3.79 million in franchise fees.

According to information provided to the BMA, to cover the cost of the new franchise fees customers would see an increase in their monthly rates. Residential customers would see a 5 percent increase, with the average impact to the monthly bill being $5.84. Commercial customers would also see a 5 percent increase, with an average monthly impact of $36.

Industrial customers would be hit with a 1.5 percent increase, amounting to roughly $525 more a month. The cost to power schools and street lighting would go up 5 percent, with a monthly impact of nearly $52.

“The pass-through is not Kingsport’s decision. That’s up to AEP,” McReynolds said. “They have the ability and right to show that line item out, just as cable providers and others do.”

McReynolds said city staff’s recommendation is for 80 percent of the franchise fee money ($3 million) to be directed for the maintenance of right of ways, 10 percent ($380,000) for economic development efforts and 10 percent ($380,000) for streetscape aesthetics, such as the undergrounding of lines and beautification.

Of course, this breakdown of how the money could be allocated is not spelled out in the franchise agreement, and ultimately it would be up to the BMA to determine how the money is used.

“Our intention is to better define that through the BMA process,” McReynolds said.

Kingsport officials have said for years the city needs a sustainable paving program, where every street in town is paved every 20 to 25 years. To do that, $2.1 million is needed each year.

If the idea is approved by the BMA, the funds from the franchise fee would be reflected in the 2017 fiscal year budget, McReynolds said.

In addition to a 20-year time frame, the new franchise agreement also includes a “right to purchase” provision where Kingsport would buy AEP’s assets (power poles, lines and substations) and essentially go into the power distribution business. The city could then purchase power from an energy producer such as AEP, TVA or Duke Energy.

The power company, a division of the only investor-owned power utility in the state, serves 47,000 residential, commercial and industrial customers in the city of Kingsport, parts of Sullivan, Washington and Hawkins counties, and the town of Mount Carmel, all in Tennessee.

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