Addendum 21a Staff Report Allowance of Profit on Franchise Fees Charged to Green Valley Disposal CompanyDATE:
TO:
FROM:
SUBJECT:
COUNCIL AGENDA
DATE: 1/17/95
ITEM NO. 21a
ADDENDUM
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
JANUARY 13, 1995
MAYOR AND TOWN COUNCIL
LARRY E. ANDERSON, TOWN ATTORNEY
ALLOWANCE OF PROFIT ON FRANCHISE FEES CHARGED TO GREEN VALLEY
DISPOSAL COMPANY
At the January 2, 1995, meeting, the Council requested this Office to provide a brief analysis of allowing Green
Valley to charge a profit on the Town's franchise fee.
The franchise fee is set by the franchise agreement on gross revenues received by Green Valley for providing
services in the Town. Unlike other franchises, the Town Code does not establish a•franchise fee. In addition,
unlike transient occupancy taxes, the fee is levied on Green Valley and not individual customers.
As far as we can determine, Green Valley has been allowed to calculate profit on the franchise fees in the same
way that it calculates profit on other fees and taxes that it has historically paid, such as business taxes,
withholding taxes, and so forth, except for the 1990 rate -setting. This is consistent with utility regulation
practice.
There has been no change in the calculation of the franchise fees since 1983; it has remained at a straight 10
percent of gross revenues, and this year's suggested change would actually alter the calculation in favor of
Green Valley by not charging the fee on the fee itself. In other words, there has not been any new or
discovered unfairness to the ratepayer or any indication that the fee has been miscalculated or misapplied by
Green Valley.
Therefore, Town Staff is unable to determine a reason why the franchise fee does not continue to be a "proper"
operating expense under the franchise agreement and an expense to be included in the calculation of
allowable profit.
As the Council may recall, there was discussion in 1992 about amending the franchise agreement to eliminate
profit on the franchise fee as part of revamping the agreement to provide a long term ratemaking solution.
However, no agreement was reached on an amendment to the agreement.
PREPARED BY: LARRY E. ANDERSON, TOWN ATTORNEY
LEA:r.O I / 13/93 I :37 PM
C:\W PFILES\CNC LRPTS\FRANCHIS.TCR
Reviewed byr \ ,(/'Manager Clerk Finance Treasurer
Y t
COUNCIL ACTION/ACTION DIRECTED TO:
MAYOR AND TOWN COUNCIL
RE: ALLOWANCE OF PROFIT ON FRANCHISE FEES CHARGED TO GREEN VALLEY DISPOSAL
COMPANY
January 13, 1995
PAGE 2
The net effect of profit on the franchise fee on ratepayers is minimal; however, it has an effect of some $22,000
on Green Valley profits.
As you know, Green Valley is using a lawsuit against Monte Sereno as part of this year's ratemaking process.
In one aspect of that suit, Green Valley is asking the Federal District Court to decide if Monte Sereno must allow
profit on franchise fees; should the Court rule that Monte Sereno can disallow such profits, the Town may wish
to revisit the question in the next rate -setting.
Staff recommends that the franchise fee continue to be allowed as an operating expense and included as part
of the calculation of Green Valley's allowable profit from service in the Town of Los Gatos.