Terms of Contracts Between Utilities and Local Government

If a franchise utility wishes to have their facilities on public property, the company needs a contract to operate. The local government grants permission for franchise utilities to operate within their boundaries. However, the municipal government operates differently from the private sector in negotiation of contracts and can renegotiate terms.

Terms Allotted to Franchise Utilities:

• Gains customers that are in the area of the utility
• Often has no competition
• Leases utilities and equipment to other companies to earn more revenue

Contract Negotiations for Franchise Utilities in Local Cities

Franchise utilities are required to pay a fee to the local government to have their business and services available to the community.

The contracts a utility and local government have in place often include a right to purchase. In this case, the government can purchase the utility and operate it within the boundaries of the location. The government can set itself up as the alternative to the franchise utility to change it to a municipal utility.

A municipality would implement this ability to purchase if the local citizens are not happy with the utility’s performance, costs, and consistency. This addition to a contract keeps the business operation fair in the community. The utility then has the motivation to perform and satisfy customers.