Escambia County Circuit Court Judge Jan Shackelford entered an order mandating the City of Pensacola return to certain customers of the City’s natural gas utility amounts which were improperly charged as “franchise fees” to the customers since Aug. 6, 2011. The amounts which the City is currently obligated by Judge Shackelford’s order to return to the customers are estimated to be $18,000,000.00 to $20,000,000.00.
The City was also ordered to immediately cease further efforts to charge the franchise fees. The mandate applies to all customers of Pensacola Energy who are located inside the City limits.
Pensacola resident Dr. Eric L. Frank, on behalf of a class of similar customers of Pensacola Energy, filed suit alleging that the City of Pensacola has illegally
charged him and other city residents mandatory franchise fees for the use of city-owned property for delivery of natural gas services. Dr. Frank is represented by attorneys Matt Dannheisser and Artie Shimek.
Shimek explained that the lawsuit stems from a series of “Franchise Fee Ordinances” first enacted by the City in 1970 and continuing to the present day. “The City charges its own gas department, Pensacola Energy, a “franchise fee” to use land owned by the city to deliver the natural gas to homes and businesses within the city. Pensacola Energy then passed that charge on to its customers. In other words, the City purports to charge itself a fee to use its own property.” The suit charged that the city lacked the authority to impose what amounts to an illegal tax. As Dannheisser noted, “It was completely illogical for the City to charge itself a fee, but it became spurious when the City mandated its own citizens pay those illogical charges.”
The City has been impermissibly charging its natural gas customers inside the City limits a six percent (6%) franchise fee on top of their natural gas charges. “In addition to that, the City has also charged a 10% public services tax on those improper franchise fee charges. Judge Shackelford ordered those taxes also be refunded to the customers,” said Shimek. “In essence, the Judge has ordered the City to return 6.6% of the amounts paid by in-City natural gas customers.”
Dannheisser noted that this is a very significant win for consumers of Pensacola Energy. “For over 54 years the city has been impermissibly levying a tax
on its citizens and disguising it as a franchise fee,” said Dannheisser. “In addition to being required to return Eighteen- to Twenty-Million Dollars of improperly collected charges, the City is enjoined from all further efforts to charge such fees. That is untold millions more in future savings for customers of Pensacola Energy.”
Shimek lamented how the City could impose an additional fee on its citizens to allow it to run a business that it already had the right to operate. “Basically, the city is charging rent to itself to use its own property and illegally billing the customers for it,” Shimek said. “As opposed to the likes of FP&L or Cox Cable, as examples, who do not own the rights of way and thus require the City’s permission to use that property, the City of Pensacola owns its own rights of way and does not need to obtain permission from itself to use its own property.”
Both Dannheisser and Shimek expressed disappointment that Florida law limited them to recovering only the improper franchise fee charges since 2011. They explained that because of Florida’s four-year statute of limitations, they were limited to seeking refund of improper charges to those beginning four years before the lawsuit was filed in 2015. “If you think about it, the City has been collecting these illegal fees since 1970. Although the City is now ordered to return those improper charges since August 2011,” Shimek said “the City gets to keep the illegal charges it collected from 1970 until 2011. We do not know how much that is, but certainly the amount is far in excess of the amounts which the City is now ordered to pay back to its customers. I only wish our client had thought of this sooner and brought it to us so that we could have saved the customers even more.”
Added Dannheisser, “The City gets to keep one heck of a windfall and should be thanking its lucky stars that it doesn’t have to return all of the illegal charges. Although the City is required to pay back to its customers the illegal charges for the past 13 years; the statute of limitations allows the City to keep the prior 41 years’ worth of improper charges. When taking interest accruals into account, the 41 years of windfall which the City gets to keep may easily exceed fifty million dollars.”
The next step is to establish a Court-supervised claims process through which customers can receive their refunds. That process is expected to take a few months to establish. Dannheisser estimated that there could be between 20,000 to 30,000 current and former customers who will be receiving refunds. “Through a court approved and supervised claims process, customers will be notified of their right to a refund. A website will be established to better facilitate payments to every customer.” However, Dannheisser expressed concern that some of the customers may have moved from the area and contacting them to let them know of their right to their refund may prove challenging.
Dr. Frank said that he had taken his concerns to numerous lawyers but none thought it had much chance of success. “I am most appreciative that Artie and Matt understood the problem and were willing to devote nine years fighting to correct an unfairness that should not have occurred in the first instance.” Regarding the fees which preceded the statute of limitations and which the City does not have to return to the customers, Dr. Frank said “I hope the City Council will return some of those amounts to the customers who shouldn’t have had to pay them to begin with.”
