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04-494Council �le # � t �' yT T RESOLUTION OF SAINT PAUL, MINNESOTA Presented Referred To Green Sheet # �b (��( 39 Committee Date Resolution to approve District Energy St Paul, Inc's request to amend their customer billing rates. 1 WfIEREAS, District Energy St. Paul, Inc. filed a notice on July 19, 2001 and an official affidavit on 2 September 18, 2001 notifying the City of Saint Paul of a proposed heating rate increase. The heating rate 3 increase became effective in October 2001, until approved or denied by the Saint Paul City Council parsuant 4 to Section 6 of the St. Paul Legislative Code, Appendix F- District Heating Franchise; and 5 WHEREAS, evidence and recommendations have been presented to the City Council in the manner of a 6 City staff report submitted to the City Council on April 26, 2004, in conjunction with a public hearing on 7 this matter; now therefore be it 8 RESOLVED, the City Council approves the following heating system customer billing rate proposed by 9 District Energy St. Paul, Inc.: 10 1. The heating energy rate changes from $ 11.50 to $ 1415 per megawatt hour effective for 11 fiscal year 2002. If actual energy costs are less than estimated, customers receive a refund, 12 and be it; 13 FURTHER RESOLVED, District Energy's operations have changed with the start up of the combined heat 14 and power plant; therefore it is recommended that: 15 16 17 18 19 20 1. District Energy provide documentation that the current energy rate will remain just, reasonable and nondiscrixninatory to customers in the future as required by the franchise agreement if they do not request a rate change for fiscal year 2005. 2. District Energy provide the City with an opportunity to review, at the Dishict Energy offices, the confidential and proprietary plan related to system expansion, modification and capital maintenance, with anticipated debt financing and, or refinancing, and be it; o�- y�N 1 FCJRTF3ER RESOLVED, City staff were unable to determine the appropriate level of cash and reserve 2 balances required for all current and anticipated needs of District Energy's operations for 2004 and the 3 foreseeable future; therefore it is recommended that: 4 1. District Energy's Boazd of Director's approve policy statements that specify desired cash 5 balances and reserves for generai operations, rate stabilization, debt service including 6 repayment of city loan and deferred franchise fees, and capital repair and maintenance which 7 includes supporting documentation as to why these amounts aze at an appropriate level for 8 both rate payers and the company, and a policy for spending these reserves. 10 2. Dishict Energy provide the City with an opporhmity to review, at the District Energy offices, 11 the confidential and proprietary Board of Duector's policy statements upon request or when a 12 customer billing rate appiication is submitted, and be it; 13 FINALLY RESOLVED, any modifications to the Cost Aliocation Agreements for District Energy, District 14 Cooling and Market Street Energy can have a significant effect on both annual budgets and billing rates; 15 therefore it is recommended that: 16 17 District Energy notify the City of any changes to the cost ailocation agreements between heating, cooling and Market Street Energy. n Benanav Bostrom Hazris Helgen Thune Yeas � � � ✓ ✓ ✓ Requested by Department of: Office of Financial Services c By: Form Approved by City Attorney � Adopted by CouncIl: Date�� o2LJ('`y Adoprion Certified by Council Secretary By: � Approved by a} o. Date � By: C%(/ � Q:�Shazed�FranchiseTeam�DHDC Rate Re�iew�DH Rate approval resotution-FY04.wpd for 2 Dy-y9y � Green Sheet Green Sheet Green Sheet Green.Sheet_Gceen.Sheet-Gr-eep-�Shee#- � DepartrneM/officelcouncii: Date Inifiated: Fs F�� R.� Green Sheet NO: 30'i5556 Contad Person 8 Phone � ��ent Sent To Person InitiaUDate Lori Lee 0 na cial ervi 26&8822 A55ig� 1 ina "a! Services D a nt ir Must Be on Council Agenda by (Date): Number Z na ci 'c �ce Fi ancial ervi 0`rMAY-04 {/ If�, FOr �_ Routing 3 rtv Attorn Ordef 4 a r's ce Ma od istant 5 ou cil Ci Council 6 k rk Total # of Sigrcature Pages _(Clip Aif Locatio�s for Signature) Action Requested: Approval of Distxict Enecgy's cequest ta amend the heating eustomer billing mtes. Recommendations: Approve (A) or Reject (R): Personal Service Contracts Must Mswer the Pollowing Questions: Planning Commission 1. Has this persor�/firm ever worked under a contract for this departmenY? CIB Committee Yes No ' Civil Service Commission 2. Has this person/firtn ever been a city employee? , Yes No 3. Does this person/firm possess a skili not normally possessed by any cunent city employee? Yes No Explain all yes answers on separate sheet and attach to green sheet Initiating Problem, issues, Opportuniry (Who, What, When, Where, Why)� In accordance with the Dishict Heating francluse, District Energy has filed norice to amend Schedule A of Saint Paul Legislative Code, Appendix F, as amended. The City Council must review the evidence of this rate case and approve or deny their request. The attached resolution recoxnmends approval of the new rates. Advantages If Approved; District Energy's heating energy rate will be sufficient to cover energy-related costs. Disadvantages if Approved: None. Disadvanfages HNot.4pproved: REL`E�VE� The rates wouid not be sufficient to cover energy-related costs. APR 2 6 2004 � Tohal Amount of Transadion: CosURevenue Bndgeted: -- �:....,.,�. Fundinp Source: Activity Number. `'^"^�°,"�- �%';A.` q-_' "_ ` Financial lnformation: (ExPlain) �*a� � � ��J� 3 �� - �9y City of Saint Paul Interdepartmental Memorandum To: Matt Smith Financial Services From: L,oni Lee, Chai Franchise Te Date: Apri126, 2004 Subject: Staff Report for Proposed District Heating Energy Rate This memorandum discusses the Franchise Team's analysis of District Energy St. Paul, Inc. proposed increase in the heating energy rate. PROCEDURAL HISTORY Pursuant to Section 6(e) of Saint Paul Legislative Code, Appendix F(City Ordinance 16947, adopted July 20, 1982, as amended); District Energy St. Paul, Inc. filed notice on July 19, 2001 with the City Clerk of its intent to change heating rates effective October 1, 2001. Subsequently, on September 18, 2001, District Energy St. Paul, Inc. filed an affidavit with the City, along with an amended Schedule A. The affidavit confirmed that all signed District Heating customers were notified of the proposed rate changes and the required customer meetings were held on August 29, 2001 for Mount Airy customers and August 30, 2001 for downtown customers. In Mazch, 2003 an interdepartmental team was established to review this request along with several other franchise related requests as detailed in a memorandum to the Mayor and City Councilmembers dated March 18, 2003. The Franchise Team, requested additional information regarding the heating rate increase. Todd Hurley, I,ori I,ee and Marcia Moermond met with District Heating staff Joyce Anderson and Andrew Kasid to review District Heating documents and clarify District Heating's responses to the team's quesrions. Proper notice, publication, and public hearing on the proposed rate changes will be completed by May 5, 2004. These steps, along with the process to date, satisfy all procedurai requirements of the franchise agreement. by- �f 9y Staff Report for Proposed FY 2004 Dishict Heating Rates Apri126, 2004 Page 2 PROPOSED CHANGES District Energy St. Paul, Inc. proposes the following change to Schedule A: 1. The heating energy rate will change from $11.50 to $14.15 per megawatt hour. The demand rate will remain $ 435 per kilowatt per month. The rate has remained unchanged since fiscal yeaz 1998. HEATING RATE REVIEW The team reviewed: Comparison of heating rates Change in overali rates Cost allocation between cooling and heating Customer Survey Results Comparison of Heatint Rates Rates Demand ($/kW/mo) Energy ($IMWh) Overall rate ($/MMBtu) Increase as °/a Demand ($/kW /mo) Energy ($/MWh) Overall rate ($/MMBtu) Revenues Demand Energy 'Net after $86,780 rebate Actual Actual FY 20�0 FY 2001 $4.35 $4.35 $11.15 $11.50 $1228 $12.36 0.00% 0.00% 0.00°10 3.14°10 0.00% 0.65% $8,254,528 $8,325,680 $2,536,609* $3,528,716 Actual Actual FY 2UO2 FY 2�03 $4.35 $4.35 $14.15 $14.15 $13.16 $13.16 �.��% �.��% 23.04°fo �.00°10 6.47% 0.00% $8,770,680 $8,811,560 $3,903,606 $4,549,214 Budget FY 2U04 $4.35 $14.15 $13.16 0.00% 0.00°l0 0.00% $8,952,228 $4,528,000 Chanee in Overall Rates Over the past ten years, overall heating rates have increased by an annual average of i%. The demand rate covers operations and maintenance; general and administrative; research and development; debt and capatai expenses. The demand rate has remained stable over the past 7 years. On July 17, 2003 District Eneigy announced that there would be no increase for FY 2004. The energy rate is a pass through to the customer. The rate is based on the projected cost of fixels utilized. If actual costs are less than budgeted, customers receive a refund. District Energy reported that the "operation of the new combined heat and power plant, which uses a renewal fuel - wood waste - to produce heat and electricity, will be the major source of energy forthe future". oK- y�y Staff Report for Proposed FY 2004 District Heating Rates Apri126, 2004 Page 3 Cost Aliocation between Coolin� and Heating Allocated costs between District Energy and District Cooling aze based on the Cost Allocation Agreement dated October 1, 1991 as approved by the Board of Duectors. This agreement provides that jointiy used plant labor, maintenance, distribution and general and administrarive items are allocated based on the percentage of energy sales for each company. All other personnel costs are allocated based on a direct allocation of time sheet information. Below is the calculation of the cost allocation percentage from F'Y 2002 to FY 2004. The actual FY 2003 allocation from cooling to heating was $944,344. Cost Altocation Percentage PY-20D2: EnerEV Assumptions: TOTAL Dishict Energy - Aemand (K� 164,250 District Energy - Energy Sales (MWII) 300,000 DH - Demand (Tons) 18,183 DH - Energy Sales (Ton-hr) 21,507,942 DH - Energy Sales (Mwh) (Ton-hrs X 0.0035) 75,278 Cost Allocation Percentage (DH Sales /(DH Sales + DE Sales)� 20.06% Cost Allocation Percentage FY-2003: Ener�v Assumntions: TOTAL District Energy - Demand (KW) 168,500 District Energy - Energy Sales (MWH) 315,000 DH -Demand(Tons) 19,338 DH - Energy Sales (Ton-hr) 22,40Q000 DH - Energy Sales (MWFI) (Ton-hrs X 0.0035) 78,400 Cost Allocation Percentage [DH Sales /(DH Sales +DE Sales)] 19.93% Cost Allocation Percentage FX-2004: Enerav Assumutions: TOTAL District Energy - Demand (K4� 171,500 Dishict Energy - Energy Sales (MWFI) 320,000 DH - Demand (Tons) 2Q900 DH - Energy Sales (Ton-hr) 23,60Q000 DH - Energy Sales (MWII) (Ton-hcs X 0.0035) 82,600 Cost Allocation Percentage [DH Sales /(DH Sales + DE Sales)] 2052% Staff Report for Proposed FY 2004 Dishict Heating Rates Apri126, 2Q04 Page 4 Customer Survey Results 04-�� The City of Saint Paul, as the chief regulatory authority overseeing District Energy, has had no customer complaints in the time period since its last rate increase. District Energy and Dishict Cooling have jointiy undertaken periodic customer service surveys. Dishict Energy reported that the 2003 customer survey had responses from 45% of their 163 customers. A sumuiary of the survey results indicates the following: Customers rated the following services as being extremely important to them: A. Responsiveness (timeliness and reliability of sta� B. Technical support (probiem solving and planning) C. Value (risk management, operating simplicity, training and cost control). The survey noted that the main concern of customers had to do with the price of services. On average, survey respondents indicated they found Dishict Cooling's and District Energy's price of service to be a slightly better value than their competitors. (Rating of approximately 2.4 on a scale where 2 is "the same as" and 3 is "superior to.") Customers responded that Dastrict Cooling's and District Energy's communication, technical support, responsiveness and environmental responsibility were somewhat better than the competition. (Rating of approximately 2.6 on a scale where 2 is "the same as" and 3 is "superior to.") On average, customers indicate they are satisfied with the services they receive; in some cases, very satisfied. RECOMMENDATIONS TO THE MAYOR AND CITY COUNCIL 1. The heating energy rates proposed by District Energy St. Paui, Inc. in their request dated September 18, 2001 should be formally approved by City Council. The energy rate is a pass through to the customer based on the actual cost of energy and any excess is refunded to customers. 2. District Energy operations have changed with the start up of the combined heat and power plant. The team recommends that District Energy provide documentation that the current energy rate is just, reasonable and nondiscriminatory to customers as required by the franchise agreement if they do not request a rate change for fiscal yeaz 2005. 3. District Energy provide the City with an opportunity to review, at the District Energy offices, the confidential and proprietary plan related to system expansion, modification and capital maintenance, with anticipated debt financing and, or refmancing. o�-�� Staff Report for Proposed FY 2004 District Heating Rates Apri126, 2004 Page 5 4. District Energy's Board of Director's approve policy statements that specify desired cash balances and reserves for general operations, rate stabilizarion, debt service including repayment of city loan and deferred franchise fees, and capital repair and maintenance which includes supporting documentation as to why these amounts aze at an appropriate level for both rate payers and the company, and a policy for spending these reserves. 5. District Energy provide the City with an oppoxhinity to review, at the District Energy offices, the confidential and proprietary Board of D'uector's policy statements upon request or when a customer billing rate applicarion is submitted. 6. Any modifications to the Cost Allocation Agreements for District Energy, District Cooling and Mazket Street Energy can have a significant e£fect on both annual budgets and billing rates. The team recommends that Dishict Energy notify the City of any changes to the cost allocation agreements. cc: Franchise Team Todd Hurley Mazcia Moermond Lisa Veith Q:�Shared�FranchiseTeam�DHDC Ra[e Review�DH Staff Report FY04.wpd � o� -�g� � CITY OF SAINT PAUL OFFICE OF THE CITY COUNCIL lu�l�lu � '7:��ililTl Date: April 1, 2004 To: Council President Daniel Bostrom Councilmember Jay Benanav Councilmember Patrick Harris Councilmember Lee Helgen Councilmember Kathy Lantry Councilmember Debbie Montgomery Councilmember Dave Thune r From: Marcia Moermond, Policy and Research Lepd_,,✓ and Franchise Team Member �1 Re: District Energy Rate Increase This memo is to request a public hearing for May 5, 2004 to consider District Energy's request for a heating rate increase pursuant to Chapter 16 of the Saint Paul City Charter, which states: `Before any franchise ordinance is adopted or any rates, fares or prices to be charged by a public utility are increased by the council, the council shall hold a public hearing on the matter. Notice of such hearing shall be published at least once in the official newspaper not less than ten (10) days prior to the date of the hearing." District Energy submitted a request to the City of Saint Paui on September 18, 2001 stating an interim rate went into effect on October 1, 2001. Hereby, we formally request a public hearing be set for May 5, 2004 regazding this matter. Copy: Matt Smith, Director of Financial Services Lori Lee, Financial Services and Franchise Team Lead Todd Hurley, Financial Services and Franchise Team Lisa Veith, City Attorney's Office and Franchise Team CITY HALL THIRD FLOOR 15 WEST KELLOGG BOULEVARD SAINT PAUL, MINNESOTA 55102-1615 �? AA-ADA-EEO Pmploye[ ,r�� D(STRICT ` ENERGY St. Paul, Inc. ay-y9�J September 18, 2001 Fred Owusu Citizen Service O�ce 170 City Hall St. Paul, MN 55102 Re: District Heating Rates Dear Mr. Owusu: Pursuant to the hot water district heating franchise and previous notice filed July 19, 2001, District Energy St. Paul, Inc., hereby files its amended Schedufe A. The rates therein wiA be charged on afi biffs for hot water sernce beginning with the biliing month of October 2001 and will remain in effect until superseded. This is a routine annual rate adjustment as envisioned by the franchise and the Hot Water Delivery Agreement. Please contact me at (651) 297-8955 if there are any questions regarding this matter. Sincerely, ,� ,t�2� ,, Anders J. Ry ker President Hans O. Nyman Energy Center 76 Keliog� Blvd. W. SG Paul, NiN 55�02-16tt Tei 65'1.297.3955 Fax 651.2L0353 vwwv.tlistnctenergy.com Attachments: Schedule A (Amended) Affidavit of Compiiance with Council Resolution 85-919 cc: Peter Eiames, lori Lee, Clayton Robinson, Gerafd Fiendrickson, Wiiliam Mahium, Joyce Anderson, Andrew Kasid o �I y9 y SCHEDULE A (AMENDED} to HOT WATER FRANCHISE granted to District Heating Development Co. d.b.a. DISTi21CT ENERGY 5T. PAUL, INC. by the CITY OF ST. PAUL (Ordinance No. 16947, adopfed July 20, 1982, as amended) RATES: The foilowing rates shall be effective beginning with the biliing month of October 2001 and shali remain in effect until superseded: Single rate: 7wo-part rate: Demand Energy $0.0449 per kilowatt-hour $4.35 per kilowatt per month $14.15 per megawatt-hour SNOWMELT DEMAND RATE: The Snowmelt Demand Rate is 50 percent of the Hot Water Demand Rate per kilowatt per month. PROMPT PAYMENT PROVISiON: A charge of 5 percent wiil be added to the net bill computed at the rate shown above, which charge shaii constitute a discount from the gross bill for payment within the discount period, all as more specificaily provided in the Hot Water Delivery Agreement. FUEL ADJUSTMENT: As provided in the Hot Water Delivery Agreeme�t, the energy charge may be appropriately adjusted (i.e., spread over the remaining months in the fiscai year) from time to time during fiscai year to cover cost increases (or decreases) occurring subsequent to the establishment of projected energy-related costs for such period regarding energy purchased by District Energy, to the extent such costs are in excess of (or below) those cosYs projected by District Energy in estabiishing the energy charge for such period. SURCHARGE: A City fee surcharge of 8J percent will be induded in the gross and net monthly biils computed under this rate schedule except as otherwise provided by law. SERVICE CHARGES: The attached service charges shall be effective beginning with the billing month of October 2001 and shail remain in effect until superseded. tls\rateshtg�schedule a new.doc o y- �/9y Schedule A Attachment 1 DISTRICT ENERGY ST. PAUL, INC. Service Charges Effective October 2001 Pursuant to Sectio� 8.5 of the Hot Water Delivery Agreement as amended, the following rates are established for performance of specific services more properly charged to an individual Customer than to al! Customers as a whole. Service charges are payabie within 3D days of biiling and are in addition to Demand Charges and Energy Charges. Restoration of service after shutoff by District Energy; Customer demand under 100 kW: $25.00 Customer demand 100 kW or over: $100.00 2. Damage to District Energy system equipment: Actual cost of repair or replacement as determined by District Energy plus service charge of $30.00. 3. Unauthorized drainage of Disfrict Energy system water: The sum of the following: (a) Estimated quantity of water (ost times combined water and sewage rate paid by District Energy during period of drainage; (b) Estimated heat value of water lost times appiicable Energy Rate; and (c) Service charge of $70.00/hour. Note: Drainage of system water creates an unsafe condition and is cause for suspension of service untii corrected. 4. Service caits made at Customer's �equest by District Energy personne{ for problems found to be in Customer's and not District Energy's equipment: Beiween 8:00 a.m. and 3:30 p.m. on Monday through Friday (excluding holidays observed by District Energy): $70.00/hour Afl other times: $105.00/hou� tlsUatesh tglservchg. doc oH-y9y DISTRtCT ENERGY ST. PAUL, 1NC. AFFIDAVIT OF COMPLIANCE WlTH COUNCIL RESOLUTiON 85-919 Pursuant to Section 2 of City Council Resolution 85-919, district Energy St. Paul inc. states the following facts regarding its compliance with Section 1 of that Resolution: 1. District Energy gave notice of its intent to file a new or amended Schedule A in a letter dated July 19, 2001, filed with the City Clerk on that date. 2. District Energy sent or delivered a notice of its rate filing and the related customer meeting to all signed hot water customers on Juiy 18, 2001. The notice included the new rates sought by District Energy; the time, date, and place of the customer meeting; a�d the Notice of Customer Rights constituting Exhibit 1 of fhe Resolution. A copy of the notice was provided to the President of the Greater St. Paul Building Owners and Managers Association (BOMA). The same information was sent to all Mount Airy residents on August 13, 20Q1, with notice of a special meeting as described below. 3. District Energy held the required customer meefing on August 30, 2001, at 3:00 p.m. in District Energy's conference room, Ffans O. Nyman Energy Center, 76 West Keliogg Boulevard, St. Pau4. One person representing district heating/cooling customers atiended, atong with four other individuals. No members of the City's rate review staff attended. A second meeting was held with interested residents of the Mount Airy homes an August 29, 2001, at 10:06 a.m. at the Mount Airy Community Center. Eighteen residents attended, along with ten other individuals, including three Public Housing staff inembers. Copies of District Energy's filing notice with the City, the proposed new Schedule A, and the hot water franchise (Ordinance No. 16947, as amended) were made available to meeting attendees. At each meeting, the new rates were expiained, customers were advised that the City Council must approve the new rates before they become finaily effective, and customers were ailowed a reasonabie opportunity to comment on the proposed rates both formaliy and informaily. . /�Gi`�/Gl�iz ,�•'.�c-�--- Anders J. Rydake / President g /�� /D Date tlslrates htglaffidavt. doc