96-476�'� �-(' � (-,. ( �, � �1 �
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Presented By
Referred To
Council File # � � �
Green Sheet # 3 t S b d
RESOLUTION
41� AUL, MINNESOTA 36
Committee: Date
WIIEREA5, Northern States Power Company (hereafter, "Company") is a public
service corporation organized under the laws of the State of Minnesota, which, as a public
utility under the laws of Minnesota, at present provides electric and gas service within the
City of Saint Paul under franchises which will expire on June 30, 1996, such franchises being
Ordinance No. 96-33 (gas) and Ordinance No. 96-34 (electric), which expire on June 30,
1996; and
WHEREAS, the Council of the City of Saint Paul has two ard'mances under
consideration, Ordinance No. 96-417, the "electric franchise;' and Ordinance No. 96-416, the
"gas franchise," (collectively, the "franchises") which will grant the Company two franchises
commencing on July 1, 1996, and rumung through June 30, 2006; and
WHEREAS, under Minnesota law, these franchises will confer on the Company the
right to use City streets and other public property for the purpose of operating its electric and
gas utility business, in rehxrn for which the law authorizes the City to require that the
Company pay the City franchise fees to raise revenue, to defray the increased municipal costs
that accrue as a result of the urility operafions in the streets and public property, ar both; and
WHEREAS, these franchises employ a different method for computing the amount of
the fees than has been applied in the former franchises; and
VJHEREAS, the Council desires to state that, in the adoption of these franchises, it
relies on certain revenue projections which were prepared and relied on by the representatives
of the City and the Company in negofiating these franchises for the purpose of making
determinations as to the acceptability of these franchises; and
WHEREA5, the Council desires to adopt the following findings of fact (a) to affirm
the factual bases for the franchises, (b) to clarify the intent of the Council in adopting the
franchises and the various franchise fee provisions in them, (c) to ratify the assumptions used
by the City and Company representatives in negotiating and preparing the pending ordinances,
and (d) to state the underlying assumptions on which the Council relied in adopting them;
now, therefore, be it
RESOLVED, that the Council adopts and ratifies the following Findings of Fact as to
the franchises, indicating where necessary if the Findings relate specifically and exclusively to
either the electric or the gas franchise:
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I. FINDINGS OF THE COUNCIL ��� y � �
Electric Franchise
1. New Basis for Franchise Fees. The franchise fees required to be paid by the
Company in this ordinance aze based on a different formula than the franchise fees
which have been paid under past franchise agreements between the Company and the
City. Franchise fees in previous agreements were based on a percentage of the
Company's gross earuiugs. After October 31, 1996, franchise fees will no longer be
collected based on the gross earnings generated by the Company's sale of electric
energy within the City. Because of the potential for competition in the sale of electric
energy, the Company and the City are agreeing to ixnplement a different franchise fee
formula in this ordinance. Current govemment regulation generally prevents customers
from having a choice in determiuing their electric energy supplier. It is likely that
these regulations will change in the neaz fixture to allow competition in the sale of
electric energy through the transportation of electric energy for other suppliers, which
is called "wheeling." It is anticipated that the Company will continue to distribute
electric energy through its facilities in the City. However, under wheeling
arrangements, electric energy may be supplied by other enfities, but wheeled by the
Company to vazious Company customers in the City. If wheeling were to occur under
a gross earnings franchise fee formula, the City would lose franchise fees and the
Company could be put at a competitive disadvantage. The City would lose franchise
fees because the Company's gross revenues on which the franchise fees would be
based would include only the price chazged for distributing the electric energy and
would not include the gross revenues derived from the production and transmission of
the electric energy outside the Company's service area. The Company could therefore
be put at a competitive disadvantage under a gross earnings formula because the
franchise fee would be applied against the total revenue it obtained for selling electric
energy in the City, which could include revenue received from producing the electric
energy, while the gross eai7iiugs franchise fee could not be chazged on the revenue
obtained by Company competitors for producing electric energy.
2. Revenue Stability and Competitive Neutrality. To protect against the risks of
wheeling to the Company and the City the franchise fees in this ordinance are an
aggregate of two or three components depending upon customer electric energy use
and classification. The components are (1) a monthly volume fee based on the amount
of electric energy delivered to each customer over Company electric facilities
(hereafter, the "Energy Fee"), (2) a monthly meter fee (hereafter, the "Meter Fee")
based on the number and type of ineters or meter-equivalent customer accounts, and
(3) a monthly amount based on the peak electric energy demand for certain Company
customers (hereafter, the "Demand Fee"). It is the intent of this franchise that any
electric energy which is delivered to Company customers which aze located within the
City is subject to the imposition of the franchise fees as provided in this ordinance and
agreement, and in the electric francluse.
3. Fee Formula Approach. The Company and the City have converted the previous
gross eaznings franchise fee formula to the new multi-factor formula in the following
manner. It was agreed that a multi-factor formula for franchise fees would minimize
fluctuations in franchise fees due to weather volatility and minimize burden shifts
between customer classes from the existing gross earnings formula. To accomplish
this, it was agreed that calendar year 1994 represents normal weather and typical
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electric energy consumption patterns, and therefore a�erage meter counts, peak demand
units, and energy units consumed from the 1994 base period were used to project
revenues over the term of the franchise. In particular, the 1994 data was used for two
purposes in the projection of franchise revenues:
(1) After customer class revenue targets were agreed to for each class, franchise
fee factors for meter, energy and demand were determined for each yeaz of the
franchise by dividing the annual revenue for each class by the actual 1994
meter, energy and demand units and by further adjusting the factors to meet the
mutual objectives of the Company and the City.
(2) All revenue projections for future years assumed that in those future years
meter counts, peak demand units, and energy units would be equal to the actual
1994 counts.
To provide moderate growth and stability in franchise fees over the term of the
franchise, a Meter Fee was applied to all customer classes, and one or more of the
Meter, Demand, and Energy Factors were increased by moderate amounts for the
vazious classes in the yeazs 1996, 2000, 2002 and 2004.
Gas Franchise
1. New basis for franchise fees. The franchise fees required to be paid by the Company
in this ordinance aze based on a different formula than the franchise fees which have
been paid under past franchise agreements between the Company and the City.
Franchise fees in previous agreements were based on a percentage of the Company's
gross earnings. After October 31, 1996, franchise fees will no longer be collected
based on the gross earnings generated by the Company's sale of gas within the City.
Because of the potential for continued competition in the sale of gas, the Company and
the City aze agreeing to impiement a different franchise fee formula in this ordinance.
Due to changes in government regulations, certain gas customers, primarily lazge
commercial and industrial customers, have been able for several years to purchase gas
on the open market from other gas suppliers and use the Company's gas distribution
system for transportation of the gas. As a result the City has in the past lost franchise
fees because it only received franchise fees based on the amount paid to the Company
for the use of its gas transporta6on system and not on the greater dollar amount paid
for the transportation gas delivered to the Company system. It is anticipated that
transportation gas may soon be auailable to more Company customers which would
result in a greater erosion of City franchise fees under a gross earnings formula.
2. Revenue Stability and Competitive Neutrality. This franchise fee formula is
intended to protect the City against fiu•ther losses in revenue which would have
occurred under a continuation of the gross eamiugs franchise fee. The franchise fees in
this ordinance aze an aggregate of two components: a monthly volume fee based on
the amount of gas delivered to each customer over Company gas facilities (hereafter,
the "Volume Fee"), and a monthly meter fee (hereafter, the "Meter Fee") based on the
number and type of ineters or meter-equivalent customer accounts. To protect the City
against further losses in revenue, it is the intent of this franchise that any gas which is
delivered to Company customers which aze located within the City through ar by
means of Company facilities or equipment which is located within the City is subject
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to the unposition of the franchise fee as provided in this gas franchise. Loss of futute
gas franchise fees is also minimized by requiring existing Company customers not now
classified as eligible to take transportation gas to continue to pay franclvse fees based
on theu current customer classificarion.
3. Fee Formula Approach. The Company and the City have converted the previous
gross earnings franchise fee formula to the new multi-factor formula in the following
manner. It was agreed that a multi-factor formula for franchise fees would m;»;,,,;ze
fluctuations in franchise fees due to weather volatility and minimi�e burden shifts
between customer classes from the e�sting gross earnings formula. To accomplish
tYus, it was agreed that calendar yeaz 1994 represents normal weather and typical gas
volume consumption patterns, and therefore average meter counts and volumes
consumed from the 1994 based period were used to project revenues over the term of
the franchise. In particular, the 1994 data was used for two purposes in the projection
of franchise revenues:
(1) After customer class revenue targets and subtargets were agreed to for each
class, franchise fee factors for meter and volume were determined for each yeaz
of the franchise period by dividing the annual revenue for each class by the
actual 1994 meter and volume units and by further adjusring the facts to meet
the mutual objectives of the Company and the City.
(2) All revenue projections for future yeazs assumed that in those future years
meter counts and volumes would be equal to the actual 1994 counts.
To provide moderate growth and stability in franchise fees over the term of the
franchise, a Meter Fee was applied to all customer classes, and one or more of the
Meter and Volume Factors were increased by moderate amounts for the various classes
in the years 1996, 2000, 2002 and 2004.
Both Electric and Gas Franchises
1. Charter Requirement. The Council of the City of Saint Paul finds and determines
that the franchise fee formulation provided for in this ordinance will provide a
franchise fee to the City in a sum equal to at least five (5) percent of the gross
eaniings of the Company derived or accruing from the exercise or enjoyment by the
Company of the franchise within the City as provided herewith, and that such
formulation satisfies the requirements of Chapter 16 of the Charter of the City of Saint
Paul, including Sections 16.06 and 16.07 thereo£ If in any particulaz calendar yeaz, the
franchise fees collected for tlus franchise do not equal five (5) percent of the said
gross earnings of the Company, the Company as franchise holder is specifically
relieved of the collection and payment of the difference between the franchise fees
actually paid and five (5) percent of Company gross eau�ings.
and, be it
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II. FRANCHISE FEE REVENUE PROJECTIONS
° l�.�l`1�
FURTHER RESOLVED, that the attached E�ibit A(noting that (1) the 1996
projection is an annualized amount while the New Franchises in 1996 are for six months, of
which four months aze Interim Fees and two months are New Fees; and (2) the projection of
fee revenue for the yeaz 2006 is appro�mately half of the amount for the yeaz 2005) sets
forth the projected fee revenues on wluch the Council has relied in approving the franchises in
Ordinance Nos. 96-416 and 96-417, that the said E�ibit is hereby incorporated in this
Resolution as if it was set forth fully herein, and that the data contained therein aze adopted
and ratified by the Council as a basis for the adoption of these franciuses.
.�.
III. RELIANCE ON AGREEMENT
WHEREAS, representafives of the City and the Company l�ave entered into a
Memorandum of Understanding, under which the City and the Company will execute an
Agreement prior to the effective date of the franchises, which latter Agreement will coufirin
agreement on a number of issues azising out of the negotiation of the franchises, including but
not limited to a recognition of the importance of the placement of all Company customers in
certain classes for the payment of franchise fees, the need for maintaining City revenue
despite changes in Company rate taziffs for customers, and the Company's promises to collect
franchise fees from customers; now, therefore, be it
FURTHER RESOLVED, that the Council of the City of Saint Paul relies on the
promises, undertaking and mutual recognitions contained in such Agreement in adopting these
franchises.
and, be it
IV. AGREEMENT
FINALLY RESOLVED, that the Mayor and appropriate city officials are hereby
authorized to execute that certain Agreement relating to matters ancillary to the New
Franchises which the Company has previously agreed, on April 12, 1996, to sign on or before
the effective date of the proposed New Franchises.
Adopted by Council: Date t (�
Adoption Certified by Covncil Secretary
By:
Approved by Mayor? Date ,� 7�! �1�
By_ �iti� ���
Requested by Department of:
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By: � � r �
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Form Approved by City Attorney
By: �- Z(v �7�G
itpproved by Mayor for Submission to
Council <C���y��
By: "I
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DEP�RiMENTNFFlCErtOUNGL DATE INITIATED � G�, L� ��
GREEN SHEET T
FINANCE & MANAGEMENT SERVICES 4-26-96 i INITIAUDAiE
CONfACTPERSONBPHONE �DEPARTMENTDIRECTOW �CINCOUNCIL
MARTHA LARSON 6-8766) A ���N �CITVATTORNEY -9(� �CRYCLERK
NUYBER PoR
MUST BE ON COUNCIL ACaENDA BY (DATE) ROVfING O BUDGEf DIRECTOR O FIN. & MGT. SEFVIC D IR.
Ma 8 1996 � � MAVOR (ORASSISTANTJ �
TOTAL # OF SIGNATURE PAGES (CLIP ALL LOCATIONS FOR SIGNATURE)
ACTION REQUESTED:
Passage of resolution stating City Council intent in adopting the NSP electric and
gas franchises effective July 1, 1996, to June 30, 2006.
RECOMMENDATIONS: nppmve (A) or Reject (R) pERSONAL SERVICE CONTFiACTS MUST ANSWER THE FOLLOWING �UES?IONS:
_ PI.qNNING CAMMISSION _ CIVIL SERVICE COMMISSION �� Has [his person/firm ever worketl under a contract for this department?
— CIB COMMITTEE _ YES NO
2. Has Ihis person/firtn ever been a crty empfoyee?
_ STAFF
— VES NO
_ DiSiRIC7 CoURT _ 3. Does ihis person/firm possess a skill not normally possessed by any current city employee?
SUPPORTS WHICH COUNCIL O&IECTIVE� YES NO
Explaln ell yes answers on aeperate sheet and attech to green sheet
INITIATINCa PROBLEM, ISSUE.OPPORTUNIN(Who, What, Whan. Where, Why)�
The gas and electric franchises use a different method to compute the franchise fees
payable to the City, based on a delivery rate structure as opposed to the percentage
of NSP gross earnings. This resolution states the factual basis for the franchise,
clarifies the intent of the Council, ratifies the assumptions used by the negotiators,
and states the assumptions on which the Council relies in adopting the franchise
ordinances.
ADVANTAC>ES IFAPPROVED:
The resolution will be very useful in resolving future uncertainties or misunderstandings
as to what the franchise ordinances mean and how they are to be interpreted.
�ISADVANTAGESIFAPPFOVED:
None.
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DISA�VANTAGES IF NOTAPPROVED:
Resolution of future disputes might be more difficult and less favorable for the City.
TO7AL AMOUNT OFTRANSACTION $ COST/REVENUE BUDGE7ED (CIRCLE ONE) YES NO
FUNDIfdG SOURCE ACTIVI7Y NUMBER
FINANCIAL INFORHiATION (EXPLAIN)
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ROBERTA MEGARD
Councilmember
CITY OF SAINT PAUL
OFFICE OF THE CITY COUNCIL
May 15, 1996
Counci! President David Thune
310 City Hall
Saint Paul MN 55102
Dear Council President Thune:
��—y�ic�
ANN D. CIESLAK
Legislalive Aitle
I intend to abstain from voting on Council Resolutions 96-476, 96-416, and 96-
417. I do not have a legal conflict of interest, as defined in State Statute Chapter 471.
However, it is a matter of public recard that I own stock in Williams Companies, Inc.
which has business dealings with Northem States Power.
I believe it is important for people to have utmost faith and confidence in the
actions of their elected officials. Therefore, I will not participate in the discussion of
these resolutions and I intend to abstain from voting to auoid the slightest appearance of a
conflict of interest.
Sincerely,
��
Roberta Megard
CC:
CITY HALL
Timothy Marx
THIRD FLOOR SAINT PAUL, MINNESOTA 55102 612/266-8640
s�<s
M1nuG on Berycled Papee