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97-472Council Fite # ��7� Green Shcet # ,L ,� � � � � ('` : n 'ti..' . . . �, — t r�enc�a sy Refened To RESOLUTtON PAUL, MINNESOTA (�'nmm:Mm• ]� : i WHEREAS, the City of Saint Paul has granted, in Ordinazice No. 16947, as amended, a franclrise to 2 use the public streets and ways to deliver hot waxer within Saint Paul to District Heating Development 3 Company (DFIDC), doing business as District Energy St. Paul, Inc., a Minnesota non-profit 4 coiporation; and 5 6 WHEREAS, on 7uly 19, 1996, District Energy filed notice with the City Clerk of its intent to amend ? the heating rates pursuant to Section 6 of the District Heating Franchise; and 9 WHEREAS, the City of Saint Paui has granted, in Ordinance No. 17816, as amended, a franchise to 10 use the public streets and ways to deliver chilled water to District Energy Services, Inc., doing business 11 as District Cooling St. Paul, Inc., a Minnesota non-profit corporation; and I2 13 WHEREAS, on 7uly 19, 1996, District Cooling filed notice with the City Clerk of its intent to amend 24 cooling rates pursuant to Section .11(e) of the District Cooling Franchise; and 15 16 WHEREAS, such rates are thereby effective pending Ciry Council approval, which requires a public 17 hearing; and 18 19 WHEREAS, evidence has been presented to the City Council that the proposed rates are just, 20 reasonable, and non-discriminatory: 21 22 l. 23 24 25 26 27 28 29 3d 31 32 33 34 35 36 District Energy groposes the foliowing: a) The hea6ng demand rate remains unchanged at $4.25 per ldlowatt per month. b) The hea6ng energy rate changes from $11.10 per megawatt hour to $11.70tmwh, an increase of 5.4%. The energy rate is an estimate of fuel cost used to produce heat by District Energy. The elements of this estimate inalude the contracts far fuei in piace, the mix df fuel used and the estimated usage by customers. If actuai costs are less than estimated, customers are given a refund. c) The heating single rate will increase from $0.0411 to $0.0417, an increase of 1.5%. The heating single rate was developed for the residential heating customers at the Mount Airy Housing Project. This rate is calculated by District Energy and combines both demand and energy rates. q�•y�� 38 2. 39 40 41 $2 43 �4 45 �6 47 �$ 49 SD 52 52 3, 53 S4 55 56 5? 58 59 b0 61 62 53 A comparison of heating rates is as follows: (See Exhibit �i) Actual Actual Actual FY 1993 FY 1494 FY 1995 xates: Demand ikw/mo) 4.15 Energy (mwh} 11.00 Single (kwh) _0403 Revenues: Demand 7,215,605 Energy 2,786,652 4.15 4.15 11.60 10.94 .0409 .0402 Actual Budget FY 1996 FY 1997 4.25 ii.o� _0411 7,276,169 7,127,845 7,549,056 3,033,133 2,604,227 3,171,304 4.25 ii.�o .�417 7,803,000 3,132, 677 Coverage rates ue higher than the target ntes as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been defened in prior fiscal years contame to be deferred. Total defened franchise fees through September 30, 1995 is $7,164,966. Coverage rates and target rates are defin� in Fxhibit #2. The defened franchise feas do not bear interest and are payable in 2014, unless the target rate is greater than the coverage rate. These rates are calculated in Exhibit #3 for FY 1997. 4. Beginning �ctober 1995, District Energy began depositing current franchise fees in the Franchise Fee Escrow account. These franchise fees are held in this account for thirteen months by District Energy before being remitted to the City. The City started receiving these monthly payments in November 1996, for fees collected in October 1995. 64 5. 65 56 57 6� 59 70 71 72 73 6. 74 75 76 77 78 74 $4 81 The interest paid on bonds is a material eazpense and is cavered by the demand rate, therefore the interest assumpfion is an important element of the rate review. The auerage interest rate projected for payments on Series A bonds is 4.S�o for this budget year. Similaz methods and sources were used in estimating the interest rate last year. It is the opinion of review staff that the projected rate is reasonabie. The bond interest is reset every seven days based an the Kenney index. Past estimates by District Energy concerning future interest payments have been reasonable. The rate staff consulted with the City Treasurer, who also felt the projected rate is reasonable. Any surplus or deficit is applied to the Supplemental Debt Service Reserve. District Cooling proposes the following rates for cooling: a) The cooling demand rate changes from $20.27 to $21.Q9 per ton per month, an increase of 4.0%. The projected increase in demand costs are due to inflation and trigher direct and allocated costs. b) The cooling energy rate remains at $0.062 per ton-haur. If actual costs are less than estimated, customers receive a refund. BZ 83 7. A comparison of cooling rates is as follows: (See Exhibit #4) 84 85 8b $7 88 89 � 91 92 93 94 95 96 97 98 94 100 101 102 103 104 105 ]06 ]07 1�8 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 Rates: Demand iS/tonJmo) Energy (Slton hr) Single ($/ton hr) Revenues: Demand Enezgy q� -y9� Budget FY 1997 21.09 0.062 0.273 2,151,180 575,965 WHEREAS, the City Councii has taken into account those matters required by Secrion 6 of Ordinance No. 16947 and Sec6on .11 of Ordinance No. 17816, and finds that District Energy has met all procedural and substantive requirements for approval of a rate change; now therefore, be it RESOLVED, that the District Energy rate schedule which sets the heating demand rate for its customers remains unchanged at $4.25 per ldlowatt per month effective October 1, 1996; and be it FURTE�R RESOLVED, that the District Energy rate schedule which sets the heating energy rate for its customers is hereby revised to change the energy rate from $11.10 per megawatt hour to i1.70 per megawatt hour , and be it FURTHER RESOLVED, that the District Energy rate schedule which sets the heating singie rate for its customers is hereby revised to change the singie rate from $0.0411 to $0.0417 per kilowatt hour, and be it FURTHER RESOLVED, that the District C�ling rate schedule which sets the cooling demand rate is hereby amended from $20.27 to $21.09 per ton per month, and be it FURTf�R RESOLVED, that the District Cooling energy rate remains at $0.062 per ton hour, and be it FURTF�R RESOLVED, that all other rates, changes, and other provisions of the District Energy hot water and district cooling franchises remain in force and are unchanged; and be it FURTHER RESOLVED, that the attached revised Schedule A and Attachment i to the District Heating franchise are approved and supersede any previous Schedule A and Attachment i, and are incorporated by reference into Ordinance No. ib947 as amended, and be it FINALLY RESOLVED, that the attached revised Schedule A and Attachment 1 to the District Cooling franchse are approved and supersede any previous Schedule A and Attachment i and aze incorporated by reference into Ordinanc.� No. 1781b, as amended. Actual Actual FY 1993 E'Y 1994 18.14 18_81 0.060 0.060 0.241 0.248 319,917 940,808 140,231 299,505 Actual Actual E'Y 1995 FY 1996 19.58 20.27 0.055 0.055 0.251 0.257 1,543,648 1,960,575 506,188 481,721 ��+ •�� Requested by Department of: Office of Financial Services / � • � : � �'L�d � . � � � � � .�s, _.. �, . • � �Il�� .., i� Appmved by Mayor for S bmission to Council B �.., ., - -. , . : . : � ►� -�, � � . � - . � � �: . . r�l, - - i . �� _ _ '_'"' . �� l�� a��ount�n � 41� GREEN SHEE N° 3 3836 � CANTACTPERSON&PHONE �DEPARiMENT0IRECTOfl ❑CRYGOUNCIL iNlf1AL1DATE ASSM+N C(iV ATTORNEV CRY CLEFiK Jim Sn der 266-8802 NUYBEPFOq � � MUST BE ON COUNCIL AGENDA BV (DAiE) flOUTING Q BUOGET DIPECtOR , � FIN. & MGT. SERYICES Diq. ORDER Q MqYOR (p�y qS,�nISTp� � TOTAL # OF SIGNATUqE PAGES (CLIP ALL LOCASfONS FOR SIGNANR� A .R70N pE�UESTED: Approval of District Energy`s and District Cooling's request to amend the heating and cooling rates. FECOMMENDASiONS: Apprave (A) or fiejact (R) p�gpNpL SERYICE CONTRACTS MUST ANSWEA TNE FOLLOWINCa CUES770NS: _ PLPNNING COMMISSI�N __ CNIL SERYICE COMMISSION �� Has this persoNfirtn ever worked under a conhact for fhis department? - _ C19 COMMItTEE _ YES NO _ sinFF 2• Nas this Pa�nlfirm ever besn a city empla�ee? � — VES NO _ D�SitilcT COUxr _ 3. Does this persoMkm possess a skill not normall y possessed by any curceM city employee? SUPPoRTS WHIGH COUNCILOBIECTIVE? YES NO Explain all yes answers on separate shest and aiteeh to green sheet INRIATING PROBLEM, ISSUE. OPPORTUNIN (WYw, What, Whan. Where, Why): In accordaxtce with the heating and cooling franchise agreements, District Heating and District Cooling have filed notice to amend Schedule A of Ordinance 16947 and 17816, regarding their heating and cooling rates. The City Council must review the evidence of this rate case and approve or deny their request. The attached resolution recommends approval of the new rates. ADVANTAGES IF APPROVE�: � � �T� APft 16 1997 1�P1� �15 1997 �A�t�R`S OFFfCF �.� �� DISAOVANTACaES IFAPPROVED: (:sa�a7�=.;; � ^. �°.?T..»e.4�'Ca ib.!.,�,.� . . .. : .... . . : :..?` . �i 2A —1 � �:SeaP� . � .w,.�..�.+ _ .,�:.� s DISpOVANTAGES IF NOTAPPpOVEO: TOTAL AMOUNT OF TflANSACTION $ COSTIREYENUH SUDGETEp (CIRCLE ONE) YES NO FUNOfNG SOUACE ACTNITY NUMBER FINANCIAI INFORMAT40N: {E%PiAIN) SCHEDULE A tAMENDID) to HOT WATII2 FRANCHISE granted to District Heating Development Co. d.b.a. DTSTRICT ENERGY ST. PAUL, INC. bp the CITY OF ST. PAUL (Ordinance No. 1b947, adopted July 20, 1982, as amended) ��-`�� RAT : The following ntes shall be effective beginning with the billing month of October 1996 and shall remain in effect until superseded: 5ingle rate: Two part rate: Demand: Energy: $0.0417 per lalowatt-hour $ 4.25 per kilowatt per month $ 11.70 per megawatt-hour PROMPT PAYMENT PROVISION: A charge of S(five) percent will be added to the net bill computed at the rate shown above, which chazge shall constitute a discount from the gross bill for payment within the discount period, all as more specifically provided in the Hot Water Delivery Agreement. FiJEL ADNSTMENT: In the event that the energy refund (assessment) per megawatt-hour accrued pursuant to the Hot Water Delivery Agreement as of March 31 of any year is greater than five percent of the energy rate then in effect, District Energy shall refund (may assess) an amount equal to that portion of the difference which exceeds one percent of the energy rate not later than May 31 of the same year. The amount refunded (assessed) shall be deducted when the overall refund (assessment} for the year is computeti. SURCHARGE: A City fee surcharge of 8.7 percent will be included in the gross and net monthly bills computed under this rate schedule except as otherwise provided by law. SERVICE CHARGES: Service chazges shall remain in effe�t as previoasly filed {see attachment). tla�rateshtg\scheduk.doc Schedule A Attachment 1 DISTRICT ENERGY ST. PAUL, INC. �� Service Charges F.ffective OcYoher 1, 1988 Pursuant to Section 8.5 of the Hot Water Delivery Agreement as amended, the following rates aze established for performance of specific services more properiy charged to an individual Customer than to all Customers as a whale. Service charges aze payable within 30 days of billing and are in addifion to Demand Charges and Energy Chazges. 1. Restoration of service after shutoff by District Energ,y: Customer demand under 100 kW: Customer demand 1Q0 kW or over: 2. Damage to District Ene� svstem e� iu nment: $15.00 $50.00 Actuai cost of repair or replacement as determined by District Energy plus service chuge of $30.00. 3. Unauthorized drainage of District Energy system water: The sum of the following: (a) Fsfimated quantity of water lost 6mes wmbined water and sewage rate paid hy District Energy during period of drainage; (b) Estimated heat value of water lost times applicable Energy Rate; and (c� Service chazge of $30.00. Note: Drainage of system water creates an unsafe condition and is cause for suspension of service until corrected. � 4. Service calls made at Customer's request by District Energy nersonnel for problems found to be in Customer's and not District Energy 'r S eauipment; Between 8:00 a.m. and 330 p.m. on Monday through Friday (excluding holidays observed by District Energy): $30.00 All other times: $50.00 tls\ramshtglservchg.doc q�-y�.�. SC�IJLE A (AMENDID) to DISTRICT COOLING �R��7CffiSE grauted to DTSTRICT C40LIl�3G ST. PAIIL, INC. f.k.a. District Enerny Services, Inc. by the CITY OF ST. PAUi. (Ordinance No. 17816, adopted March 2$, 1991) A�: The following rates shall 6e effeciive beginning with the billing month of October 1996 and siia3l remain in effect until superseded: Demand: $21.09 per ton per month Energy: $0.062 per toa-hour PROMPT PAYMENT PROVISION: A charga of 5(five) percent will be added to the net bill computed at the rates shown above, which charge shall constitute a discount from the gross bill for payment within the discount period, all as more specificatly provided in the District Cooling Service Agr�ment. SURCHARGE: A City franchise f� surcharge of 3.5 percent will be added to the gross and net monthiy bills compute�i under this rate scheduie except as otherwise provided by law. SERVICE CHARGES: Service charges shall remain in eff�t as previously filed (s� attachment). tlaimteaciglachedula.doc 91-y� � Sche3ule A Attachment i DISTRTCT COOLING ST. PAUL, INC. Service Charges Effective Apri11493 Pursuant to Sections 8.3 and 8.4 of ihe Distdct Cooling S�vic: Agr�ment as amended, the followin; rates aze established for perfarmanc� of spe�ific sen✓icss more properiy charged to an individual Customer than to ail Customers as a whole. Service char�es aze payable within 30 days of billing and are in addition to Demand Charges and Energy Charges. 1. Restoration of servic° after shutoff bv District CooiinQ: F�2I Ch2Ia8: 2. Damage to district coolin�svstem equivment: � � Actual cost of repair or zeplacement as determineri by District Cooling plus service charge of �30.00. 3. Unauthorized draina�,e of district coolin�svstem water: The sum of the following: (a) Estimated quantity of water lost rimes combined water and sewage rate and prorated water treatment cost paid by District Cooling during period of drainage; (b) Estimated thermal energy value of water lost times applicable Energy Rate; and (c) Szrvice charge of $30.00. Note: Draina�e of system water may cause harm to other Customers and is cause for suspeasion of service until corr�ted. 4. Service calis made at Customer's request t�v District Cooiin� �e-sonnel for arobiems found to be in Custome�'s and not District Cooiin� s equiDment: Beiw�n 8:00 a.m. and 330 p.m. on Manday through Friday (excludin; hofidays abserved by District Cooling): �30.00 All oche: times: �30.� 91-y'13- 5. Charge for chille3 water flow exc�ding 110 gallons per ton-hour during 7une, Juiy, August or September billing periad: 6. Credit for chilled water flow below 75 gallons per ton-hour during 7une, 7uly, August or September billing period: Schedule A Atiachment i Page 2 $0.40 per tfiousand gallons {$0.40) per thousand gallons da4atesclg\aervchg.doc 9� - 4� �- EXHIBIT 1 v J 1� W � �� i.., � � I.i� � t�. � � �� +, � � -+ i � ��"J � V (� `- U � �: � 4 0 .� y = � � � 0 � L ^� LL � � � U m n rn cn rn � rn � •; N � � } � � � LL ['7 .. .. .. . ,. .. �� ca �n � c� c� �- o ��wy�� . ��: �over�e Rates shall mean the rates and charges, which if collected by the Corporation, would in the aggregate equal the amount necessary to satisfy all of the Corporation's financial oblig�tions, including but not ]imited to, debt service with respect to the Series A Bonds, debt service with respect to the obligations of the Corporation to the Ciry and Bank under the City Loan Agreement and Reimbursement Agreement, and Qperating Expenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficiently operate the System, assuming that Franchise Fees are �paid to the Citv (after accumulation of the Franchise Fee Requiremerrt as provided in the Loan Agreemerrt an City Loan Agreement) on a cunent basis b1i� not includin�the defened Bank Fees Reimbursements and defened obligations of the Corporation to the Citv g�yment of which is nrovided for in Section 3.03 hereof. Target Rates shall mean, subject to the terms and conditions of the Service Agreements, the rates and charges pernutted to be charged by the Corporation under the Service Agreement equal to a predeternuned percentage (which will vary over time) of actuai firm natural gas prices; "predeternuned percentage° (for any given year) shall be that percentage that results from dividing the Corporation's projected hot water rate for the Corporation's nea�t fiscal yeaz (expressed 'm $/A�DVIBtu as contained in Gilbert/Commonwealth December 2, 1982 computer analysis reporied to the Corporation) by such fiscal year's pro}ected firm natura] gas/IvIIvlStu end use rate (as contained in Table 4 of the GilbertlCommonwealth Report to the Corporation dated September 30, 1982); provided, however, that the resulting percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted average of the prices actually charged by Northern States Power Company for its various classes of non-interruptible City of Saint Paul gas service customers, to be deternuned by assigning the demand for each DHDC customer to that customer's comparable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Friority Agreement (as amended) relating to HRA District Heating Revenue Bonds. q�-'�7� EXHIBIT 3 CALCULATION OF "TARGET RATE" FOR FY 1997 PER PAYMENTAND PRIORITYAGREEMENT CUSTOMER CLASS COMM/ LG GENL LG GENL RESIDENTL INDUSTRL tSMALLj (LARGE� QVERAIL USAGE DATA 1 CCF/DAY-LOW 2 CCF/DAY-MGH 3 AVERAGE CCF/DAY 4 AVERAGE CCF/YEAR FIRM GAS RATES (JANUARY 1996) 5 CUSTOMER CHARGE ($/M0) 6 DEMAND ($fCCF1DAY/M0) 7 COMMODITY j$lCC� OVERALI. COSTS 8 TOTAL $/YEAR 9 AVERAGE $1GCF 9AAVERAGE $IMCF 10 END USE $lMMBTU @65°la TARGE7 RATE CALCULATIONS 921 . �� 0.46611 500 2,000 1,999 1,646 3,291 92,298 329,124 658,247 $14.00 $225.00 $225.00 1.57924 1.57924 0.43346 0.23679 0.23679 $501 $40,175 $111,819 $220,938 O.Sdd29 0.43528 �.33975 0,33565 $5.4A $4.35 $3.40 $3.36 $8.37 $6.7Q $523 $5.16 11 D.E. DEMAND °k BY CLASS 2.01% 93.68°/a 0.00°k 12 WEIGHTED AVG $tMMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASISILITY STUDY 13A PROJEGTED D.H. RATE $26.74 DIVIDED BY 138 PROJECTED GAS RATE $38.53 (MINIMUM 72°h) 14 ="TARGET RATE" PER PAYMENT AND PRIORITY AGREEMENT ($lMMBTI� 15 TARGET RATE PER KWH COVERAGE RATE CALCULATION 16 REMAND RELATED COSTS 17 COVERAGE DEMAND RATE @ 153,000 tM/ DEMAND 4.31 °k $7,803,Q0� $4.25 $6.66 72.0°l0 $4.80 50.0164 18 OVERALL COVERAGE RATE PER KWH t0.0417 q�-y��. V/ � W � � 1 � � � �"`. � � � � ■ � O � o �, U .� �� c� �. .� � �� -- .� �z EXHIBIT 4 u . � a � m � � _ � � � � �. �. � �' U � � C�9 M N N *�-- � O O � � � � � � � � q�-y�i�. Interdepartmental Memorandum CTTY OF SAINP PAUL TQ: 7oe Reid, Director of Financial Services FRQM: ri e es Sn er DATE: March 20, 1997 RE: Staf£ Report for District Energy and District Cooling Proposed Fiscal Year 1997 Heating and Cooling Rates This memorandum discusses staffs review of Disuict Energy and District Cooling proposed rate changes. PROCEDURAL HISTORY Pursuant to Section 6(e) of City Ordinance 16947, District Energy filed notice on 7uly 19, 199b with the City Clerk of its intent to change its hot water rates effective October 1, 1996. Pursuant to Section 1.11(e) of City Ordinance 17816, District Cooling filed notice on July 19, 1996 with the City Clerk of its intent to change cooling rates effective October 1, 1996. Customer meetings were held on September 12 for downtown customers and August 21 for Mount Airy customers. District Energy was informed that a City review staff consisting of Lori I,ee and 7ames Snyder would review the rates. Staff met with District Energy staff7oyce Anderson and Andrew Kasid on December 12, 1996 and February 6, 1997 to ask questions and to review District Energy and District Cooling documents. Additional inquiries were made by the rate review staff and supplementary information was received during January and February. For purposes of this rate review the City contracted with Schedin & Associates who are consultants in energy planning, energy pricing and energy management. The technicai portions of this staff'report has been provided by the consultants. When proper notice, publication, and hearing on the proposed resolution are completed, those steps along with the process to date will satisfy all procedural requirements of the franchise agreements, q�-�t� � Staff Report for District Energy and District Cooling Proposed Fiscal Yeat 1997 Heating and Cooling Rates Page 2 PROPOSED FINDINGS OF FACT District Energy proposes the following: a) The heating demand rate remains unchanged at $4.25 per kilowatt per month. b) The heating energy rate changes from $11.10 per megawatt hour to $11.70lmwh, an increase of 5.4%. The energy rate is an estimate of fuet cost used to produce heat by District Energy. The elements of this estimate include the contracts for fuel in place, the mi�c of fuel used and the estimated usage by customers. If actual costs are less than estimated, customers are given a refund. c) The heating single rate will increase from $0.0411 to $0.0417, an increase of 1.5%. The heating single rate was devetoped for the residential heating customers at the Mount Airy Housing Project. This rate is calculated by District Energy and combines both dernand and energy tates. 2. A comparison of heating rates is as follows: (See Exhibit #1) Actual Actual Actual Actual Budget FY 1993 FY 1994 FY 1995 FY 1996 FY 1997 Rates: Demand (kw/mo} 4.15 4.15 4.15 4.25 Energy Imwh) 11.00 11.60 10.94 11.07 single (kwh) .0403 .0409 .0402 .0411 Revenues: Demand 7,215,605 7,276,169 7,127,845 7,549,056 Energy 2,786,652 3,033,133 2,604,227 3,171,304 4.25 11.70 .0417 7,803,000 3, 132, 677 3. Coverage rates are higher than the target rates as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been defened in prior fiscal years continue to be defened. Total deferred franchise fees through September 30, 1995 is $7,164,966. Coverage rates and target rates are defined in E�ibit #2. The deferred franchise fees do not bear interest and are payable in 2014, uniess the target rate is greater than the coverage.rate. These rates are calculated in Exhibit #3 for FY 1997. 4. $eginning Oatober 1995, District Energy began depositing cunerrt franchise fees in the Franchise Fee Escrow account. These franchise fees are held in tivs account for thirteen months by District Energy before being remitted to the City. The City started receiving these monthly payments in November 1996, for fees collected in October 1995. °I� Staff Report for District Energy and District Cooling Proposed Fiscal Year 1997 Heating and Cooling Rates Page 3 5. The interest paid on bonds is a material expense and is cavered by the demand rate, therefore the interest assumption is an important element of the rate review. The average interest rate projected for payments on Series A bonds is 4.8% for this budget yeaz_ Similar methods and sources were used in estimating the interest rate last year. It is the opinion of review staffthat the projected rate is reasonabie. The bond irnerest is reset every seven days based on the Kenney index. Past estimates by District Energy concerning future interest payments have been reasonahie. The rate staff consulted with the City Treasurer, who also feit the projected rate ss reasonable. Any surplus or deficit is applied to the Supplemental Debt Service Reserve. � 7 District Cooling proposes the following rates for cooling: a) The cooling demand rate changes from $20.27 to $21.09 per ton per month, an increase of 4.0%. The projected increase in demand costs are due to inflation and higher direct and aliocated costs. b} The cooling energy rate remains at $0.062 per ton-hour. If actual costs aze less than estimated, customers receive a refund. A comparison of cooling rates is as follows: (See E�ibit #4) Rates: Dem.and ($/ton/mo) Energy ($/ton hr) Single ($/ton hr} Revenues: Demand Energy Actual Actual Actual FY 1993 FY 1994 FY 1995 18.14 18.81 19.58 0.060 0.060 0.055 0.241 0.248 0.251 319.917 940,808 1,543,648 140,231 299,505 506,186 Actual Budget FY 1996 FY 1997 20.27 21.09 0.055 0.062 0.257 0.273 1,960,575 2,151,180 481,721 575,965 STAFF REVIE�' The staffreviewed: Annual costs per MIVIBT'U for typical hot water customer and annual cost per Ton- Hour for typical chilled water customer. Comparison of costs to other utilities. Application of the rate structure to normalized building demands and other factars. 9�-y� a. Staff Report for District Energy and District Cooling Proposed Fiscal Fear 1997 Heating and Cooling Rates Page 4 Percentage change in overall rates, Percentage change in various cost categories. Thermal efficiency ofboth systems Cost allocation between Heating and Cooling. Capital budgeting process. The review staff compared past budget projections to actual resuits and verified that the information contained in the rate filing was accurate. Staff also compared District Energy and District Cooling rates to similar utilities and determined the rates were comparable. Thermal Bfficiencv District Energy provided information that they classified as confidential regarding their fuel use per kwh of hot water produced. Schedin and Associates translated this information to an annual thermal conversion efficiency which was slightly below what one might expect from a large boiler operating at peak use. On an annual basis, however, District Energy's quoted value appears to be reasonable. Boiler cycling along with radiation and distribution losses decrease overall efficiency. The fuel usage value quoted by District Cooling in their confidential response is somewhat higher than what one might expect from a large new electric chiller, but they explained that their value includes pumps, fans and all other au�ciliary equipment associated with the system. In addition, District Cooling also uses two 500 Ton absorption chillers. These units wili have a much higher Btu per Ton-Hour rating than electric chillers, but the low pressute steam is considered "free" off of the turbine-generator. On an annual basis, therefore, District Cooling's stated efficiency appears to be teasonable. Cost Allocation between Heating and Coolins We reviewed the cost allocation between heating and cooling. Prior to the next rate filing, we recommend that the combined flow schematic for both utilities be updated with respect to allocations and locations of ineters used as a basis for the allocations. C'apital Budeetin�Process We feel that an adequate capital budgeting process should include appropriate checks and balances along with control of expenditures to ensure that capital investments are prudent. Based on the material provided by District Energy(Cooling, it appeazs that there has been no formal procedure in place to ensure Boazd review and authorization of any re-allocation of the overall conshuction budget used as the basis for setting rates. q �-y� �.. StaffReport for District Energy and District Cooling Proposed Fiscal Year 1997 Heating and Cooling Rates Page S Proper rate maldng bases the rate design on a known schedule of capital projects. Additional formal procedures should be put in place to obtain board approval of any significant re- attocation or changes in capital project e�enditure throughout the year as compared to the budget upon which the rates were set. In consideration of this recommendation, the District EnergylCooling Board of D"uectors adopted a resolution on March 14, 1997 that requires fotmal Board approval for any significant reallocation or changes in a capital project. The City rate staffwill review changes to capital projects to see that these procedures aze being followed in the neat rate review. CONCLUSION At this time, the rates proposed by District Energy and District Cooling appear to be reasonable and recommend approval of the FY 1997 heating and cooling rates. 'I�- Y��. EXHIBIT 1 V / � n� � W � � � � � 1`�. � � �� _ "� -E-� 4 C ,U � s-- 'i � � o .� � � � � 0 � � a � � � U u� a � N � � M � � � } � � N ►� . . .. .. .. �� . ,. :. co �n � c� c� ,- o �?- y � �, ..��: Cover�ge Rates shall mean the rates and chazges, which if collected by the Corporation, would in the aggregate equal the amount necessar� to sat� all of the Coryoration's financial li i n, including, but not limited to, debt service with respect to the Series A Bonds, debt service with respect to the obligations of the Corporation to the City and Bank under the City Loan Agreement and Reimbursement Agreement, and Operating Fxpenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficientty operate the System, c�ming that Franchise Fees are�gaid to the Citv (after accumulation of the Franchise Fee Requirement as provided in the Loan Agreement an City T.oan Agreement) on a current basis � not includin�the deferred Bank Fees Reimbursements and defetted ob2igations of the Corporation to the ,�...pavment of which is nrovided for in Section 3.03 hereof. Target Rates shall mean, subject to the tenns and conditions of the Service Agreements, the rates and charges pemutted to be charged by the Corparation under the Service Agreement equal to a predeternuned percentage (which will vacy over time) of actual fian natural gas prices; "predeternuned percentage" (for any given year) shall be that percentage that results from dividing the Corporation's projected hot water rate for the Corporation's nea�t fiscal year (expressed in $tMMBtu as contained in GilbertlCommonwealth December 2, 1982 computer analysis reported to the Corporation) by such fiscal year's projected firm natural gaslD�IlVII"3tu end use rate (as contained in Table 9 of the Gilbert/Commonwealth Report to the Corporation dated September 30, 1482); provided, however, that the resulting percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted average of the prices actually charged by Northern States Power Company for its various classes of non-interruptible City of Saint Paul gas service customers, to be determined by assigning the demand for each DHDC customer to that customer's comparable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Priority Agreement (as amended) relating to HRA District Heating Revenue Bonds. q�•y��.. EXHZBIT 3 CALCULATlON OF "TARGET RATE" FOR FY 1997 PER PAYMENT AND PRIORITY AGREEMENT CUSTOMER CLASS COMM/ LG GENL LG GENL StESIDENTL INDUSTRL S AL lA� RGEI OVERALL USAGE DATA 1 CCFlDAY-LOW 2 CCFiDAY-HIGH 3 AVERAGE CCFlDAY 4 AVERAGE CCFtYEAR FIRM GAS RATES (JANUARY 1996) 5 CUSTOMER CHARGE ($/MO) 6 DEMAND ($lCCFtDAYlMO) 7 COMMODITY ($lCCF) OVERALL COSTS 8 TOTAL $lYEAR 9 AVERAGE $fCCF 9AAVERAGE $1MCF 10 END USE $lMMBTU @65% TARGET RATE CALCULATfONS 921 ,. �� 0.46611 500 2,OOd 1,999 1,6A6 3,291 92,298 329,124 658,247 $14.00 $225.00 $225.00 1.57924 1.57924 0.43346 0.23679 023679 $501 $4�,175 $111,819 $22U,938 0.54429 0.43528 0.33875 0.33565 $5.44 $4.35 $3.40 $3.36 $8.37 $6.70 $5.23 $5.16 11 D.E. DEMAND % BY CLASS 2.01 °l0 93.6$°h 0.00% 12 WEIGHTED AVG $/MMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASIBILITY STUDY 13A PROJECTED D.H. RATE $26.74 DIVIDED BY 73B PROJECTED GAS RATE $38.53 (MINIMUM 72%) 14 ="TARGET RATE" PER PAYMENT AND PRIORITY AGREEMENT ($/MMBTU) 15 TARGE7 RATE PER KWH CQVERAGE RAT CALCULATION 16 DEMAND RELATED COSTS 17 GOVERAGE DEMAND RATE @ 153,000 KW DEMAND 4.31 °k 57,803,000 $425 $6.66 72.0°h $4.80 SO.Ot 64 18 OVERALL COVERAGE RATE PER K1NH SO_041T q�-��. V/ „ � � � ` � � � � � � (�` . ,_ � o� o� C� � �� U �. 's= ,v -F-� �, -� n 0 Z EXHZBIT 4 m n � � � � � � � � � z � F � a� � � � � � � � (� C N N r � O O � tfl � 4f> � � � 4f? Council Fite # ��7� Green Shcet # ,L ,� � � � � ('` : n 'ti..' . . . �, — t r�enc�a sy Refened To RESOLUTtON PAUL, MINNESOTA (�'nmm:Mm• ]� : i WHEREAS, the City of Saint Paul has granted, in Ordinazice No. 16947, as amended, a franclrise to 2 use the public streets and ways to deliver hot waxer within Saint Paul to District Heating Development 3 Company (DFIDC), doing business as District Energy St. Paul, Inc., a Minnesota non-profit 4 coiporation; and 5 6 WHEREAS, on 7uly 19, 1996, District Energy filed notice with the City Clerk of its intent to amend ? the heating rates pursuant to Section 6 of the District Heating Franchise; and 9 WHEREAS, the City of Saint Paui has granted, in Ordinance No. 17816, as amended, a franchise to 10 use the public streets and ways to deliver chilled water to District Energy Services, Inc., doing business 11 as District Cooling St. Paul, Inc., a Minnesota non-profit corporation; and I2 13 WHEREAS, on 7uly 19, 1996, District Cooling filed notice with the City Clerk of its intent to amend 24 cooling rates pursuant to Section .11(e) of the District Cooling Franchise; and 15 16 WHEREAS, such rates are thereby effective pending Ciry Council approval, which requires a public 17 hearing; and 18 19 WHEREAS, evidence has been presented to the City Council that the proposed rates are just, 20 reasonable, and non-discriminatory: 21 22 l. 23 24 25 26 27 28 29 3d 31 32 33 34 35 36 District Energy groposes the foliowing: a) The hea6ng demand rate remains unchanged at $4.25 per ldlowatt per month. b) The hea6ng energy rate changes from $11.10 per megawatt hour to $11.70tmwh, an increase of 5.4%. The energy rate is an estimate of fuel cost used to produce heat by District Energy. The elements of this estimate inalude the contracts far fuei in piace, the mix df fuel used and the estimated usage by customers. If actuai costs are less than estimated, customers are given a refund. c) The heating single rate will increase from $0.0411 to $0.0417, an increase of 1.5%. The heating single rate was developed for the residential heating customers at the Mount Airy Housing Project. This rate is calculated by District Energy and combines both demand and energy rates. q�•y�� 38 2. 39 40 41 $2 43 �4 45 �6 47 �$ 49 SD 52 52 3, 53 S4 55 56 5? 58 59 b0 61 62 53 A comparison of heating rates is as follows: (See Exhibit �i) Actual Actual Actual FY 1993 FY 1494 FY 1995 xates: Demand ikw/mo) 4.15 Energy (mwh} 11.00 Single (kwh) _0403 Revenues: Demand 7,215,605 Energy 2,786,652 4.15 4.15 11.60 10.94 .0409 .0402 Actual Budget FY 1996 FY 1997 4.25 ii.o� _0411 7,276,169 7,127,845 7,549,056 3,033,133 2,604,227 3,171,304 4.25 ii.�o .�417 7,803,000 3,132, 677 Coverage rates ue higher than the target ntes as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been defened in prior fiscal years contame to be deferred. Total defened franchise fees through September 30, 1995 is $7,164,966. Coverage rates and target rates are defin� in Fxhibit #2. The defened franchise feas do not bear interest and are payable in 2014, unless the target rate is greater than the coverage rate. These rates are calculated in Exhibit #3 for FY 1997. 4. Beginning �ctober 1995, District Energy began depositing current franchise fees in the Franchise Fee Escrow account. These franchise fees are held in this account for thirteen months by District Energy before being remitted to the City. The City started receiving these monthly payments in November 1996, for fees collected in October 1995. 64 5. 65 56 57 6� 59 70 71 72 73 6. 74 75 76 77 78 74 $4 81 The interest paid on bonds is a material eazpense and is cavered by the demand rate, therefore the interest assumpfion is an important element of the rate review. The auerage interest rate projected for payments on Series A bonds is 4.S�o for this budget year. Similaz methods and sources were used in estimating the interest rate last year. It is the opinion of review staff that the projected rate is reasonabie. The bond interest is reset every seven days based an the Kenney index. Past estimates by District Energy concerning future interest payments have been reasonable. The rate staff consulted with the City Treasurer, who also felt the projected rate is reasonable. Any surplus or deficit is applied to the Supplemental Debt Service Reserve. District Cooling proposes the following rates for cooling: a) The cooling demand rate changes from $20.27 to $21.Q9 per ton per month, an increase of 4.0%. The projected increase in demand costs are due to inflation and trigher direct and allocated costs. b) The cooling energy rate remains at $0.062 per ton-haur. If actual costs are less than estimated, customers receive a refund. BZ 83 7. A comparison of cooling rates is as follows: (See Exhibit #4) 84 85 8b $7 88 89 � 91 92 93 94 95 96 97 98 94 100 101 102 103 104 105 ]06 ]07 1�8 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 Rates: Demand iS/tonJmo) Energy (Slton hr) Single ($/ton hr) Revenues: Demand Enezgy q� -y9� Budget FY 1997 21.09 0.062 0.273 2,151,180 575,965 WHEREAS, the City Councii has taken into account those matters required by Secrion 6 of Ordinance No. 16947 and Sec6on .11 of Ordinance No. 17816, and finds that District Energy has met all procedural and substantive requirements for approval of a rate change; now therefore, be it RESOLVED, that the District Energy rate schedule which sets the heating demand rate for its customers remains unchanged at $4.25 per ldlowatt per month effective October 1, 1996; and be it FURTE�R RESOLVED, that the District Energy rate schedule which sets the heating energy rate for its customers is hereby revised to change the energy rate from $11.10 per megawatt hour to i1.70 per megawatt hour , and be it FURTHER RESOLVED, that the District Energy rate schedule which sets the heating singie rate for its customers is hereby revised to change the singie rate from $0.0411 to $0.0417 per kilowatt hour, and be it FURTHER RESOLVED, that the District C�ling rate schedule which sets the cooling demand rate is hereby amended from $20.27 to $21.09 per ton per month, and be it FURTf�R RESOLVED, that the District Cooling energy rate remains at $0.062 per ton hour, and be it FURTF�R RESOLVED, that all other rates, changes, and other provisions of the District Energy hot water and district cooling franchises remain in force and are unchanged; and be it FURTHER RESOLVED, that the attached revised Schedule A and Attachment i to the District Heating franchise are approved and supersede any previous Schedule A and Attachment i, and are incorporated by reference into Ordinance No. ib947 as amended, and be it FINALLY RESOLVED, that the attached revised Schedule A and Attachment 1 to the District Cooling franchse are approved and supersede any previous Schedule A and Attachment i and aze incorporated by reference into Ordinanc.� No. 1781b, as amended. Actual Actual FY 1993 E'Y 1994 18.14 18_81 0.060 0.060 0.241 0.248 319,917 940,808 140,231 299,505 Actual Actual E'Y 1995 FY 1996 19.58 20.27 0.055 0.055 0.251 0.257 1,543,648 1,960,575 506,188 481,721 ��+ •�� Requested by Department of: Office of Financial Services / � • � : � �'L�d � . � � � � � .�s, _.. �, . • � �Il�� .., i� Appmved by Mayor for S bmission to Council B �.., ., - -. , . : . : � ►� -�, � � . � - . � � �: . . r�l, - - i . �� _ _ '_'"' . �� l�� a��ount�n � 41� GREEN SHEE N° 3 3836 � CANTACTPERSON&PHONE �DEPARiMENT0IRECTOfl ❑CRYGOUNCIL iNlf1AL1DATE ASSM+N C(iV ATTORNEV CRY CLEFiK Jim Sn der 266-8802 NUYBEPFOq � � MUST BE ON COUNCIL AGENDA BV (DAiE) flOUTING Q BUOGET DIPECtOR , � FIN. & MGT. SERYICES Diq. ORDER Q MqYOR (p�y qS,�nISTp� � TOTAL # OF SIGNATUqE PAGES (CLIP ALL LOCASfONS FOR SIGNANR� A .R70N pE�UESTED: Approval of District Energy`s and District Cooling's request to amend the heating and cooling rates. FECOMMENDASiONS: Apprave (A) or fiejact (R) p�gpNpL SERYICE CONTRACTS MUST ANSWEA TNE FOLLOWINCa CUES770NS: _ PLPNNING COMMISSI�N __ CNIL SERYICE COMMISSION �� Has this persoNfirtn ever worked under a conhact for fhis department? - _ C19 COMMItTEE _ YES NO _ sinFF 2• Nas this Pa�nlfirm ever besn a city empla�ee? � — VES NO _ D�SitilcT COUxr _ 3. Does this persoMkm possess a skill not normall y possessed by any curceM city employee? SUPPoRTS WHIGH COUNCILOBIECTIVE? YES NO Explain all yes answers on separate shest and aiteeh to green sheet INRIATING PROBLEM, ISSUE. OPPORTUNIN (WYw, What, Whan. Where, Why): In accordaxtce with the heating and cooling franchise agreements, District Heating and District Cooling have filed notice to amend Schedule A of Ordinance 16947 and 17816, regarding their heating and cooling rates. The City Council must review the evidence of this rate case and approve or deny their request. The attached resolution recommends approval of the new rates. ADVANTAGES IF APPROVE�: � � �T� APft 16 1997 1�P1� �15 1997 �A�t�R`S OFFfCF �.� �� DISAOVANTACaES IFAPPROVED: (:sa�a7�=.;; � ^. �°.?T..»e.4�'Ca ib.!.,�,.� . . .. : .... . . : :..?` . �i 2A —1 � �:SeaP� . � .w,.�..�.+ _ .,�:.� s DISpOVANTAGES IF NOTAPPpOVEO: TOTAL AMOUNT OF TflANSACTION $ COSTIREYENUH SUDGETEp (CIRCLE ONE) YES NO FUNOfNG SOUACE ACTNITY NUMBER FINANCIAI INFORMAT40N: {E%PiAIN) SCHEDULE A tAMENDID) to HOT WATII2 FRANCHISE granted to District Heating Development Co. d.b.a. DTSTRICT ENERGY ST. PAUL, INC. bp the CITY OF ST. PAUL (Ordinance No. 1b947, adopted July 20, 1982, as amended) ��-`�� RAT : The following ntes shall be effective beginning with the billing month of October 1996 and shall remain in effect until superseded: 5ingle rate: Two part rate: Demand: Energy: $0.0417 per lalowatt-hour $ 4.25 per kilowatt per month $ 11.70 per megawatt-hour PROMPT PAYMENT PROVISION: A charge of S(five) percent will be added to the net bill computed at the rate shown above, which chazge shall constitute a discount from the gross bill for payment within the discount period, all as more specifically provided in the Hot Water Delivery Agreement. FiJEL ADNSTMENT: In the event that the energy refund (assessment) per megawatt-hour accrued pursuant to the Hot Water Delivery Agreement as of March 31 of any year is greater than five percent of the energy rate then in effect, District Energy shall refund (may assess) an amount equal to that portion of the difference which exceeds one percent of the energy rate not later than May 31 of the same year. The amount refunded (assessed) shall be deducted when the overall refund (assessment} for the year is computeti. SURCHARGE: A City fee surcharge of 8.7 percent will be included in the gross and net monthly bills computed under this rate schedule except as otherwise provided by law. SERVICE CHARGES: Service chazges shall remain in effe�t as previoasly filed {see attachment). tla�rateshtg\scheduk.doc Schedule A Attachment 1 DISTRICT ENERGY ST. PAUL, INC. �� Service Charges F.ffective OcYoher 1, 1988 Pursuant to Section 8.5 of the Hot Water Delivery Agreement as amended, the following rates aze established for performance of specific services more properiy charged to an individual Customer than to all Customers as a whale. Service charges aze payable within 30 days of billing and are in addifion to Demand Charges and Energy Chazges. 1. Restoration of service after shutoff by District Energ,y: Customer demand under 100 kW: Customer demand 1Q0 kW or over: 2. Damage to District Ene� svstem e� iu nment: $15.00 $50.00 Actuai cost of repair or replacement as determined by District Energy plus service chuge of $30.00. 3. Unauthorized drainage of District Energy system water: The sum of the following: (a) Fsfimated quantity of water lost 6mes wmbined water and sewage rate paid hy District Energy during period of drainage; (b) Estimated heat value of water lost times applicable Energy Rate; and (c� Service chazge of $30.00. Note: Drainage of system water creates an unsafe condition and is cause for suspension of service until corrected. � 4. Service calls made at Customer's request by District Energy nersonnel for problems found to be in Customer's and not District Energy 'r S eauipment; Between 8:00 a.m. and 330 p.m. on Monday through Friday (excluding holidays observed by District Energy): $30.00 All other times: $50.00 tls\ramshtglservchg.doc q�-y�.�. SC�IJLE A (AMENDID) to DISTRICT COOLING �R��7CffiSE grauted to DTSTRICT C40LIl�3G ST. PAIIL, INC. f.k.a. District Enerny Services, Inc. by the CITY OF ST. PAUi. (Ordinance No. 17816, adopted March 2$, 1991) A�: The following rates shall 6e effeciive beginning with the billing month of October 1996 and siia3l remain in effect until superseded: Demand: $21.09 per ton per month Energy: $0.062 per toa-hour PROMPT PAYMENT PROVISION: A charga of 5(five) percent will be added to the net bill computed at the rates shown above, which charge shall constitute a discount from the gross bill for payment within the discount period, all as more specificatly provided in the District Cooling Service Agr�ment. SURCHARGE: A City franchise f� surcharge of 3.5 percent will be added to the gross and net monthiy bills compute�i under this rate scheduie except as otherwise provided by law. SERVICE CHARGES: Service charges shall remain in eff�t as previously filed (s� attachment). tlaimteaciglachedula.doc 91-y� � Sche3ule A Attachment i DISTRTCT COOLING ST. PAUL, INC. Service Charges Effective Apri11493 Pursuant to Sections 8.3 and 8.4 of ihe Distdct Cooling S�vic: Agr�ment as amended, the followin; rates aze established for perfarmanc� of spe�ific sen✓icss more properiy charged to an individual Customer than to ail Customers as a whole. Service char�es aze payable within 30 days of billing and are in addition to Demand Charges and Energy Charges. 1. Restoration of servic° after shutoff bv District CooiinQ: F�2I Ch2Ia8: 2. Damage to district coolin�svstem equivment: � � Actual cost of repair or zeplacement as determineri by District Cooling plus service charge of �30.00. 3. Unauthorized draina�,e of district coolin�svstem water: The sum of the following: (a) Estimated quantity of water lost rimes combined water and sewage rate and prorated water treatment cost paid by District Cooling during period of drainage; (b) Estimated thermal energy value of water lost times applicable Energy Rate; and (c) Szrvice charge of $30.00. Note: Draina�e of system water may cause harm to other Customers and is cause for suspeasion of service until corr�ted. 4. Service calis made at Customer's request t�v District Cooiin� �e-sonnel for arobiems found to be in Custome�'s and not District Cooiin� s equiDment: Beiw�n 8:00 a.m. and 330 p.m. on Manday through Friday (excludin; hofidays abserved by District Cooling): �30.00 All oche: times: �30.� 91-y'13- 5. Charge for chille3 water flow exc�ding 110 gallons per ton-hour during 7une, Juiy, August or September billing periad: 6. Credit for chilled water flow below 75 gallons per ton-hour during 7une, 7uly, August or September billing period: Schedule A Atiachment i Page 2 $0.40 per tfiousand gallons {$0.40) per thousand gallons da4atesclg\aervchg.doc 9� - 4� �- EXHIBIT 1 v J 1� W � �� i.., � � I.i� � t�. � � �� +, � � -+ i � ��"J � V (� `- U � �: � 4 0 .� y = � � � 0 � L ^� LL � � � U m n rn cn rn � rn � •; N � � } � � � LL ['7 .. .. .. . ,. .. �� ca �n � c� c� �- o ��wy�� . ��: �over�e Rates shall mean the rates and charges, which if collected by the Corporation, would in the aggregate equal the amount necessary to satisfy all of the Corporation's financial oblig�tions, including but not ]imited to, debt service with respect to the Series A Bonds, debt service with respect to the obligations of the Corporation to the Ciry and Bank under the City Loan Agreement and Reimbursement Agreement, and Qperating Expenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficiently operate the System, assuming that Franchise Fees are �paid to the Citv (after accumulation of the Franchise Fee Requiremerrt as provided in the Loan Agreemerrt an City Loan Agreement) on a cunent basis b1i� not includin�the defened Bank Fees Reimbursements and defened obligations of the Corporation to the Citv g�yment of which is nrovided for in Section 3.03 hereof. Target Rates shall mean, subject to the terms and conditions of the Service Agreements, the rates and charges pernutted to be charged by the Corporation under the Service Agreement equal to a predeternuned percentage (which will vary over time) of actuai firm natural gas prices; "predeternuned percentage° (for any given year) shall be that percentage that results from dividing the Corporation's projected hot water rate for the Corporation's nea�t fiscal yeaz (expressed 'm $/A�DVIBtu as contained in Gilbert/Commonwealth December 2, 1982 computer analysis reporied to the Corporation) by such fiscal year's pro}ected firm natura] gas/IvIIvlStu end use rate (as contained in Table 4 of the GilbertlCommonwealth Report to the Corporation dated September 30, 1982); provided, however, that the resulting percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted average of the prices actually charged by Northern States Power Company for its various classes of non-interruptible City of Saint Paul gas service customers, to be deternuned by assigning the demand for each DHDC customer to that customer's comparable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Friority Agreement (as amended) relating to HRA District Heating Revenue Bonds. q�-'�7� EXHIBIT 3 CALCULATION OF "TARGET RATE" FOR FY 1997 PER PAYMENTAND PRIORITYAGREEMENT CUSTOMER CLASS COMM/ LG GENL LG GENL RESIDENTL INDUSTRL tSMALLj (LARGE� QVERAIL USAGE DATA 1 CCF/DAY-LOW 2 CCF/DAY-MGH 3 AVERAGE CCF/DAY 4 AVERAGE CCF/YEAR FIRM GAS RATES (JANUARY 1996) 5 CUSTOMER CHARGE ($/M0) 6 DEMAND ($fCCF1DAY/M0) 7 COMMODITY j$lCC� OVERALI. COSTS 8 TOTAL $/YEAR 9 AVERAGE $1GCF 9AAVERAGE $IMCF 10 END USE $lMMBTU @65°la TARGE7 RATE CALCULATIONS 921 . �� 0.46611 500 2,000 1,999 1,646 3,291 92,298 329,124 658,247 $14.00 $225.00 $225.00 1.57924 1.57924 0.43346 0.23679 0.23679 $501 $40,175 $111,819 $220,938 O.Sdd29 0.43528 �.33975 0,33565 $5.4A $4.35 $3.40 $3.36 $8.37 $6.7Q $523 $5.16 11 D.E. DEMAND °k BY CLASS 2.01% 93.68°/a 0.00°k 12 WEIGHTED AVG $tMMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASISILITY STUDY 13A PROJEGTED D.H. RATE $26.74 DIVIDED BY 138 PROJECTED GAS RATE $38.53 (MINIMUM 72°h) 14 ="TARGET RATE" PER PAYMENT AND PRIORITY AGREEMENT ($lMMBTI� 15 TARGET RATE PER KWH COVERAGE RATE CALCULATION 16 REMAND RELATED COSTS 17 COVERAGE DEMAND RATE @ 153,000 tM/ DEMAND 4.31 °k $7,803,Q0� $4.25 $6.66 72.0°l0 $4.80 50.0164 18 OVERALL COVERAGE RATE PER KWH t0.0417 q�-y��. V/ � W � � 1 � � � �"`. � � � � ■ � O � o �, U .� �� c� �. .� � �� -- .� �z EXHIBIT 4 u . � a � m � � _ � � � � �. �. � �' U � � C�9 M N N *�-- � O O � � � � � � � � q�-y�i�. Interdepartmental Memorandum CTTY OF SAINP PAUL TQ: 7oe Reid, Director of Financial Services FRQM: ri e es Sn er DATE: March 20, 1997 RE: Staf£ Report for District Energy and District Cooling Proposed Fiscal Year 1997 Heating and Cooling Rates This memorandum discusses staffs review of Disuict Energy and District Cooling proposed rate changes. PROCEDURAL HISTORY Pursuant to Section 6(e) of City Ordinance 16947, District Energy filed notice on 7uly 19, 199b with the City Clerk of its intent to change its hot water rates effective October 1, 1996. Pursuant to Section 1.11(e) of City Ordinance 17816, District Cooling filed notice on July 19, 1996 with the City Clerk of its intent to change cooling rates effective October 1, 1996. Customer meetings were held on September 12 for downtown customers and August 21 for Mount Airy customers. District Energy was informed that a City review staff consisting of Lori I,ee and 7ames Snyder would review the rates. Staff met with District Energy staff7oyce Anderson and Andrew Kasid on December 12, 1996 and February 6, 1997 to ask questions and to review District Energy and District Cooling documents. Additional inquiries were made by the rate review staff and supplementary information was received during January and February. For purposes of this rate review the City contracted with Schedin & Associates who are consultants in energy planning, energy pricing and energy management. The technicai portions of this staff'report has been provided by the consultants. When proper notice, publication, and hearing on the proposed resolution are completed, those steps along with the process to date will satisfy all procedural requirements of the franchise agreements, q�-�t� � Staff Report for District Energy and District Cooling Proposed Fiscal Yeat 1997 Heating and Cooling Rates Page 2 PROPOSED FINDINGS OF FACT District Energy proposes the following: a) The heating demand rate remains unchanged at $4.25 per kilowatt per month. b) The heating energy rate changes from $11.10 per megawatt hour to $11.70lmwh, an increase of 5.4%. The energy rate is an estimate of fuet cost used to produce heat by District Energy. The elements of this estimate include the contracts for fuel in place, the mi�c of fuel used and the estimated usage by customers. If actual costs are less than estimated, customers are given a refund. c) The heating single rate will increase from $0.0411 to $0.0417, an increase of 1.5%. The heating single rate was devetoped for the residential heating customers at the Mount Airy Housing Project. This rate is calculated by District Energy and combines both dernand and energy tates. 2. A comparison of heating rates is as follows: (See Exhibit #1) Actual Actual Actual Actual Budget FY 1993 FY 1994 FY 1995 FY 1996 FY 1997 Rates: Demand (kw/mo} 4.15 4.15 4.15 4.25 Energy Imwh) 11.00 11.60 10.94 11.07 single (kwh) .0403 .0409 .0402 .0411 Revenues: Demand 7,215,605 7,276,169 7,127,845 7,549,056 Energy 2,786,652 3,033,133 2,604,227 3,171,304 4.25 11.70 .0417 7,803,000 3, 132, 677 3. Coverage rates are higher than the target rates as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been defened in prior fiscal years continue to be defened. Total deferred franchise fees through September 30, 1995 is $7,164,966. Coverage rates and target rates are defined in E�ibit #2. The deferred franchise fees do not bear interest and are payable in 2014, uniess the target rate is greater than the coverage.rate. These rates are calculated in Exhibit #3 for FY 1997. 4. $eginning Oatober 1995, District Energy began depositing cunerrt franchise fees in the Franchise Fee Escrow account. These franchise fees are held in tivs account for thirteen months by District Energy before being remitted to the City. The City started receiving these monthly payments in November 1996, for fees collected in October 1995. °I� Staff Report for District Energy and District Cooling Proposed Fiscal Year 1997 Heating and Cooling Rates Page 3 5. The interest paid on bonds is a material expense and is cavered by the demand rate, therefore the interest assumption is an important element of the rate review. The average interest rate projected for payments on Series A bonds is 4.8% for this budget yeaz_ Similar methods and sources were used in estimating the interest rate last year. It is the opinion of review staffthat the projected rate is reasonabie. The bond irnerest is reset every seven days based on the Kenney index. Past estimates by District Energy concerning future interest payments have been reasonahie. The rate staff consulted with the City Treasurer, who also feit the projected rate ss reasonable. Any surplus or deficit is applied to the Supplemental Debt Service Reserve. � 7 District Cooling proposes the following rates for cooling: a) The cooling demand rate changes from $20.27 to $21.09 per ton per month, an increase of 4.0%. The projected increase in demand costs are due to inflation and higher direct and aliocated costs. b} The cooling energy rate remains at $0.062 per ton-hour. If actual costs aze less than estimated, customers receive a refund. A comparison of cooling rates is as follows: (See E�ibit #4) Rates: Dem.and ($/ton/mo) Energy ($/ton hr) Single ($/ton hr} Revenues: Demand Energy Actual Actual Actual FY 1993 FY 1994 FY 1995 18.14 18.81 19.58 0.060 0.060 0.055 0.241 0.248 0.251 319.917 940,808 1,543,648 140,231 299,505 506,186 Actual Budget FY 1996 FY 1997 20.27 21.09 0.055 0.062 0.257 0.273 1,960,575 2,151,180 481,721 575,965 STAFF REVIE�' The staffreviewed: Annual costs per MIVIBT'U for typical hot water customer and annual cost per Ton- Hour for typical chilled water customer. Comparison of costs to other utilities. Application of the rate structure to normalized building demands and other factars. 9�-y� a. Staff Report for District Energy and District Cooling Proposed Fiscal Fear 1997 Heating and Cooling Rates Page 4 Percentage change in overall rates, Percentage change in various cost categories. Thermal efficiency ofboth systems Cost allocation between Heating and Cooling. Capital budgeting process. The review staff compared past budget projections to actual resuits and verified that the information contained in the rate filing was accurate. Staff also compared District Energy and District Cooling rates to similar utilities and determined the rates were comparable. Thermal Bfficiencv District Energy provided information that they classified as confidential regarding their fuel use per kwh of hot water produced. Schedin and Associates translated this information to an annual thermal conversion efficiency which was slightly below what one might expect from a large boiler operating at peak use. On an annual basis, however, District Energy's quoted value appears to be reasonable. Boiler cycling along with radiation and distribution losses decrease overall efficiency. The fuel usage value quoted by District Cooling in their confidential response is somewhat higher than what one might expect from a large new electric chiller, but they explained that their value includes pumps, fans and all other au�ciliary equipment associated with the system. In addition, District Cooling also uses two 500 Ton absorption chillers. These units wili have a much higher Btu per Ton-Hour rating than electric chillers, but the low pressute steam is considered "free" off of the turbine-generator. On an annual basis, therefore, District Cooling's stated efficiency appears to be teasonable. Cost Allocation between Heating and Coolins We reviewed the cost allocation between heating and cooling. Prior to the next rate filing, we recommend that the combined flow schematic for both utilities be updated with respect to allocations and locations of ineters used as a basis for the allocations. C'apital Budeetin�Process We feel that an adequate capital budgeting process should include appropriate checks and balances along with control of expenditures to ensure that capital investments are prudent. Based on the material provided by District Energy(Cooling, it appeazs that there has been no formal procedure in place to ensure Boazd review and authorization of any re-allocation of the overall conshuction budget used as the basis for setting rates. q �-y� �.. StaffReport for District Energy and District Cooling Proposed Fiscal Year 1997 Heating and Cooling Rates Page S Proper rate maldng bases the rate design on a known schedule of capital projects. Additional formal procedures should be put in place to obtain board approval of any significant re- attocation or changes in capital project e�enditure throughout the year as compared to the budget upon which the rates were set. In consideration of this recommendation, the District EnergylCooling Board of D"uectors adopted a resolution on March 14, 1997 that requires fotmal Board approval for any significant reallocation or changes in a capital project. The City rate staffwill review changes to capital projects to see that these procedures aze being followed in the neat rate review. CONCLUSION At this time, the rates proposed by District Energy and District Cooling appear to be reasonable and recommend approval of the FY 1997 heating and cooling rates. 'I�- Y��. EXHIBIT 1 V / � n� � W � � � � � 1`�. � � �� _ "� -E-� 4 C ,U � s-- 'i � � o .� � � � � 0 � � a � � � U u� a � N � � M � � � } � � N ►� . . .. .. .. �� . ,. :. co �n � c� c� ,- o �?- y � �, ..��: Cover�ge Rates shall mean the rates and chazges, which if collected by the Corporation, would in the aggregate equal the amount necessar� to sat� all of the Coryoration's financial li i n, including, but not limited to, debt service with respect to the Series A Bonds, debt service with respect to the obligations of the Corporation to the City and Bank under the City Loan Agreement and Reimbursement Agreement, and Operating Fxpenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficientty operate the System, c�ming that Franchise Fees are�gaid to the Citv (after accumulation of the Franchise Fee Requirement as provided in the Loan Agreement an City T.oan Agreement) on a current basis � not includin�the deferred Bank Fees Reimbursements and defetted ob2igations of the Corporation to the ,�...pavment of which is nrovided for in Section 3.03 hereof. Target Rates shall mean, subject to the tenns and conditions of the Service Agreements, the rates and charges pemutted to be charged by the Corparation under the Service Agreement equal to a predeternuned percentage (which will vacy over time) of actual fian natural gas prices; "predeternuned percentage" (for any given year) shall be that percentage that results from dividing the Corporation's projected hot water rate for the Corporation's nea�t fiscal year (expressed in $tMMBtu as contained in GilbertlCommonwealth December 2, 1982 computer analysis reported to the Corporation) by such fiscal year's projected firm natural gaslD�IlVII"3tu end use rate (as contained in Table 9 of the Gilbert/Commonwealth Report to the Corporation dated September 30, 1482); provided, however, that the resulting percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted average of the prices actually charged by Northern States Power Company for its various classes of non-interruptible City of Saint Paul gas service customers, to be determined by assigning the demand for each DHDC customer to that customer's comparable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Priority Agreement (as amended) relating to HRA District Heating Revenue Bonds. q�•y��.. EXHZBIT 3 CALCULATlON OF "TARGET RATE" FOR FY 1997 PER PAYMENT AND PRIORITY AGREEMENT CUSTOMER CLASS COMM/ LG GENL LG GENL StESIDENTL INDUSTRL S AL lA� RGEI OVERALL USAGE DATA 1 CCFlDAY-LOW 2 CCFiDAY-HIGH 3 AVERAGE CCFlDAY 4 AVERAGE CCFtYEAR FIRM GAS RATES (JANUARY 1996) 5 CUSTOMER CHARGE ($/MO) 6 DEMAND ($lCCFtDAYlMO) 7 COMMODITY ($lCCF) OVERALL COSTS 8 TOTAL $lYEAR 9 AVERAGE $fCCF 9AAVERAGE $1MCF 10 END USE $lMMBTU @65% TARGET RATE CALCULATfONS 921 ,. �� 0.46611 500 2,OOd 1,999 1,6A6 3,291 92,298 329,124 658,247 $14.00 $225.00 $225.00 1.57924 1.57924 0.43346 0.23679 023679 $501 $4�,175 $111,819 $22U,938 0.54429 0.43528 0.33875 0.33565 $5.44 $4.35 $3.40 $3.36 $8.37 $6.70 $5.23 $5.16 11 D.E. DEMAND % BY CLASS 2.01 °l0 93.6$°h 0.00% 12 WEIGHTED AVG $/MMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASIBILITY STUDY 13A PROJECTED D.H. RATE $26.74 DIVIDED BY 73B PROJECTED GAS RATE $38.53 (MINIMUM 72%) 14 ="TARGET RATE" PER PAYMENT AND PRIORITY AGREEMENT ($/MMBTU) 15 TARGE7 RATE PER KWH CQVERAGE RAT CALCULATION 16 DEMAND RELATED COSTS 17 GOVERAGE DEMAND RATE @ 153,000 KW DEMAND 4.31 °k 57,803,000 $425 $6.66 72.0°h $4.80 SO.Ot 64 18 OVERALL COVERAGE RATE PER K1NH SO_041T q�-��. V/ „ � � � ` � � � � � � (�` . ,_ � o� o� C� � �� U �. 's= ,v -F-� �, -� n 0 Z EXHZBIT 4 m n � � � � � � � � � z � F � a� � � � � � � � (� C N N r � O O � tfl � 4f> � � � 4f? Council Fite # ��7� Green Shcet # ,L ,� � � � � ('` : n 'ti..' . . . �, — t r�enc�a sy Refened To RESOLUTtON PAUL, MINNESOTA (�'nmm:Mm• ]� : i WHEREAS, the City of Saint Paul has granted, in Ordinazice No. 16947, as amended, a franclrise to 2 use the public streets and ways to deliver hot waxer within Saint Paul to District Heating Development 3 Company (DFIDC), doing business as District Energy St. Paul, Inc., a Minnesota non-profit 4 coiporation; and 5 6 WHEREAS, on 7uly 19, 1996, District Energy filed notice with the City Clerk of its intent to amend ? the heating rates pursuant to Section 6 of the District Heating Franchise; and 9 WHEREAS, the City of Saint Paui has granted, in Ordinance No. 17816, as amended, a franchise to 10 use the public streets and ways to deliver chilled water to District Energy Services, Inc., doing business 11 as District Cooling St. Paul, Inc., a Minnesota non-profit corporation; and I2 13 WHEREAS, on 7uly 19, 1996, District Cooling filed notice with the City Clerk of its intent to amend 24 cooling rates pursuant to Section .11(e) of the District Cooling Franchise; and 15 16 WHEREAS, such rates are thereby effective pending Ciry Council approval, which requires a public 17 hearing; and 18 19 WHEREAS, evidence has been presented to the City Council that the proposed rates are just, 20 reasonable, and non-discriminatory: 21 22 l. 23 24 25 26 27 28 29 3d 31 32 33 34 35 36 District Energy groposes the foliowing: a) The hea6ng demand rate remains unchanged at $4.25 per ldlowatt per month. b) The hea6ng energy rate changes from $11.10 per megawatt hour to $11.70tmwh, an increase of 5.4%. The energy rate is an estimate of fuel cost used to produce heat by District Energy. The elements of this estimate inalude the contracts far fuei in piace, the mix df fuel used and the estimated usage by customers. If actuai costs are less than estimated, customers are given a refund. c) The heating single rate will increase from $0.0411 to $0.0417, an increase of 1.5%. The heating single rate was developed for the residential heating customers at the Mount Airy Housing Project. This rate is calculated by District Energy and combines both demand and energy rates. q�•y�� 38 2. 39 40 41 $2 43 �4 45 �6 47 �$ 49 SD 52 52 3, 53 S4 55 56 5? 58 59 b0 61 62 53 A comparison of heating rates is as follows: (See Exhibit �i) Actual Actual Actual FY 1993 FY 1494 FY 1995 xates: Demand ikw/mo) 4.15 Energy (mwh} 11.00 Single (kwh) _0403 Revenues: Demand 7,215,605 Energy 2,786,652 4.15 4.15 11.60 10.94 .0409 .0402 Actual Budget FY 1996 FY 1997 4.25 ii.o� _0411 7,276,169 7,127,845 7,549,056 3,033,133 2,604,227 3,171,304 4.25 ii.�o .�417 7,803,000 3,132, 677 Coverage rates ue higher than the target ntes as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been defened in prior fiscal years contame to be deferred. Total defened franchise fees through September 30, 1995 is $7,164,966. Coverage rates and target rates are defin� in Fxhibit #2. The defened franchise feas do not bear interest and are payable in 2014, unless the target rate is greater than the coverage rate. These rates are calculated in Exhibit #3 for FY 1997. 4. Beginning �ctober 1995, District Energy began depositing current franchise fees in the Franchise Fee Escrow account. These franchise fees are held in this account for thirteen months by District Energy before being remitted to the City. The City started receiving these monthly payments in November 1996, for fees collected in October 1995. 64 5. 65 56 57 6� 59 70 71 72 73 6. 74 75 76 77 78 74 $4 81 The interest paid on bonds is a material eazpense and is cavered by the demand rate, therefore the interest assumpfion is an important element of the rate review. The auerage interest rate projected for payments on Series A bonds is 4.S�o for this budget year. Similaz methods and sources were used in estimating the interest rate last year. It is the opinion of review staff that the projected rate is reasonabie. The bond interest is reset every seven days based an the Kenney index. Past estimates by District Energy concerning future interest payments have been reasonable. The rate staff consulted with the City Treasurer, who also felt the projected rate is reasonable. Any surplus or deficit is applied to the Supplemental Debt Service Reserve. District Cooling proposes the following rates for cooling: a) The cooling demand rate changes from $20.27 to $21.Q9 per ton per month, an increase of 4.0%. The projected increase in demand costs are due to inflation and trigher direct and allocated costs. b) The cooling energy rate remains at $0.062 per ton-haur. If actual costs are less than estimated, customers receive a refund. BZ 83 7. A comparison of cooling rates is as follows: (See Exhibit #4) 84 85 8b $7 88 89 � 91 92 93 94 95 96 97 98 94 100 101 102 103 104 105 ]06 ]07 1�8 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 Rates: Demand iS/tonJmo) Energy (Slton hr) Single ($/ton hr) Revenues: Demand Enezgy q� -y9� Budget FY 1997 21.09 0.062 0.273 2,151,180 575,965 WHEREAS, the City Councii has taken into account those matters required by Secrion 6 of Ordinance No. 16947 and Sec6on .11 of Ordinance No. 17816, and finds that District Energy has met all procedural and substantive requirements for approval of a rate change; now therefore, be it RESOLVED, that the District Energy rate schedule which sets the heating demand rate for its customers remains unchanged at $4.25 per ldlowatt per month effective October 1, 1996; and be it FURTE�R RESOLVED, that the District Energy rate schedule which sets the heating energy rate for its customers is hereby revised to change the energy rate from $11.10 per megawatt hour to i1.70 per megawatt hour , and be it FURTHER RESOLVED, that the District Energy rate schedule which sets the heating singie rate for its customers is hereby revised to change the singie rate from $0.0411 to $0.0417 per kilowatt hour, and be it FURTHER RESOLVED, that the District C�ling rate schedule which sets the cooling demand rate is hereby amended from $20.27 to $21.09 per ton per month, and be it FURTf�R RESOLVED, that the District Cooling energy rate remains at $0.062 per ton hour, and be it FURTF�R RESOLVED, that all other rates, changes, and other provisions of the District Energy hot water and district cooling franchises remain in force and are unchanged; and be it FURTHER RESOLVED, that the attached revised Schedule A and Attachment i to the District Heating franchise are approved and supersede any previous Schedule A and Attachment i, and are incorporated by reference into Ordinance No. ib947 as amended, and be it FINALLY RESOLVED, that the attached revised Schedule A and Attachment 1 to the District Cooling franchse are approved and supersede any previous Schedule A and Attachment i and aze incorporated by reference into Ordinanc.� No. 1781b, as amended. Actual Actual FY 1993 E'Y 1994 18.14 18_81 0.060 0.060 0.241 0.248 319,917 940,808 140,231 299,505 Actual Actual E'Y 1995 FY 1996 19.58 20.27 0.055 0.055 0.251 0.257 1,543,648 1,960,575 506,188 481,721 ��+ •�� Requested by Department of: Office of Financial Services / � • � : � �'L�d � . � � � � � .�s, _.. �, . • � �Il�� .., i� Appmved by Mayor for S bmission to Council B �.., ., - -. , . : . : � ►� -�, � � . � - . � � �: . . r�l, - - i . �� _ _ '_'"' . �� l�� a��ount�n � 41� GREEN SHEE N° 3 3836 � CANTACTPERSON&PHONE �DEPARiMENT0IRECTOfl ❑CRYGOUNCIL iNlf1AL1DATE ASSM+N C(iV ATTORNEV CRY CLEFiK Jim Sn der 266-8802 NUYBEPFOq � � MUST BE ON COUNCIL AGENDA BV (DAiE) flOUTING Q BUOGET DIPECtOR , � FIN. & MGT. SERYICES Diq. ORDER Q MqYOR (p�y qS,�nISTp� � TOTAL # OF SIGNATUqE PAGES (CLIP ALL LOCASfONS FOR SIGNANR� A .R70N pE�UESTED: Approval of District Energy`s and District Cooling's request to amend the heating and cooling rates. FECOMMENDASiONS: Apprave (A) or fiejact (R) p�gpNpL SERYICE CONTRACTS MUST ANSWEA TNE FOLLOWINCa CUES770NS: _ PLPNNING COMMISSI�N __ CNIL SERYICE COMMISSION �� Has this persoNfirtn ever worked under a conhact for fhis department? - _ C19 COMMItTEE _ YES NO _ sinFF 2• Nas this Pa�nlfirm ever besn a city empla�ee? � — VES NO _ D�SitilcT COUxr _ 3. Does this persoMkm possess a skill not normall y possessed by any curceM city employee? SUPPoRTS WHIGH COUNCILOBIECTIVE? YES NO Explain all yes answers on separate shest and aiteeh to green sheet INRIATING PROBLEM, ISSUE. OPPORTUNIN (WYw, What, Whan. Where, Why): In accordaxtce with the heating and cooling franchise agreements, District Heating and District Cooling have filed notice to amend Schedule A of Ordinance 16947 and 17816, regarding their heating and cooling rates. The City Council must review the evidence of this rate case and approve or deny their request. The attached resolution recommends approval of the new rates. ADVANTAGES IF APPROVE�: � � �T� APft 16 1997 1�P1� �15 1997 �A�t�R`S OFFfCF �.� �� DISAOVANTACaES IFAPPROVED: (:sa�a7�=.;; � ^. �°.?T..»e.4�'Ca ib.!.,�,.� . . .. : .... . . : :..?` . �i 2A —1 � �:SeaP� . � .w,.�..�.+ _ .,�:.� s DISpOVANTAGES IF NOTAPPpOVEO: TOTAL AMOUNT OF TflANSACTION $ COSTIREYENUH SUDGETEp (CIRCLE ONE) YES NO FUNOfNG SOUACE ACTNITY NUMBER FINANCIAI INFORMAT40N: {E%PiAIN) SCHEDULE A tAMENDID) to HOT WATII2 FRANCHISE granted to District Heating Development Co. d.b.a. DTSTRICT ENERGY ST. PAUL, INC. bp the CITY OF ST. PAUL (Ordinance No. 1b947, adopted July 20, 1982, as amended) ��-`�� RAT : The following ntes shall be effective beginning with the billing month of October 1996 and shall remain in effect until superseded: 5ingle rate: Two part rate: Demand: Energy: $0.0417 per lalowatt-hour $ 4.25 per kilowatt per month $ 11.70 per megawatt-hour PROMPT PAYMENT PROVISION: A charge of S(five) percent will be added to the net bill computed at the rate shown above, which chazge shall constitute a discount from the gross bill for payment within the discount period, all as more specifically provided in the Hot Water Delivery Agreement. FiJEL ADNSTMENT: In the event that the energy refund (assessment) per megawatt-hour accrued pursuant to the Hot Water Delivery Agreement as of March 31 of any year is greater than five percent of the energy rate then in effect, District Energy shall refund (may assess) an amount equal to that portion of the difference which exceeds one percent of the energy rate not later than May 31 of the same year. The amount refunded (assessed) shall be deducted when the overall refund (assessment} for the year is computeti. SURCHARGE: A City fee surcharge of 8.7 percent will be included in the gross and net monthly bills computed under this rate schedule except as otherwise provided by law. SERVICE CHARGES: Service chazges shall remain in effe�t as previoasly filed {see attachment). tla�rateshtg\scheduk.doc Schedule A Attachment 1 DISTRICT ENERGY ST. PAUL, INC. �� Service Charges F.ffective OcYoher 1, 1988 Pursuant to Section 8.5 of the Hot Water Delivery Agreement as amended, the following rates aze established for performance of specific services more properiy charged to an individual Customer than to all Customers as a whale. Service charges aze payable within 30 days of billing and are in addifion to Demand Charges and Energy Chazges. 1. Restoration of service after shutoff by District Energ,y: Customer demand under 100 kW: Customer demand 1Q0 kW or over: 2. Damage to District Ene� svstem e� iu nment: $15.00 $50.00 Actuai cost of repair or replacement as determined by District Energy plus service chuge of $30.00. 3. Unauthorized drainage of District Energy system water: The sum of the following: (a) Fsfimated quantity of water lost 6mes wmbined water and sewage rate paid hy District Energy during period of drainage; (b) Estimated heat value of water lost times applicable Energy Rate; and (c� Service chazge of $30.00. Note: Drainage of system water creates an unsafe condition and is cause for suspension of service until corrected. � 4. Service calls made at Customer's request by District Energy nersonnel for problems found to be in Customer's and not District Energy 'r S eauipment; Between 8:00 a.m. and 330 p.m. on Monday through Friday (excluding holidays observed by District Energy): $30.00 All other times: $50.00 tls\ramshtglservchg.doc q�-y�.�. SC�IJLE A (AMENDID) to DISTRICT COOLING �R��7CffiSE grauted to DTSTRICT C40LIl�3G ST. PAIIL, INC. f.k.a. District Enerny Services, Inc. by the CITY OF ST. PAUi. (Ordinance No. 17816, adopted March 2$, 1991) A�: The following rates shall 6e effeciive beginning with the billing month of October 1996 and siia3l remain in effect until superseded: Demand: $21.09 per ton per month Energy: $0.062 per toa-hour PROMPT PAYMENT PROVISION: A charga of 5(five) percent will be added to the net bill computed at the rates shown above, which charge shall constitute a discount from the gross bill for payment within the discount period, all as more specificatly provided in the District Cooling Service Agr�ment. SURCHARGE: A City franchise f� surcharge of 3.5 percent will be added to the gross and net monthiy bills compute�i under this rate scheduie except as otherwise provided by law. SERVICE CHARGES: Service charges shall remain in eff�t as previously filed (s� attachment). tlaimteaciglachedula.doc 91-y� � Sche3ule A Attachment i DISTRTCT COOLING ST. PAUL, INC. Service Charges Effective Apri11493 Pursuant to Sections 8.3 and 8.4 of ihe Distdct Cooling S�vic: Agr�ment as amended, the followin; rates aze established for perfarmanc� of spe�ific sen✓icss more properiy charged to an individual Customer than to ail Customers as a whole. Service char�es aze payable within 30 days of billing and are in addition to Demand Charges and Energy Charges. 1. Restoration of servic° after shutoff bv District CooiinQ: F�2I Ch2Ia8: 2. Damage to district coolin�svstem equivment: � � Actual cost of repair or zeplacement as determineri by District Cooling plus service charge of �30.00. 3. Unauthorized draina�,e of district coolin�svstem water: The sum of the following: (a) Estimated quantity of water lost rimes combined water and sewage rate and prorated water treatment cost paid by District Cooling during period of drainage; (b) Estimated thermal energy value of water lost times applicable Energy Rate; and (c) Szrvice charge of $30.00. Note: Draina�e of system water may cause harm to other Customers and is cause for suspeasion of service until corr�ted. 4. Service calis made at Customer's request t�v District Cooiin� �e-sonnel for arobiems found to be in Custome�'s and not District Cooiin� s equiDment: Beiw�n 8:00 a.m. and 330 p.m. on Manday through Friday (excludin; hofidays abserved by District Cooling): �30.00 All oche: times: �30.� 91-y'13- 5. Charge for chille3 water flow exc�ding 110 gallons per ton-hour during 7une, Juiy, August or September billing periad: 6. Credit for chilled water flow below 75 gallons per ton-hour during 7une, 7uly, August or September billing period: Schedule A Atiachment i Page 2 $0.40 per tfiousand gallons {$0.40) per thousand gallons da4atesclg\aervchg.doc 9� - 4� �- EXHIBIT 1 v J 1� W � �� i.., � � I.i� � t�. � � �� +, � � -+ i � ��"J � V (� `- U � �: � 4 0 .� y = � � � 0 � L ^� LL � � � U m n rn cn rn � rn � •; N � � } � � � LL ['7 .. .. .. . ,. .. �� ca �n � c� c� �- o ��wy�� . ��: �over�e Rates shall mean the rates and charges, which if collected by the Corporation, would in the aggregate equal the amount necessary to satisfy all of the Corporation's financial oblig�tions, including but not ]imited to, debt service with respect to the Series A Bonds, debt service with respect to the obligations of the Corporation to the Ciry and Bank under the City Loan Agreement and Reimbursement Agreement, and Qperating Expenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficiently operate the System, assuming that Franchise Fees are �paid to the Citv (after accumulation of the Franchise Fee Requiremerrt as provided in the Loan Agreemerrt an City Loan Agreement) on a cunent basis b1i� not includin�the defened Bank Fees Reimbursements and defened obligations of the Corporation to the Citv g�yment of which is nrovided for in Section 3.03 hereof. Target Rates shall mean, subject to the terms and conditions of the Service Agreements, the rates and charges pernutted to be charged by the Corporation under the Service Agreement equal to a predeternuned percentage (which will vary over time) of actuai firm natural gas prices; "predeternuned percentage° (for any given year) shall be that percentage that results from dividing the Corporation's projected hot water rate for the Corporation's nea�t fiscal yeaz (expressed 'm $/A�DVIBtu as contained in Gilbert/Commonwealth December 2, 1982 computer analysis reporied to the Corporation) by such fiscal year's pro}ected firm natura] gas/IvIIvlStu end use rate (as contained in Table 4 of the GilbertlCommonwealth Report to the Corporation dated September 30, 1982); provided, however, that the resulting percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted average of the prices actually charged by Northern States Power Company for its various classes of non-interruptible City of Saint Paul gas service customers, to be deternuned by assigning the demand for each DHDC customer to that customer's comparable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Friority Agreement (as amended) relating to HRA District Heating Revenue Bonds. q�-'�7� EXHIBIT 3 CALCULATION OF "TARGET RATE" FOR FY 1997 PER PAYMENTAND PRIORITYAGREEMENT CUSTOMER CLASS COMM/ LG GENL LG GENL RESIDENTL INDUSTRL tSMALLj (LARGE� QVERAIL USAGE DATA 1 CCF/DAY-LOW 2 CCF/DAY-MGH 3 AVERAGE CCF/DAY 4 AVERAGE CCF/YEAR FIRM GAS RATES (JANUARY 1996) 5 CUSTOMER CHARGE ($/M0) 6 DEMAND ($fCCF1DAY/M0) 7 COMMODITY j$lCC� OVERALI. COSTS 8 TOTAL $/YEAR 9 AVERAGE $1GCF 9AAVERAGE $IMCF 10 END USE $lMMBTU @65°la TARGE7 RATE CALCULATIONS 921 . �� 0.46611 500 2,000 1,999 1,646 3,291 92,298 329,124 658,247 $14.00 $225.00 $225.00 1.57924 1.57924 0.43346 0.23679 0.23679 $501 $40,175 $111,819 $220,938 O.Sdd29 0.43528 �.33975 0,33565 $5.4A $4.35 $3.40 $3.36 $8.37 $6.7Q $523 $5.16 11 D.E. DEMAND °k BY CLASS 2.01% 93.68°/a 0.00°k 12 WEIGHTED AVG $tMMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASISILITY STUDY 13A PROJEGTED D.H. RATE $26.74 DIVIDED BY 138 PROJECTED GAS RATE $38.53 (MINIMUM 72°h) 14 ="TARGET RATE" PER PAYMENT AND PRIORITY AGREEMENT ($lMMBTI� 15 TARGET RATE PER KWH COVERAGE RATE CALCULATION 16 REMAND RELATED COSTS 17 COVERAGE DEMAND RATE @ 153,000 tM/ DEMAND 4.31 °k $7,803,Q0� $4.25 $6.66 72.0°l0 $4.80 50.0164 18 OVERALL COVERAGE RATE PER KWH t0.0417 q�-y��. V/ � W � � 1 � � � �"`. � � � � ■ � O � o �, U .� �� c� �. .� � �� -- .� �z EXHIBIT 4 u . � a � m � � _ � � � � �. �. � �' U � � C�9 M N N *�-- � O O � � � � � � � � q�-y�i�. Interdepartmental Memorandum CTTY OF SAINP PAUL TQ: 7oe Reid, Director of Financial Services FRQM: ri e es Sn er DATE: March 20, 1997 RE: Staf£ Report for District Energy and District Cooling Proposed Fiscal Year 1997 Heating and Cooling Rates This memorandum discusses staffs review of Disuict Energy and District Cooling proposed rate changes. PROCEDURAL HISTORY Pursuant to Section 6(e) of City Ordinance 16947, District Energy filed notice on 7uly 19, 199b with the City Clerk of its intent to change its hot water rates effective October 1, 1996. Pursuant to Section 1.11(e) of City Ordinance 17816, District Cooling filed notice on July 19, 1996 with the City Clerk of its intent to change cooling rates effective October 1, 1996. Customer meetings were held on September 12 for downtown customers and August 21 for Mount Airy customers. District Energy was informed that a City review staff consisting of Lori I,ee and 7ames Snyder would review the rates. Staff met with District Energy staff7oyce Anderson and Andrew Kasid on December 12, 1996 and February 6, 1997 to ask questions and to review District Energy and District Cooling documents. Additional inquiries were made by the rate review staff and supplementary information was received during January and February. For purposes of this rate review the City contracted with Schedin & Associates who are consultants in energy planning, energy pricing and energy management. The technicai portions of this staff'report has been provided by the consultants. When proper notice, publication, and hearing on the proposed resolution are completed, those steps along with the process to date will satisfy all procedural requirements of the franchise agreements, q�-�t� � Staff Report for District Energy and District Cooling Proposed Fiscal Yeat 1997 Heating and Cooling Rates Page 2 PROPOSED FINDINGS OF FACT District Energy proposes the following: a) The heating demand rate remains unchanged at $4.25 per kilowatt per month. b) The heating energy rate changes from $11.10 per megawatt hour to $11.70lmwh, an increase of 5.4%. The energy rate is an estimate of fuet cost used to produce heat by District Energy. The elements of this estimate include the contracts for fuel in place, the mi�c of fuel used and the estimated usage by customers. If actual costs are less than estimated, customers are given a refund. c) The heating single rate will increase from $0.0411 to $0.0417, an increase of 1.5%. The heating single rate was devetoped for the residential heating customers at the Mount Airy Housing Project. This rate is calculated by District Energy and combines both dernand and energy tates. 2. A comparison of heating rates is as follows: (See Exhibit #1) Actual Actual Actual Actual Budget FY 1993 FY 1994 FY 1995 FY 1996 FY 1997 Rates: Demand (kw/mo} 4.15 4.15 4.15 4.25 Energy Imwh) 11.00 11.60 10.94 11.07 single (kwh) .0403 .0409 .0402 .0411 Revenues: Demand 7,215,605 7,276,169 7,127,845 7,549,056 Energy 2,786,652 3,033,133 2,604,227 3,171,304 4.25 11.70 .0417 7,803,000 3, 132, 677 3. Coverage rates are higher than the target rates as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been defened in prior fiscal years continue to be defened. Total deferred franchise fees through September 30, 1995 is $7,164,966. Coverage rates and target rates are defined in E�ibit #2. The deferred franchise fees do not bear interest and are payable in 2014, uniess the target rate is greater than the coverage.rate. These rates are calculated in Exhibit #3 for FY 1997. 4. $eginning Oatober 1995, District Energy began depositing cunerrt franchise fees in the Franchise Fee Escrow account. These franchise fees are held in tivs account for thirteen months by District Energy before being remitted to the City. The City started receiving these monthly payments in November 1996, for fees collected in October 1995. °I� Staff Report for District Energy and District Cooling Proposed Fiscal Year 1997 Heating and Cooling Rates Page 3 5. The interest paid on bonds is a material expense and is cavered by the demand rate, therefore the interest assumption is an important element of the rate review. The average interest rate projected for payments on Series A bonds is 4.8% for this budget yeaz_ Similar methods and sources were used in estimating the interest rate last year. It is the opinion of review staffthat the projected rate is reasonabie. The bond irnerest is reset every seven days based on the Kenney index. Past estimates by District Energy concerning future interest payments have been reasonahie. The rate staff consulted with the City Treasurer, who also feit the projected rate ss reasonable. Any surplus or deficit is applied to the Supplemental Debt Service Reserve. � 7 District Cooling proposes the following rates for cooling: a) The cooling demand rate changes from $20.27 to $21.09 per ton per month, an increase of 4.0%. The projected increase in demand costs are due to inflation and higher direct and aliocated costs. b} The cooling energy rate remains at $0.062 per ton-hour. If actual costs aze less than estimated, customers receive a refund. A comparison of cooling rates is as follows: (See E�ibit #4) Rates: Dem.and ($/ton/mo) Energy ($/ton hr) Single ($/ton hr} Revenues: Demand Energy Actual Actual Actual FY 1993 FY 1994 FY 1995 18.14 18.81 19.58 0.060 0.060 0.055 0.241 0.248 0.251 319.917 940,808 1,543,648 140,231 299,505 506,186 Actual Budget FY 1996 FY 1997 20.27 21.09 0.055 0.062 0.257 0.273 1,960,575 2,151,180 481,721 575,965 STAFF REVIE�' The staffreviewed: Annual costs per MIVIBT'U for typical hot water customer and annual cost per Ton- Hour for typical chilled water customer. Comparison of costs to other utilities. Application of the rate structure to normalized building demands and other factars. 9�-y� a. Staff Report for District Energy and District Cooling Proposed Fiscal Fear 1997 Heating and Cooling Rates Page 4 Percentage change in overall rates, Percentage change in various cost categories. Thermal efficiency ofboth systems Cost allocation between Heating and Cooling. Capital budgeting process. The review staff compared past budget projections to actual resuits and verified that the information contained in the rate filing was accurate. Staff also compared District Energy and District Cooling rates to similar utilities and determined the rates were comparable. Thermal Bfficiencv District Energy provided information that they classified as confidential regarding their fuel use per kwh of hot water produced. Schedin and Associates translated this information to an annual thermal conversion efficiency which was slightly below what one might expect from a large boiler operating at peak use. On an annual basis, however, District Energy's quoted value appears to be reasonable. Boiler cycling along with radiation and distribution losses decrease overall efficiency. The fuel usage value quoted by District Cooling in their confidential response is somewhat higher than what one might expect from a large new electric chiller, but they explained that their value includes pumps, fans and all other au�ciliary equipment associated with the system. In addition, District Cooling also uses two 500 Ton absorption chillers. These units wili have a much higher Btu per Ton-Hour rating than electric chillers, but the low pressute steam is considered "free" off of the turbine-generator. On an annual basis, therefore, District Cooling's stated efficiency appears to be teasonable. Cost Allocation between Heating and Coolins We reviewed the cost allocation between heating and cooling. Prior to the next rate filing, we recommend that the combined flow schematic for both utilities be updated with respect to allocations and locations of ineters used as a basis for the allocations. C'apital Budeetin�Process We feel that an adequate capital budgeting process should include appropriate checks and balances along with control of expenditures to ensure that capital investments are prudent. Based on the material provided by District Energy(Cooling, it appeazs that there has been no formal procedure in place to ensure Boazd review and authorization of any re-allocation of the overall conshuction budget used as the basis for setting rates. q �-y� �.. StaffReport for District Energy and District Cooling Proposed Fiscal Year 1997 Heating and Cooling Rates Page S Proper rate maldng bases the rate design on a known schedule of capital projects. Additional formal procedures should be put in place to obtain board approval of any significant re- attocation or changes in capital project e�enditure throughout the year as compared to the budget upon which the rates were set. In consideration of this recommendation, the District EnergylCooling Board of D"uectors adopted a resolution on March 14, 1997 that requires fotmal Board approval for any significant reallocation or changes in a capital project. The City rate staffwill review changes to capital projects to see that these procedures aze being followed in the neat rate review. CONCLUSION At this time, the rates proposed by District Energy and District Cooling appear to be reasonable and recommend approval of the FY 1997 heating and cooling rates. 'I�- Y��. EXHIBIT 1 V / � n� � W � � � � � 1`�. � � �� _ "� -E-� 4 C ,U � s-- 'i � � o .� � � � � 0 � � a � � � U u� a � N � � M � � � } � � N ►� . . .. .. .. �� . ,. :. co �n � c� c� ,- o �?- y � �, ..��: Cover�ge Rates shall mean the rates and chazges, which if collected by the Corporation, would in the aggregate equal the amount necessar� to sat� all of the Coryoration's financial li i n, including, but not limited to, debt service with respect to the Series A Bonds, debt service with respect to the obligations of the Corporation to the City and Bank under the City Loan Agreement and Reimbursement Agreement, and Operating Fxpenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficientty operate the System, c�ming that Franchise Fees are�gaid to the Citv (after accumulation of the Franchise Fee Requirement as provided in the Loan Agreement an City T.oan Agreement) on a current basis � not includin�the deferred Bank Fees Reimbursements and defetted ob2igations of the Corporation to the ,�...pavment of which is nrovided for in Section 3.03 hereof. Target Rates shall mean, subject to the tenns and conditions of the Service Agreements, the rates and charges pemutted to be charged by the Corparation under the Service Agreement equal to a predeternuned percentage (which will vacy over time) of actual fian natural gas prices; "predeternuned percentage" (for any given year) shall be that percentage that results from dividing the Corporation's projected hot water rate for the Corporation's nea�t fiscal year (expressed in $tMMBtu as contained in GilbertlCommonwealth December 2, 1982 computer analysis reported to the Corporation) by such fiscal year's projected firm natural gaslD�IlVII"3tu end use rate (as contained in Table 9 of the Gilbert/Commonwealth Report to the Corporation dated September 30, 1482); provided, however, that the resulting percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted average of the prices actually charged by Northern States Power Company for its various classes of non-interruptible City of Saint Paul gas service customers, to be determined by assigning the demand for each DHDC customer to that customer's comparable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Priority Agreement (as amended) relating to HRA District Heating Revenue Bonds. q�•y��.. EXHZBIT 3 CALCULATlON OF "TARGET RATE" FOR FY 1997 PER PAYMENT AND PRIORITY AGREEMENT CUSTOMER CLASS COMM/ LG GENL LG GENL StESIDENTL INDUSTRL S AL lA� RGEI OVERALL USAGE DATA 1 CCFlDAY-LOW 2 CCFiDAY-HIGH 3 AVERAGE CCFlDAY 4 AVERAGE CCFtYEAR FIRM GAS RATES (JANUARY 1996) 5 CUSTOMER CHARGE ($/MO) 6 DEMAND ($lCCFtDAYlMO) 7 COMMODITY ($lCCF) OVERALL COSTS 8 TOTAL $lYEAR 9 AVERAGE $fCCF 9AAVERAGE $1MCF 10 END USE $lMMBTU @65% TARGET RATE CALCULATfONS 921 ,. �� 0.46611 500 2,OOd 1,999 1,6A6 3,291 92,298 329,124 658,247 $14.00 $225.00 $225.00 1.57924 1.57924 0.43346 0.23679 023679 $501 $4�,175 $111,819 $22U,938 0.54429 0.43528 0.33875 0.33565 $5.44 $4.35 $3.40 $3.36 $8.37 $6.70 $5.23 $5.16 11 D.E. DEMAND % BY CLASS 2.01 °l0 93.6$°h 0.00% 12 WEIGHTED AVG $/MMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASIBILITY STUDY 13A PROJECTED D.H. RATE $26.74 DIVIDED BY 73B PROJECTED GAS RATE $38.53 (MINIMUM 72%) 14 ="TARGET RATE" PER PAYMENT AND PRIORITY AGREEMENT ($/MMBTU) 15 TARGE7 RATE PER KWH CQVERAGE RAT CALCULATION 16 DEMAND RELATED COSTS 17 GOVERAGE DEMAND RATE @ 153,000 KW DEMAND 4.31 °k 57,803,000 $425 $6.66 72.0°h $4.80 SO.Ot 64 18 OVERALL COVERAGE RATE PER K1NH SO_041T q�-��. V/ „ � � � ` � � � � � � (�` . ,_ � o� o� C� � �� U �. 's= ,v -F-� �, -� n 0 Z EXHZBIT 4 m n � � � � � � � � � z � F � a� � � � � � � � (� C N N r � O O � tfl � 4f> � � � 4f?