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98-116Council F'ile # 9 8 ��o ORIGlNAL r��a s Referred To co m;,,.�. 1 WHEREAS, the City of Saint Paul has granted, in Ordinance No. 16947, as amended, a franchise to 2 use the public streets and ways to deliver hot water within Saint Paul to District Aeating Development 4 5 6 7 8 9 10 11 Company (DHDC), doing business as District Energy St. Paul, Inc., a Minnesota non-profit corporation; and WHEREA5, on July 21, 1997, District Energy filed notice with the City Clerk of its intent to amend the heating rates pursuant to Secflon 6 of the District Heating Franchise; and VVHEREAS, the City of Saint Paul has granted, in Ordinance No. 17816, as amended, a franchise to use the public streets and ways to deliver chilled water to District Energy Services, Inc., doing business as District Cooling St. Paul, Inc., a Minnesota non-profiC corporauon; and 12 13 WHEREAS, on 7uly 21, 1997, District Cooling filed no6ce with the City Clerk of its intent to amend 14 cooling ntes pursuant to Section .11(e) of the District Cooling Franchise; and 15 16 WHEREAS, such rates aze thereby effective pending City Council approval, which requires a public 17 hearing; and 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 WHEREAS, evidence has been presented to the City Council that the proposed rates are just, reasonable, and non-discriminatory: 1. District Energy proposes the following: a) The heating demand rate changes from $4.25 per kilowatt per month to $4.35 per kilowatt per month, an increase of 2.4%. b) The heating energy rate changes from $11.70 per megawatt hour to $11.50lmwh, a decrease of 1.7 %. T'he energy rate is an estimate of fuel cost used to produce heat by District Energy. The elements of this estimate include the contracts for fuel in place, the mix of fuel used and the esrimated usage by customers. If actual costs are less than es6mated, customers are given a refund. c) The heating single rate will increase from $0.0417 to $0.0422, an increase of 1.2%. 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. RESOLUTION CiTY OF SAfNT PAUL, MINNESOTA Green Sheet #�� yo 9� /�� 39 40 41 42 43 � 45 46 47 48 49 �0 51 2. A comparison of heating rates is as follows: (See F.xhibit #1) Actual Actual E'Y 1994 E'Y 1995 Rates: Demand (kwJmo) 4.15 4.15 Energy (mwh) 11.60 10.94 Single ikwh) .0909 .0402 Revenues: Demand 7,276,169 7,127,845 Energy 3,033,133 2,604,227 Actual Forecast FY 1996 FY 1997 4.25 4.25 11.10 11.15 .0411 .0412 Budget £Y 1998 4.35 11.50 .0422 7,549,056 7,841,249 7,830,000 3,171,304 3,112,184 3,073,608 52 3 53 54 55 56 57 58 59 60 61 62 Coverage rates aze higher than the target rates as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been defened in prior fiscai years continue to be defened. The total of all defened franchise fees is $7,164,967. The deferred franchise fees will remain the same, do not bear interest and aze payable in 2014, unless the target rate is greater than the coverage nte. Coverage rates and target rates aze defined in Exhibit f{2. These rates are calculated in Eachibit #3 for FY 1998. 4. Beginning October 1995, District Energy began depositing current franchise fees in the Franchise F� Escrow account. In 1997, the City received all franchise fees held in this escrow account and will condnue to receive current franchise fees on a monthly basis. 63 5. 64 65 66 67 68 69 70 71 6. 72 73 74 75 76 77 78 The interest paid on bonds is a material expense and is covered by the demand rate. The average interest rate projected for payments on Series A bonds is 4.2% for this budget year. Similar methods and sources were used in esumating the interest rate last year. It is the opinion of review staff that the projected rate is reasonable. The bond interest is reset every seven days based on the Kenney index. Past esfimates 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. District Cooling proposes the following rates for cooling: a) b) 'The cooling demand rate changes from $21.09 to $21.73 per ton per month, an increase of 3.0%. The cooling energy nte changes from $0.062 to $0.060 per ton-hour a deerease of 3.2%. If actual costs aze less than estimated, customers receive a refund. ORlG1NAL 9b�-�� 79 80 81 82 83 84 85 86 87 8$ $� 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 7. A comparison of cooling rates is as follows: (See Exhibit #4) Rates: Demand ($/ton/mo) Energy ($/ton hr) Overall cost at 1200 hrs Revenues: Demand Energy Actual Actual F7 1994 E'Y 1995 18.81 19.58 0.060 0.055 0.248 0.251 Actual Forecast FY 1996 FY 1997 20.27 21.09 0.055 0.060 0.258 0.271 940,808 1,543,648 1,960,575 2,166,988 299,505 506,188 481,721 580,059 Budget E'Y 1998 21.73 0.060 0.277 2,377,088 614,179 WHEREAS, the City Council has taken into account those matters requued by Section 6 of Ordinance No. 16947 and Secdon .11 of Ordinance No. 17816, and finds that District Energy has met all procedural and substanrive 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 is herehy changed from $4.25 per ldlowatt per month to $4.35 per kilowatt per month effective October 1, 1997; and be it FURTHER RFSOLVED, that the District Energy rate schedule which sets the heating energy rate for its customers is hereby revised to change the energy rate from $11.70 per megawatt hour to 11.50 per megawatt hour , and be it FURTHER RESOLVED, that the District Energy rate schedule which sets the heating single nte for its customers is hereby revised to change the single rate from $0.0417 to $0.0422 per kilowatt hour, and be it FURTHER RESOLVED, that the District Cooling rate schedule which sets the cooling demand rate is hereby amended from $21.09 to $21.73 per ton per month, and be it FURTHER RESOLVED, that the District Cooling energy rate is hereby amended from $0.062 per ton hour to $0.060 per ton hour, and be it FURTE3ER 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 RFSOLVED, that the attached revised Schedule A and Attachment 1 to the District Heating franchise aze approved and supersede any previous Schedule A and Attachment 1, and are incorporated by reference into Ordinance No. 16947 as amended, and be it FINALLY RESOLVF.D, that the attached revised Schedule A and Attachment 1 to the District Cooling franchise are approved and supersede any previaus Schedule A and Attachment 1 and are incorporated by reference into Ordinance No. 17816, as amended. ORIGINAL 9� �/� Requested by Department of: A€�+e 2€�e� Servav3ea B �ze.�-. r� (�R.�,Q�- Director Form App a9�d by City Attorney � ORIGI�IAL Adopted by Council: Date � � \� ��`�� DATE Jim Snvder 266-8802 9s I GREEN SHEET 9�'-tlb No 60028 NMbIID#� a.voou,ri �� N ,�� D�A,�, • I—.Z2�'�a,,,� � � �&�, ,� ❑ �.,�. � ❑ ..�,�,.�a 0.,,��„�.��8 ❑ # OF SIGNATURE PAGES (CLIP ALL �OCATIONS FOR SIGNATURE) Approval of Districe Energy's and District Cooling`s request to amend the heating and cooling rates. PLANNING COMMISSION CIB COMMITTEE CML SERVICE COMMISSION Has this Persan/firtn ederworked uMer a wntrac[ for Nis deparhneM� YES NO Vies this peraoMfirm erer be�m a cRy emGbYee9 YES NO Does thia P��m Possecs e Sltill nOt 1wrmallYP� bY enY wrtent citY emPloyee7 YES NO ts Nis pe�saNfirtn atetDete6vendoYt YES NO In accordance 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 recoinmends approval of the new rates T��•.'T OF TRANSACTION S SOURCE (CIRCLE ONE) YES NO ACTNITY NUMBER INFORMp7tON (E7�WN) 9'�' -�/6 SCHEDULE A (AMENDED) to HOT WATER FRANCHISE granted to District FIeating Development Co. d.b.a. DISTRICT ENERGY S'T. PAUL, INC. by the CITY OF ST. PAUL (Ordinance No.16947, adopted July 20,1982, as amended) $�: The following rates shall be effective beginning with the billing month of October 1997 and shall remain in effect until superseded: Singie rate: Two-part rate: Demand: Energy: $0.0422 per kilowatt-hour $435 per kilowatt per month $11.50 per megawatt-hour : A charge of 5(five) percent will be added to the net bill computed at the rate shown above, which charge 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. FT JFT Ti 74TMENT: In the event that the energy refund (assessment) per megawatt-hour accrued pursuant to the Hot Water Delivery Agreement as of Mazch 31 of any year is greater than 5 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 1 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 yeaz is computed. S�TR�HARC'rF.: A Ciry fee surchazge 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. SFR�__�_!�CE CI3ARGES: Service charges shall remain in effect as previously filed (see attachment). Us4amshtglschedula.doc 9�' //� DISTRICT ENERGY ST. PAUL, INC. Service Charges Effective Ocfober 1, 1988 Scfiedule A Attachment 1 Pursuant to Section 8.5 of the Hot Water Delivery Agreement as amended, the following rates are established for performance of specific services more properly charged to an individual Customer than to all Customers as a whole. Service charges are payable within 30 days of billing and aze in addition to Demand Chazges and Energy Chazges. �: � . .� � - r ,� �. � � � � • C�stomer demand under 100 kW: Customer demand 100 kW or over: ��,.U�� . 1• • - 11 - a .sa'1 $15.�0 $50.00 Actual cost of repair or replacement as deternvned by District Energy plus service charge of $30.00. � . � � - . � . , • - � � � - � - � Tfie sum of the foliowing: (a) Estimated quantity of water lost times combined water and sewage rate paid by District Energy during period of drainage; (b) Estimated heat value of water lost tunes 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. �ervice calis made at Cusiomer's re�u st y Distr;r-r Fnerg��ersnnnei for proble**�c frn,r,ri ia be in Customer's and not Di�trict EnergX'a rc�uipment: Between 8:00 a.m. and 3:30 p.m. on Monday through Friday (exciuding holidays observed by District Energy}: $30.00 All other times: $50.00 [Is\nteshtg\servchg doc �I �-l16 SCHEDULE A (AMENDED) to DISTRICT COOLING F'RANCHISE granted to BISTRICT COOLING ST. PAUL, INC. f.k.a. District Energ,y Services, Inc. by the CITY OF ST. PAUL (Ordinance No. 17816, adopted March 28, 1991) RATES: The following rates shall be effective beginning with the billing month of October 1997 and shall remain in effect until superseded: Demand: $21.73 per ton per month Energy: $0.06 per ton-hour PROMPT PAYMENT PROVISION: A charge of 5(five) percent wili 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 specifically provided in the District Cooling Service Agreement. St3RCHARGE: A City franchise fee surcharge of 3.5 percent will be added to the gross and net monthly bills computed under this rate schedule except as otherwise pr4vided by taw. SERVICE CHARGES: Service charges shall remain in effect as previously filed (see attachment). ds�raresclg\schecluia.doc 9�-//6 DISTRICT COOLING ST. PAUL, INC. Service Charges Effective Ap�il 1993 Schedule A Anachment i Pursuant to Sections 8.3 and 8.4 of the District Cooling Service Agreement as aznended, the following rates aze established for performance of specific services more properly chazged to an individual Customer than to all Customers as a whole. Service charges aze payable within 30 days of billing and are in addition to Demand Charges and Energy Charges. �- . •� � .- i- � . � •• �• Flat charge: �. � � �� -� .�t $50.00 Actual cost of repair or replacement as determined by District Cooling plus service charge of $30.00. 3., tinauthorized drainaQe of district cooling,system water: The sum of the following: (a) Estimated quantity of water lost times combined water and sewage rate and prorated water treatment cost paid by District Cooting during period of drainage; (b) Estimated thermal energy value of water lost tunes applicable- Energy Rate; and (c) Service charge of $30.00. Note: Drainage of system water may cause harm to other Customers and is cause for suspension of service until corrected. 4. SPrvice calls made at Customer'e request b�District Cooling�ersonnel for nroblems found to be in Customer's and not District Cooling's e uc��i ment: , Between 8:00 a.m. and 3:30 p.m. on Monday through Friday (excluding holidays observed by District Cooling): $30.00 Att other times: �50.00 9d�//6 5. Charge for chilled water flow exceeding 110 gallons per ton-hour during June, July, August ot September biiling period: 6. Credit for chilled water flow below 75 gallons per ton-hour during June, July, August or September billing period: Schedule A Attachment 1 Page 2 $0.40 per thousand gallons ($0.40) per thousand gallons tls�ra[esclg\scrvchg.dac 9� i�� EXH]BTT 1 V I W � ��y `.V � � 1\ � � A� � ■ r_ `� '"�'�d � ^` � W � � U Q� ■� Y� � ` � � O � v sus � 3 0 Y � N a � � c a� C� � '� � � i �I � ii , LL. � � � � � � tt � P� � N � L � } T- � � U W O � � � � � � r � � � � � � � <D tn a' c'� N +-- O 9�-//6 i �.n: .ov ra at shall mean the rates and charges, which if collected by the Corporatioq would in the aggregate equal the amount necessarv to satisfy all of the Corporation's finaneial li ati ns, including, but not limited to, debt service with respect to the Series A Bonds, debt service with respecf to the obligations of the Corporation to the City and Bank under the City Loan Agreement and Reimbursement Agreement, and Operating Expenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficiently operate the System, assunin�that Franchise Fees are paid to the Citv (after accumulation of the Franchise Fee Requirement as provided in the I,oan Agreement an City Loan Agreement) on a current basis � not inciudin,� the deferred Bank Fees Reimbursements and deferred o l��i ations of the Corporation to the C�y�pavment of which is provided for in Section 3 03 hereof TargQt Rates shall mean, subject to the terms and conditions of the Service Agreements, the rates and chazges pemutted to be charged by the Corporation under the Service Agreement equal to a predeternuned percentage (which will vary over time) of actual firm natural gas prices; "predeternuned percentage" (for any given year) shall be that percentage Yhat results from dividing the Corporation's projected hot water rate for the Corporation's next fiscal year (expressed in $lMIvlBtu as contained in GilbertJCommonwealth December 2, 1982 computer analysis reported to the Corporation) by such fiscal year's pro}ected firm natural gas/IvIlviBtu end use rate (as contained in Table 9 of the Crilbert(Commonwealth Report to the Corporation dated 5epCember 30, 1982); provided, however, that the resulting percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted average of the prices actually charged by Northern States Power Company for its various ciasses of non-interruptible City of Saint Paui gas service customers, to be determined by assigning the demand for each DHDC customer to that customer's comparable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Priority Agreement (as amended) relating to HRA District Heating Revenue Bonds. 98' //b � ...��: CALCULATION OF "TARGET RATE" FOR FY 1998 PER PAYMENT AND PRIORITY AGREEMENT CUSTOMER CLASS COMM/ LG GENL LG GENL RESIDENTL INDUSTRL MALL ILARGE� OVERALL SISAGE DATA 1 CCF/DAY - LOW 2 CCF/DAY -HIGH 3 AVERAGE CCF/DAY 4 AVERAGE CCF/YEAR FIRM GAS RATES (JANUARY 1997� 5 CUSTOMER CHARGE ($/MO) 6 DEMAND ($/CCF/DAY/MO) 7 COMMODITY ($/CCF) � :_ • 8 TOTAL $/YEAR 9 AVERAGE $lCCF 9AAVERAGE $/MCF 10 END USE $1MMBTU @65% • •�� ;.. � � 0.61690 500 2,006 1,999 1,657 3,314 90,245 331,418 662,836 $14.00 $225.00 $225.00 1.62430 1.62430 0.58478 4.16160 4.16160 $627 $52,941 $1,414,228 $2,825,757 0.6969Q 0.58664 4.26720 428313 $6.97 $5.87 $42.67 $42.63 $10.72 $9.03 $65.65 $65.59 11 D.E. DEMAND % BY CLASS 2.00% 93.66% 0.00% 4.34°!0 12 WEIGH7ED AVG $/MMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASIBILITY STUDY 13A PROJECTED D.H. RATE $29,71 DIVIDED BY 13B PROJECTED GAS RATE $42.68 (MIN{MUM 72%) 14 ="TARGET RATE" PER PAYMENT AND PRIORITY AGREEMENT ($/MMBTU) 15 TARGET RATE PER KWH COVERAGE RATE CALCULATION 16 DEMAND RELATED COSTS 17 COVERAGE DEMAND RATE @ $7,830,000 150,000 KW DEMAND $4.35 $11.51 72.�% $829 U-Q2$� 18 OVERALL COVERAGE RATE PE12 KWH 0_4422 � � -�' OCj � � I.L.. � � � � .� � � � � � � U vJ r e_ � L � V/ � ■ �a � 9�' //6 ��.: �� .. ,. � �. � A . 1 � � � c� � L � S � H L v �.. � n� � � U � tJ._ c`7 � CV � T � O O O O O O O O O O f$ �f3 t�3 ff3 ff} f�3 E!? EtJ �� /��O Interdepartmental Memorandum CTI'Y OF SAINT PAUL TO: 7ce Reid, D'uector of Fi�n� cial Services � a,.�.-.w LCI y 0�— FROM: �ori ��n�es Snyder DATE: January 20, 1998 RE: Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates This memorandum discusses staff's review of District Energy and District Cooling proposed rate changes. PROCEDURAL EIISTORY Pursuant to Secrion 6(e) of City Ordinance 16947, District Energy filed notice on July 21, 1997 with the City Clerk of its intent to change its hot water rates effective October 1, 1997. Pursuant to Section 1.11(e) of City Ordinance 17816, District Cooling filed notice on 7uly 21, 1997 with the City Clerk of its intent to change cooling rates effecrive October 1, 1997. Customer meetings were held on September 12 for downtown customers and August 26 for Mount Airy customers. District Energy was informed that a City review staff consisting of Lori Lee and James Snyder would review the rates. City staff requested supplementary information during September and October and met with District Energy on October 30, November 25, and December 4, 1997 to ask guesflons and to review District Energy and District Cooling documents. For purposes of this rate review the City contracted with Schedin & Associates who are consultants in energy pluming, energy pricing and energy management. 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. I�8' //6 Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 2 PROPOSID FINDINGS OF FACT 1. District Energy proposes the following: a) The hearing demand rate changes from $4.25 per kilowatt per month to $4.35 per �lowatt per month, an increase of 2.4%. b) The heating energy rate changes from $11.'70 per megawatt hour to $11.50/mwh, a decrease of 1.7%. The energy rate is an estimate of fuel cost used to produce heat by District Energy. The elements of this esfimate include the contracts for fuel in place, the mix 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 $0.0417 to $0.0422, an increase of 1.2 %. The heating single nte 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. A comparison of heating rates is as follows: (See Exhibit #1) Actual Actual Actual Forecast Budget FY 1994 FY 1995 FY 1996 FY 1997 FY 1998 Rates: Demand (kw/mo) 4.15 Enexgy (mwh) 11.60 Single (kwh) .0409 Revenues: Demand 7,276,169 Enerqy 3,033,133 4.15 10.94 .0402 7,127,845 2,604,227 4.25 4.25 4.35 11.10 11.15 11,50 .0411 .0412 .0422 7,549,056 7,841,249 7,830,000 3,171,304 3,112,184 3,073,608 Coverage rates are higher than the target rates as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been deferred in prior fiscal years continue to be defened. The totai of all defened franchise fees is $7,164,967. The defened franchise fees will remain the same, do not bear interest and are payable in 2014, unless the target nte is greater than the coverage rate. Coverage rates and target rates are defined in F�chibit #2. These ntes aze calculated in E�chibit #3 for FY 1998. �I8 °Il�O Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 3 4. Beginning October 1995, District Energy began depositing cunent franchise fees in the Franchise Fee Escrow account. In 1997,the City received all franchise fees held in this escrow account and will continue to receive cunent franchise fees on a monthly basis. 5. The interest paid on bonds is a material expense and is covered by the demand rate. The average interest rate projected for payments on Series A bonds is 4.2% for this budget year. Similar methods and sources were used in estimating the interest rate last year. It is the opinion of review staff that the projected rate is reasonable. The bond interest is reset every seven days based on 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 reasonabie. 6. District Cooling proposes the following rates for cooling: 7 a) The cooling demand rate changes from $21.09 to $21.73 per ton per month, an increase of 3.0%. b) The cooling energy rate changes from $0.062 to $0.060 per ton-hour a decrease of 3.2%. If actual costs aze less than estimated, customers receive a refund. A comparison of cooling rates is as follows: (See Exhibit #4) Rates: Demand ($/ton/mo) Energy ($/ton hr) Overall cost at 1200 hrs Revenues: Demand Energy Actual Actual EY 1994 FY 1995 18.81 19.58 0.060 0.055 0.248 0.251 940,808 1,543,648 299,505 506,188 Actual Forecast FY 1996 FY 1997 20.27 21.09 0.055 0.060 0.256 0.271 1,960,575 2,166,986 481,721 580,059 Budget FY 1998 21.73 0.060 0.277 2,377,088 614,179 98' ��/� Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 4 STAFF REVIEW The staff reviewed: Annual costs per MI�IBTLT for typical hot water customer and annual cost per Ton- Hour for typical chilled water customer. Application of the rate structure to normalized building demands and other factors. Percentage change in overall rates. Percentage change in various cost categories. Thermal efficiency of both systems Cost allocation between Heating and Cooling. Capital budgeting process. Research and development costs. The review staff compared past budget projections to actual results and verified that the informadon contained in the rate filing was accurate. Staff also compazed District Energy and District Cooling rates to similar utilities and determined the rates were comparable. Staff concerns during the review were in the following azeas: The increased budget for research and development. The budgeted expenses for repair and replacement projects and the actual projects which were completed. Research and Development Staff is concerned about the increased level of research and development expenditures which are included in the District Heating FY 98 rate calculation. Approumately half of these budgeted expenditures aze to be spent on a capital project. A better appmach would be to capitalize these expenditures and pro-rate the eacpense over the life of the project. Although this would not effect the rate, it would be prefenble to have this e�cpense classified as a capital pro}ect and be approved by ffie Boazd. District Energy has entered into a contract to manage the Energy Park utiliry. Any expenses on acrivities outside of heating or cooling services should be kept separate to ensure there is no subsidy flowing to and from each entity. 9�-�/�o Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 5 Repair and Replacement Projects Staff has communicated its concern about the process of changing repair and replacement budgeted expenses from one project to another in District Energy. During ihe FY97 rate review, the District Energy Board of D'uectors adopted a resolution that requires format Board approval for any significant reallocations or change in capital project expenditures. Staff reviewed this process and found the Board adopted a resolution on June 13 which adjusted the `97 budget on various projects. Although some progress was made in this area, there was not evidence in the board minutes of significant discussion regarding the reallocations. The Board's policy should continue to be followed in 1998. CONCLUSION Recommend approval. The rates proposed by District Energy and District Cooling appear to be just and reasonable. Rates aze not unreasonably preferential, unreasonably prejudicial or discriminatory. Based on the documentation submitted for review, the rates will generate sufficient revenue to allow the companies to recover reasonable operating costs and e�enses; provide for the timely and orderly retirement of debt; and provide for improvements, enlargements and extensions necessary to adequately service the territory. c!'8 //(o EXfIIBTT 1 � W � � �/ � L.L O�j r � Ch � �. ■�_ T� �� i � "�'�, � �� W � r � � � ■ a Q 7 O _ � iSS O Y � N f1 � � � N U m co rn � � w � rn u� rn rn � rn N � � t� � r � t� U � O � � � � � � � � � � t1 � (O � �' M N r O 98 -l/6 . ��: Coverag�,Rates shall mean the rates and charges, which if collected by the Corporation, would in the aggregate equal the amount neces�ry to satisfy all of the Corporation's financial o li rio , including, but not ]imit� 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 Expenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficiently operate the System, ��ming that Franchise Fees arg�aid to the Citv (after accumulation pf the Franchise Fee Requirement as provided in the Loan Agreemern an City I,oan Agreement) on a current basis � not includn,g the defened Bank Fees, Reimbnrsements and deferred oblieations of the Corporation tn the C n�yment ofwhich is provided for in Section 3 03 hereof Tazget Rates shall mean, subject to the terms and conditions of the Service Agreements, the rates and charges pemritted to be charged by the Corpotation under the Service Agreement equal to a predeternuned percentage (which will vary over time) of actual fum natural gas prices; "predetermined percentage" (for any given year) shall be that percentage that results from dividing the Corporation's projected hot water rate for the Corporation's next fiscal year (e�ressed in $/NIlV1Btu as wntained in GilbertlCommonwealth December 2, 1982 computer analysis reported to the Corporation) by such fiscal yeaz's projected firm natural gas/NIlvIBtu end use rate (as contained in Table 9 of the GilbertJCommonwealth Report to the Corporation dated September 30, 1982); provided, however, that the resuking percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted a�erage of the prices actually charged by Northem States Power Company for its various classes of non-interruptible City of Saint Paul gas service customers, to be detemuned by assigning the demand for each DHDC customer to that customer's compazable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Priority Agreement (as amended) relating to HRA District Heating Revenue Bonds. q�-//b ExFIIBIT 3 • - CALCULATION OF "TARGET RATE" FOR FY 1998 PER PAYMENT AND PRIORITY AGREEMENT CUSTOMER CLASS COMMI LG GENL LG GENL RESiDENTL INDUSTRL SM L ILARGEI OVERALL USAGE DATA 1 CCFIDAY - LOW 2 CCF/DAY -HIGH 3 AVERAGE CCF/DAY 4 AVERAGE CCFlYEAR FIRM GAS RATES ��ANUARY 1997� 5 CUSTOMER CHARGE ($!MQ) 6 DEMAND ($/CCF/DAY/MO) 7 COMMODITY ($/CCF) C�P1�:7T��►Ti�3�� 8 TOTAL $/YEAR 9 AVERAGE $/CCF 9AAVERAGE $/MCF 10 END USE $/MMBTU @65% TARGET RATE CALCl1LAT10NS 5�P $6.00 0.61690 500 2,000 1,999 1,657 3,314 90,245 331,418 662,836 $14.�0 $225.00 $225.Q0 1.62430 1.62430 0.58478 4.16160 4.16160 $627 $52,941 $1,414,228 $2,825,757 0.69690 0.58664 4.26720 426313 $6.97 $5.87 $42.67 $42.63 $10.72 $9.03 $65.65 $65.59 11 D.E. DEMAND % BY CLASS 2.00% 93.66% 0.00% 4.34% 12 WEfGHTED AVG $/MMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASIBILITY STUDY 13A PROJECTED D.H. RATE $29.71 DIVIDED BY 136 PROJECTED GAS RATE $42.68 (MINIMUM 72%) 14 ='TARGET R.4TE" PER PAYMENT AND PRIORITY AGREEMENT ($/MMBTU) 15 TARGET RATE PER KWH COVERAGE RATE CALCULATION 16 DEMAND RELATED COSTS 17 COVERAGE DEMAND RATE aQ $7,830,000 150,D00 KW DEMAND $4.35 $17.51 72.0°l0 $829 Q-02$� 18 OVERALL COVERAGE RATE PER KWH $0"0422 � t/a � _�� .L � � � � .� � — � o � V � � -�-+ � e _ i � � �— � � � � � f i ! • . ��: .. : n .,, � � � � CH3 C'7 � . � . 98-�/� f'� � N fV ,- O tn O O O O Q O O O O O O 4!? ff3 i�? ff3 84 #3 Ef} H} Council F'ile # 9 8 ��o ORIGlNAL r��a s Referred To co m;,,.�. 1 WHEREAS, the City of Saint Paul has granted, in Ordinance No. 16947, as amended, a franchise to 2 use the public streets and ways to deliver hot water within Saint Paul to District Aeating Development 4 5 6 7 8 9 10 11 Company (DHDC), doing business as District Energy St. Paul, Inc., a Minnesota non-profit corporation; and WHEREA5, on July 21, 1997, District Energy filed notice with the City Clerk of its intent to amend the heating rates pursuant to Secflon 6 of the District Heating Franchise; and VVHEREAS, the City of Saint Paul has granted, in Ordinance No. 17816, as amended, a franchise to use the public streets and ways to deliver chilled water to District Energy Services, Inc., doing business as District Cooling St. Paul, Inc., a Minnesota non-profiC corporauon; and 12 13 WHEREAS, on 7uly 21, 1997, District Cooling filed no6ce with the City Clerk of its intent to amend 14 cooling ntes pursuant to Section .11(e) of the District Cooling Franchise; and 15 16 WHEREAS, such rates aze thereby effective pending City Council approval, which requires a public 17 hearing; and 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 WHEREAS, evidence has been presented to the City Council that the proposed rates are just, reasonable, and non-discriminatory: 1. District Energy proposes the following: a) The heating demand rate changes from $4.25 per kilowatt per month to $4.35 per kilowatt per month, an increase of 2.4%. b) The heating energy rate changes from $11.70 per megawatt hour to $11.50lmwh, a decrease of 1.7 %. T'he energy rate is an estimate of fuel cost used to produce heat by District Energy. The elements of this estimate include the contracts for fuel in place, the mix of fuel used and the esrimated usage by customers. If actual costs are less than es6mated, customers are given a refund. c) The heating single rate will increase from $0.0417 to $0.0422, an increase of 1.2%. 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. RESOLUTION CiTY OF SAfNT PAUL, MINNESOTA Green Sheet #�� yo 9� /�� 39 40 41 42 43 � 45 46 47 48 49 �0 51 2. A comparison of heating rates is as follows: (See F.xhibit #1) Actual Actual E'Y 1994 E'Y 1995 Rates: Demand (kwJmo) 4.15 4.15 Energy (mwh) 11.60 10.94 Single ikwh) .0909 .0402 Revenues: Demand 7,276,169 7,127,845 Energy 3,033,133 2,604,227 Actual Forecast FY 1996 FY 1997 4.25 4.25 11.10 11.15 .0411 .0412 Budget £Y 1998 4.35 11.50 .0422 7,549,056 7,841,249 7,830,000 3,171,304 3,112,184 3,073,608 52 3 53 54 55 56 57 58 59 60 61 62 Coverage rates aze higher than the target rates as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been defened in prior fiscai years continue to be defened. The total of all defened franchise fees is $7,164,967. The deferred franchise fees will remain the same, do not bear interest and aze payable in 2014, unless the target rate is greater than the coverage nte. Coverage rates and target rates aze defined in Exhibit f{2. These rates are calculated in Eachibit #3 for FY 1998. 4. Beginning October 1995, District Energy began depositing current franchise fees in the Franchise F� Escrow account. In 1997, the City received all franchise fees held in this escrow account and will condnue to receive current franchise fees on a monthly basis. 63 5. 64 65 66 67 68 69 70 71 6. 72 73 74 75 76 77 78 The interest paid on bonds is a material expense and is covered by the demand rate. The average interest rate projected for payments on Series A bonds is 4.2% for this budget year. Similar methods and sources were used in esumating the interest rate last year. It is the opinion of review staff that the projected rate is reasonable. The bond interest is reset every seven days based on the Kenney index. Past esfimates 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. District Cooling proposes the following rates for cooling: a) b) 'The cooling demand rate changes from $21.09 to $21.73 per ton per month, an increase of 3.0%. The cooling energy nte changes from $0.062 to $0.060 per ton-hour a deerease of 3.2%. If actual costs aze less than estimated, customers receive a refund. ORlG1NAL 9b�-�� 79 80 81 82 83 84 85 86 87 8$ $� 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 7. A comparison of cooling rates is as follows: (See Exhibit #4) Rates: Demand ($/ton/mo) Energy ($/ton hr) Overall cost at 1200 hrs Revenues: Demand Energy Actual Actual F7 1994 E'Y 1995 18.81 19.58 0.060 0.055 0.248 0.251 Actual Forecast FY 1996 FY 1997 20.27 21.09 0.055 0.060 0.258 0.271 940,808 1,543,648 1,960,575 2,166,988 299,505 506,188 481,721 580,059 Budget E'Y 1998 21.73 0.060 0.277 2,377,088 614,179 WHEREAS, the City Council has taken into account those matters requued by Section 6 of Ordinance No. 16947 and Secdon .11 of Ordinance No. 17816, and finds that District Energy has met all procedural and substanrive 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 is herehy changed from $4.25 per ldlowatt per month to $4.35 per kilowatt per month effective October 1, 1997; and be it FURTHER RFSOLVED, that the District Energy rate schedule which sets the heating energy rate for its customers is hereby revised to change the energy rate from $11.70 per megawatt hour to 11.50 per megawatt hour , and be it FURTHER RESOLVED, that the District Energy rate schedule which sets the heating single nte for its customers is hereby revised to change the single rate from $0.0417 to $0.0422 per kilowatt hour, and be it FURTHER RESOLVED, that the District Cooling rate schedule which sets the cooling demand rate is hereby amended from $21.09 to $21.73 per ton per month, and be it FURTHER RESOLVED, that the District Cooling energy rate is hereby amended from $0.062 per ton hour to $0.060 per ton hour, and be it FURTE3ER 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 RFSOLVED, that the attached revised Schedule A and Attachment 1 to the District Heating franchise aze approved and supersede any previous Schedule A and Attachment 1, and are incorporated by reference into Ordinance No. 16947 as amended, and be it FINALLY RESOLVF.D, that the attached revised Schedule A and Attachment 1 to the District Cooling franchise are approved and supersede any previaus Schedule A and Attachment 1 and are incorporated by reference into Ordinance No. 17816, as amended. ORIGINAL 9� �/� Requested by Department of: A€�+e 2€�e� Servav3ea B �ze.�-. r� (�R.�,Q�- Director Form App a9�d by City Attorney � ORIGI�IAL Adopted by Council: Date � � \� ��`�� DATE Jim Snvder 266-8802 9s I GREEN SHEET 9�'-tlb No 60028 NMbIID#� a.voou,ri �� N ,�� D�A,�, • I—.Z2�'�a,,,� � � �&�, ,� ❑ �.,�. � ❑ ..�,�,.�a 0.,,��„�.��8 ❑ # OF SIGNATURE PAGES (CLIP ALL �OCATIONS FOR SIGNATURE) Approval of Districe Energy's and District Cooling`s request to amend the heating and cooling rates. PLANNING COMMISSION CIB COMMITTEE CML SERVICE COMMISSION Has this Persan/firtn ederworked uMer a wntrac[ for Nis deparhneM� YES NO Vies this peraoMfirm erer be�m a cRy emGbYee9 YES NO Does thia P��m Possecs e Sltill nOt 1wrmallYP� bY enY wrtent citY emPloyee7 YES NO ts Nis pe�saNfirtn atetDete6vendoYt YES NO In accordance 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 recoinmends approval of the new rates T��•.'T OF TRANSACTION S SOURCE (CIRCLE ONE) YES NO ACTNITY NUMBER INFORMp7tON (E7�WN) 9'�' -�/6 SCHEDULE A (AMENDED) to HOT WATER FRANCHISE granted to District FIeating Development Co. d.b.a. DISTRICT ENERGY S'T. PAUL, INC. by the CITY OF ST. PAUL (Ordinance No.16947, adopted July 20,1982, as amended) $�: The following rates shall be effective beginning with the billing month of October 1997 and shall remain in effect until superseded: Singie rate: Two-part rate: Demand: Energy: $0.0422 per kilowatt-hour $435 per kilowatt per month $11.50 per megawatt-hour : A charge of 5(five) percent will be added to the net bill computed at the rate shown above, which charge 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. FT JFT Ti 74TMENT: In the event that the energy refund (assessment) per megawatt-hour accrued pursuant to the Hot Water Delivery Agreement as of Mazch 31 of any year is greater than 5 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 1 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 yeaz is computed. S�TR�HARC'rF.: A Ciry fee surchazge 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. SFR�__�_!�CE CI3ARGES: Service charges shall remain in effect as previously filed (see attachment). Us4amshtglschedula.doc 9�' //� DISTRICT ENERGY ST. PAUL, INC. Service Charges Effective Ocfober 1, 1988 Scfiedule A Attachment 1 Pursuant to Section 8.5 of the Hot Water Delivery Agreement as amended, the following rates are established for performance of specific services more properly charged to an individual Customer than to all Customers as a whole. Service charges are payable within 30 days of billing and aze in addition to Demand Chazges and Energy Chazges. �: � . .� � - r ,� �. � � � � • C�stomer demand under 100 kW: Customer demand 100 kW or over: ��,.U�� . 1• • - 11 - a .sa'1 $15.�0 $50.00 Actual cost of repair or replacement as deternvned by District Energy plus service charge of $30.00. � . � � - . � . , • - � � � - � - � Tfie sum of the foliowing: (a) Estimated quantity of water lost times combined water and sewage rate paid by District Energy during period of drainage; (b) Estimated heat value of water lost tunes 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. �ervice calis made at Cusiomer's re�u st y Distr;r-r Fnerg��ersnnnei for proble**�c frn,r,ri ia be in Customer's and not Di�trict EnergX'a rc�uipment: Between 8:00 a.m. and 3:30 p.m. on Monday through Friday (exciuding holidays observed by District Energy}: $30.00 All other times: $50.00 [Is\nteshtg\servchg doc �I �-l16 SCHEDULE A (AMENDED) to DISTRICT COOLING F'RANCHISE granted to BISTRICT COOLING ST. PAUL, INC. f.k.a. District Energ,y Services, Inc. by the CITY OF ST. PAUL (Ordinance No. 17816, adopted March 28, 1991) RATES: The following rates shall be effective beginning with the billing month of October 1997 and shall remain in effect until superseded: Demand: $21.73 per ton per month Energy: $0.06 per ton-hour PROMPT PAYMENT PROVISION: A charge of 5(five) percent wili 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 specifically provided in the District Cooling Service Agreement. St3RCHARGE: A City franchise fee surcharge of 3.5 percent will be added to the gross and net monthly bills computed under this rate schedule except as otherwise pr4vided by taw. SERVICE CHARGES: Service charges shall remain in effect as previously filed (see attachment). ds�raresclg\schecluia.doc 9�-//6 DISTRICT COOLING ST. PAUL, INC. Service Charges Effective Ap�il 1993 Schedule A Anachment i Pursuant to Sections 8.3 and 8.4 of the District Cooling Service Agreement as aznended, the following rates aze established for performance of specific services more properly chazged to an individual Customer than to all Customers as a whole. Service charges aze payable within 30 days of billing and are in addition to Demand Charges and Energy Charges. �- . •� � .- i- � . � •• �• Flat charge: �. � � �� -� .�t $50.00 Actual cost of repair or replacement as determined by District Cooling plus service charge of $30.00. 3., tinauthorized drainaQe of district cooling,system water: The sum of the following: (a) Estimated quantity of water lost times combined water and sewage rate and prorated water treatment cost paid by District Cooting during period of drainage; (b) Estimated thermal energy value of water lost tunes applicable- Energy Rate; and (c) Service charge of $30.00. Note: Drainage of system water may cause harm to other Customers and is cause for suspension of service until corrected. 4. SPrvice calls made at Customer'e request b�District Cooling�ersonnel for nroblems found to be in Customer's and not District Cooling's e uc��i ment: , Between 8:00 a.m. and 3:30 p.m. on Monday through Friday (excluding holidays observed by District Cooling): $30.00 Att other times: �50.00 9d�//6 5. Charge for chilled water flow exceeding 110 gallons per ton-hour during June, July, August ot September biiling period: 6. Credit for chilled water flow below 75 gallons per ton-hour during June, July, August or September billing period: Schedule A Attachment 1 Page 2 $0.40 per thousand gallons ($0.40) per thousand gallons tls�ra[esclg\scrvchg.dac 9� i�� EXH]BTT 1 V I W � ��y `.V � � 1\ � � A� � ■ r_ `� '"�'�d � ^` � W � � U Q� ■� Y� � ` � � O � v sus � 3 0 Y � N a � � c a� C� � '� � � i �I � ii , LL. � � � � � � tt � P� � N � L � } T- � � U W O � � � � � � r � � � � � � � <D tn a' c'� N +-- O 9�-//6 i �.n: .ov ra at shall mean the rates and charges, which if collected by the Corporatioq would in the aggregate equal the amount necessarv to satisfy all of the Corporation's finaneial li ati ns, including, but not limited to, debt service with respect to the Series A Bonds, debt service with respecf to the obligations of the Corporation to the City and Bank under the City Loan Agreement and Reimbursement Agreement, and Operating Expenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficiently operate the System, assunin�that Franchise Fees are paid to the Citv (after accumulation of the Franchise Fee Requirement as provided in the I,oan Agreement an City Loan Agreement) on a current basis � not inciudin,� the deferred Bank Fees Reimbursements and deferred o l��i ations of the Corporation to the C�y�pavment of which is provided for in Section 3 03 hereof TargQt Rates shall mean, subject to the terms and conditions of the Service Agreements, the rates and chazges pemutted to be charged by the Corporation under the Service Agreement equal to a predeternuned percentage (which will vary over time) of actual firm natural gas prices; "predeternuned percentage" (for any given year) shall be that percentage Yhat results from dividing the Corporation's projected hot water rate for the Corporation's next fiscal year (expressed in $lMIvlBtu as contained in GilbertJCommonwealth December 2, 1982 computer analysis reported to the Corporation) by such fiscal year's pro}ected firm natural gas/IvIlviBtu end use rate (as contained in Table 9 of the Crilbert(Commonwealth Report to the Corporation dated 5epCember 30, 1982); provided, however, that the resulting percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted average of the prices actually charged by Northern States Power Company for its various ciasses of non-interruptible City of Saint Paui gas service customers, to be determined by assigning the demand for each DHDC customer to that customer's comparable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Priority Agreement (as amended) relating to HRA District Heating Revenue Bonds. 98' //b � ...��: CALCULATION OF "TARGET RATE" FOR FY 1998 PER PAYMENT AND PRIORITY AGREEMENT CUSTOMER CLASS COMM/ LG GENL LG GENL RESIDENTL INDUSTRL MALL ILARGE� OVERALL SISAGE DATA 1 CCF/DAY - LOW 2 CCF/DAY -HIGH 3 AVERAGE CCF/DAY 4 AVERAGE CCF/YEAR FIRM GAS RATES (JANUARY 1997� 5 CUSTOMER CHARGE ($/MO) 6 DEMAND ($/CCF/DAY/MO) 7 COMMODITY ($/CCF) � :_ • 8 TOTAL $/YEAR 9 AVERAGE $lCCF 9AAVERAGE $/MCF 10 END USE $1MMBTU @65% • •�� ;.. � � 0.61690 500 2,006 1,999 1,657 3,314 90,245 331,418 662,836 $14.00 $225.00 $225.00 1.62430 1.62430 0.58478 4.16160 4.16160 $627 $52,941 $1,414,228 $2,825,757 0.6969Q 0.58664 4.26720 428313 $6.97 $5.87 $42.67 $42.63 $10.72 $9.03 $65.65 $65.59 11 D.E. DEMAND % BY CLASS 2.00% 93.66% 0.00% 4.34°!0 12 WEIGH7ED AVG $/MMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASIBILITY STUDY 13A PROJECTED D.H. RATE $29,71 DIVIDED BY 13B PROJECTED GAS RATE $42.68 (MIN{MUM 72%) 14 ="TARGET RATE" PER PAYMENT AND PRIORITY AGREEMENT ($/MMBTU) 15 TARGET RATE PER KWH COVERAGE RATE CALCULATION 16 DEMAND RELATED COSTS 17 COVERAGE DEMAND RATE @ $7,830,000 150,000 KW DEMAND $4.35 $11.51 72.�% $829 U-Q2$� 18 OVERALL COVERAGE RATE PE12 KWH 0_4422 � � -�' OCj � � I.L.. � � � � .� � � � � � � U vJ r e_ � L � V/ � ■ �a � 9�' //6 ��.: �� .. ,. � �. � A . 1 � � � c� � L � S � H L v �.. � n� � � U � tJ._ c`7 � CV � T � O O O O O O O O O O f$ �f3 t�3 ff3 ff} f�3 E!? EtJ �� /��O Interdepartmental Memorandum CTI'Y OF SAINT PAUL TO: 7ce Reid, D'uector of Fi�n� cial Services � a,.�.-.w LCI y 0�— FROM: �ori ��n�es Snyder DATE: January 20, 1998 RE: Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates This memorandum discusses staff's review of District Energy and District Cooling proposed rate changes. PROCEDURAL EIISTORY Pursuant to Secrion 6(e) of City Ordinance 16947, District Energy filed notice on July 21, 1997 with the City Clerk of its intent to change its hot water rates effective October 1, 1997. Pursuant to Section 1.11(e) of City Ordinance 17816, District Cooling filed notice on 7uly 21, 1997 with the City Clerk of its intent to change cooling rates effecrive October 1, 1997. Customer meetings were held on September 12 for downtown customers and August 26 for Mount Airy customers. District Energy was informed that a City review staff consisting of Lori Lee and James Snyder would review the rates. City staff requested supplementary information during September and October and met with District Energy on October 30, November 25, and December 4, 1997 to ask guesflons and to review District Energy and District Cooling documents. For purposes of this rate review the City contracted with Schedin & Associates who are consultants in energy pluming, energy pricing and energy management. 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. I�8' //6 Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 2 PROPOSID FINDINGS OF FACT 1. District Energy proposes the following: a) The hearing demand rate changes from $4.25 per kilowatt per month to $4.35 per �lowatt per month, an increase of 2.4%. b) The heating energy rate changes from $11.'70 per megawatt hour to $11.50/mwh, a decrease of 1.7%. The energy rate is an estimate of fuel cost used to produce heat by District Energy. The elements of this esfimate include the contracts for fuel in place, the mix 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 $0.0417 to $0.0422, an increase of 1.2 %. The heating single nte 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. A comparison of heating rates is as follows: (See Exhibit #1) Actual Actual Actual Forecast Budget FY 1994 FY 1995 FY 1996 FY 1997 FY 1998 Rates: Demand (kw/mo) 4.15 Enexgy (mwh) 11.60 Single (kwh) .0409 Revenues: Demand 7,276,169 Enerqy 3,033,133 4.15 10.94 .0402 7,127,845 2,604,227 4.25 4.25 4.35 11.10 11.15 11,50 .0411 .0412 .0422 7,549,056 7,841,249 7,830,000 3,171,304 3,112,184 3,073,608 Coverage rates are higher than the target rates as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been deferred in prior fiscal years continue to be defened. The totai of all defened franchise fees is $7,164,967. The defened franchise fees will remain the same, do not bear interest and are payable in 2014, unless the target nte is greater than the coverage rate. Coverage rates and target rates are defined in F�chibit #2. These ntes aze calculated in E�chibit #3 for FY 1998. �I8 °Il�O Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 3 4. Beginning October 1995, District Energy began depositing cunent franchise fees in the Franchise Fee Escrow account. In 1997,the City received all franchise fees held in this escrow account and will continue to receive cunent franchise fees on a monthly basis. 5. The interest paid on bonds is a material expense and is covered by the demand rate. The average interest rate projected for payments on Series A bonds is 4.2% for this budget year. Similar methods and sources were used in estimating the interest rate last year. It is the opinion of review staff that the projected rate is reasonable. The bond interest is reset every seven days based on 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 reasonabie. 6. District Cooling proposes the following rates for cooling: 7 a) The cooling demand rate changes from $21.09 to $21.73 per ton per month, an increase of 3.0%. b) The cooling energy rate changes from $0.062 to $0.060 per ton-hour a decrease of 3.2%. If actual costs aze less than estimated, customers receive a refund. A comparison of cooling rates is as follows: (See Exhibit #4) Rates: Demand ($/ton/mo) Energy ($/ton hr) Overall cost at 1200 hrs Revenues: Demand Energy Actual Actual EY 1994 FY 1995 18.81 19.58 0.060 0.055 0.248 0.251 940,808 1,543,648 299,505 506,188 Actual Forecast FY 1996 FY 1997 20.27 21.09 0.055 0.060 0.256 0.271 1,960,575 2,166,986 481,721 580,059 Budget FY 1998 21.73 0.060 0.277 2,377,088 614,179 98' ��/� Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 4 STAFF REVIEW The staff reviewed: Annual costs per MI�IBTLT for typical hot water customer and annual cost per Ton- Hour for typical chilled water customer. Application of the rate structure to normalized building demands and other factors. Percentage change in overall rates. Percentage change in various cost categories. Thermal efficiency of both systems Cost allocation between Heating and Cooling. Capital budgeting process. Research and development costs. The review staff compared past budget projections to actual results and verified that the informadon contained in the rate filing was accurate. Staff also compazed District Energy and District Cooling rates to similar utilities and determined the rates were comparable. Staff concerns during the review were in the following azeas: The increased budget for research and development. The budgeted expenses for repair and replacement projects and the actual projects which were completed. Research and Development Staff is concerned about the increased level of research and development expenditures which are included in the District Heating FY 98 rate calculation. Approumately half of these budgeted expenditures aze to be spent on a capital project. A better appmach would be to capitalize these expenditures and pro-rate the eacpense over the life of the project. Although this would not effect the rate, it would be prefenble to have this e�cpense classified as a capital pro}ect and be approved by ffie Boazd. District Energy has entered into a contract to manage the Energy Park utiliry. Any expenses on acrivities outside of heating or cooling services should be kept separate to ensure there is no subsidy flowing to and from each entity. 9�-�/�o Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 5 Repair and Replacement Projects Staff has communicated its concern about the process of changing repair and replacement budgeted expenses from one project to another in District Energy. During ihe FY97 rate review, the District Energy Board of D'uectors adopted a resolution that requires format Board approval for any significant reallocations or change in capital project expenditures. Staff reviewed this process and found the Board adopted a resolution on June 13 which adjusted the `97 budget on various projects. Although some progress was made in this area, there was not evidence in the board minutes of significant discussion regarding the reallocations. The Board's policy should continue to be followed in 1998. CONCLUSION Recommend approval. The rates proposed by District Energy and District Cooling appear to be just and reasonable. Rates aze not unreasonably preferential, unreasonably prejudicial or discriminatory. Based on the documentation submitted for review, the rates will generate sufficient revenue to allow the companies to recover reasonable operating costs and e�enses; provide for the timely and orderly retirement of debt; and provide for improvements, enlargements and extensions necessary to adequately service the territory. c!'8 //(o EXfIIBTT 1 � W � � �/ � L.L O�j r � Ch � �. ■�_ T� �� i � "�'�, � �� W � r � � � ■ a Q 7 O _ � iSS O Y � N f1 � � � N U m co rn � � w � rn u� rn rn � rn N � � t� � r � t� U � O � � � � � � � � � � t1 � (O � �' M N r O 98 -l/6 . ��: Coverag�,Rates shall mean the rates and charges, which if collected by the Corporation, would in the aggregate equal the amount neces�ry to satisfy all of the Corporation's financial o li rio , including, but not ]imit� 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 Expenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficiently operate the System, ��ming that Franchise Fees arg�aid to the Citv (after accumulation pf the Franchise Fee Requirement as provided in the Loan Agreemern an City I,oan Agreement) on a current basis � not includn,g the defened Bank Fees, Reimbnrsements and deferred oblieations of the Corporation tn the C n�yment ofwhich is provided for in Section 3 03 hereof Tazget Rates shall mean, subject to the terms and conditions of the Service Agreements, the rates and charges pemritted to be charged by the Corpotation under the Service Agreement equal to a predeternuned percentage (which will vary over time) of actual fum natural gas prices; "predetermined percentage" (for any given year) shall be that percentage that results from dividing the Corporation's projected hot water rate for the Corporation's next fiscal year (e�ressed in $/NIlV1Btu as wntained in GilbertlCommonwealth December 2, 1982 computer analysis reported to the Corporation) by such fiscal yeaz's projected firm natural gas/NIlvIBtu end use rate (as contained in Table 9 of the GilbertJCommonwealth Report to the Corporation dated September 30, 1982); provided, however, that the resuking percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted a�erage of the prices actually charged by Northem States Power Company for its various classes of non-interruptible City of Saint Paul gas service customers, to be detemuned by assigning the demand for each DHDC customer to that customer's compazable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Priority Agreement (as amended) relating to HRA District Heating Revenue Bonds. q�-//b ExFIIBIT 3 • - CALCULATION OF "TARGET RATE" FOR FY 1998 PER PAYMENT AND PRIORITY AGREEMENT CUSTOMER CLASS COMMI LG GENL LG GENL RESiDENTL INDUSTRL SM L ILARGEI OVERALL USAGE DATA 1 CCFIDAY - LOW 2 CCF/DAY -HIGH 3 AVERAGE CCF/DAY 4 AVERAGE CCFlYEAR FIRM GAS RATES ��ANUARY 1997� 5 CUSTOMER CHARGE ($!MQ) 6 DEMAND ($/CCF/DAY/MO) 7 COMMODITY ($/CCF) C�P1�:7T��►Ti�3�� 8 TOTAL $/YEAR 9 AVERAGE $/CCF 9AAVERAGE $/MCF 10 END USE $/MMBTU @65% TARGET RATE CALCl1LAT10NS 5�P $6.00 0.61690 500 2,000 1,999 1,657 3,314 90,245 331,418 662,836 $14.�0 $225.00 $225.Q0 1.62430 1.62430 0.58478 4.16160 4.16160 $627 $52,941 $1,414,228 $2,825,757 0.69690 0.58664 4.26720 426313 $6.97 $5.87 $42.67 $42.63 $10.72 $9.03 $65.65 $65.59 11 D.E. DEMAND % BY CLASS 2.00% 93.66% 0.00% 4.34% 12 WEfGHTED AVG $/MMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASIBILITY STUDY 13A PROJECTED D.H. RATE $29.71 DIVIDED BY 136 PROJECTED GAS RATE $42.68 (MINIMUM 72%) 14 ='TARGET R.4TE" PER PAYMENT AND PRIORITY AGREEMENT ($/MMBTU) 15 TARGET RATE PER KWH COVERAGE RATE CALCULATION 16 DEMAND RELATED COSTS 17 COVERAGE DEMAND RATE aQ $7,830,000 150,D00 KW DEMAND $4.35 $17.51 72.0°l0 $829 Q-02$� 18 OVERALL COVERAGE RATE PER KWH $0"0422 � t/a � _�� .L � � � � .� � — � o � V � � -�-+ � e _ i � � �— � � � � � f i ! • . ��: .. : n .,, � � � � CH3 C'7 � . � . 98-�/� f'� � N fV ,- O tn O O O O Q O O O O O O 4!? ff3 i�? ff3 84 #3 Ef} H} Council F'ile # 9 8 ��o ORIGlNAL r��a s Referred To co m;,,.�. 1 WHEREAS, the City of Saint Paul has granted, in Ordinance No. 16947, as amended, a franchise to 2 use the public streets and ways to deliver hot water within Saint Paul to District Aeating Development 4 5 6 7 8 9 10 11 Company (DHDC), doing business as District Energy St. Paul, Inc., a Minnesota non-profit corporation; and WHEREA5, on July 21, 1997, District Energy filed notice with the City Clerk of its intent to amend the heating rates pursuant to Secflon 6 of the District Heating Franchise; and VVHEREAS, the City of Saint Paul has granted, in Ordinance No. 17816, as amended, a franchise to use the public streets and ways to deliver chilled water to District Energy Services, Inc., doing business as District Cooling St. Paul, Inc., a Minnesota non-profiC corporauon; and 12 13 WHEREAS, on 7uly 21, 1997, District Cooling filed no6ce with the City Clerk of its intent to amend 14 cooling ntes pursuant to Section .11(e) of the District Cooling Franchise; and 15 16 WHEREAS, such rates aze thereby effective pending City Council approval, which requires a public 17 hearing; and 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 WHEREAS, evidence has been presented to the City Council that the proposed rates are just, reasonable, and non-discriminatory: 1. District Energy proposes the following: a) The heating demand rate changes from $4.25 per kilowatt per month to $4.35 per kilowatt per month, an increase of 2.4%. b) The heating energy rate changes from $11.70 per megawatt hour to $11.50lmwh, a decrease of 1.7 %. T'he energy rate is an estimate of fuel cost used to produce heat by District Energy. The elements of this estimate include the contracts for fuel in place, the mix of fuel used and the esrimated usage by customers. If actual costs are less than es6mated, customers are given a refund. c) The heating single rate will increase from $0.0417 to $0.0422, an increase of 1.2%. 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. RESOLUTION CiTY OF SAfNT PAUL, MINNESOTA Green Sheet #�� yo 9� /�� 39 40 41 42 43 � 45 46 47 48 49 �0 51 2. A comparison of heating rates is as follows: (See F.xhibit #1) Actual Actual E'Y 1994 E'Y 1995 Rates: Demand (kwJmo) 4.15 4.15 Energy (mwh) 11.60 10.94 Single ikwh) .0909 .0402 Revenues: Demand 7,276,169 7,127,845 Energy 3,033,133 2,604,227 Actual Forecast FY 1996 FY 1997 4.25 4.25 11.10 11.15 .0411 .0412 Budget £Y 1998 4.35 11.50 .0422 7,549,056 7,841,249 7,830,000 3,171,304 3,112,184 3,073,608 52 3 53 54 55 56 57 58 59 60 61 62 Coverage rates aze higher than the target rates as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been defened in prior fiscai years continue to be defened. The total of all defened franchise fees is $7,164,967. The deferred franchise fees will remain the same, do not bear interest and aze payable in 2014, unless the target rate is greater than the coverage nte. Coverage rates and target rates aze defined in Exhibit f{2. These rates are calculated in Eachibit #3 for FY 1998. 4. Beginning October 1995, District Energy began depositing current franchise fees in the Franchise F� Escrow account. In 1997, the City received all franchise fees held in this escrow account and will condnue to receive current franchise fees on a monthly basis. 63 5. 64 65 66 67 68 69 70 71 6. 72 73 74 75 76 77 78 The interest paid on bonds is a material expense and is covered by the demand rate. The average interest rate projected for payments on Series A bonds is 4.2% for this budget year. Similar methods and sources were used in esumating the interest rate last year. It is the opinion of review staff that the projected rate is reasonable. The bond interest is reset every seven days based on the Kenney index. Past esfimates 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. District Cooling proposes the following rates for cooling: a) b) 'The cooling demand rate changes from $21.09 to $21.73 per ton per month, an increase of 3.0%. The cooling energy nte changes from $0.062 to $0.060 per ton-hour a deerease of 3.2%. If actual costs aze less than estimated, customers receive a refund. ORlG1NAL 9b�-�� 79 80 81 82 83 84 85 86 87 8$ $� 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 7. A comparison of cooling rates is as follows: (See Exhibit #4) Rates: Demand ($/ton/mo) Energy ($/ton hr) Overall cost at 1200 hrs Revenues: Demand Energy Actual Actual F7 1994 E'Y 1995 18.81 19.58 0.060 0.055 0.248 0.251 Actual Forecast FY 1996 FY 1997 20.27 21.09 0.055 0.060 0.258 0.271 940,808 1,543,648 1,960,575 2,166,988 299,505 506,188 481,721 580,059 Budget E'Y 1998 21.73 0.060 0.277 2,377,088 614,179 WHEREAS, the City Council has taken into account those matters requued by Section 6 of Ordinance No. 16947 and Secdon .11 of Ordinance No. 17816, and finds that District Energy has met all procedural and substanrive 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 is herehy changed from $4.25 per ldlowatt per month to $4.35 per kilowatt per month effective October 1, 1997; and be it FURTHER RFSOLVED, that the District Energy rate schedule which sets the heating energy rate for its customers is hereby revised to change the energy rate from $11.70 per megawatt hour to 11.50 per megawatt hour , and be it FURTHER RESOLVED, that the District Energy rate schedule which sets the heating single nte for its customers is hereby revised to change the single rate from $0.0417 to $0.0422 per kilowatt hour, and be it FURTHER RESOLVED, that the District Cooling rate schedule which sets the cooling demand rate is hereby amended from $21.09 to $21.73 per ton per month, and be it FURTHER RESOLVED, that the District Cooling energy rate is hereby amended from $0.062 per ton hour to $0.060 per ton hour, and be it FURTE3ER 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 RFSOLVED, that the attached revised Schedule A and Attachment 1 to the District Heating franchise aze approved and supersede any previous Schedule A and Attachment 1, and are incorporated by reference into Ordinance No. 16947 as amended, and be it FINALLY RESOLVF.D, that the attached revised Schedule A and Attachment 1 to the District Cooling franchise are approved and supersede any previaus Schedule A and Attachment 1 and are incorporated by reference into Ordinance No. 17816, as amended. ORIGINAL 9� �/� Requested by Department of: A€�+e 2€�e� Servav3ea B �ze.�-. r� (�R.�,Q�- Director Form App a9�d by City Attorney � ORIGI�IAL Adopted by Council: Date � � \� ��`�� DATE Jim Snvder 266-8802 9s I GREEN SHEET 9�'-tlb No 60028 NMbIID#� a.voou,ri �� N ,�� D�A,�, • I—.Z2�'�a,,,� � � �&�, ,� ❑ �.,�. � ❑ ..�,�,.�a 0.,,��„�.��8 ❑ # OF SIGNATURE PAGES (CLIP ALL �OCATIONS FOR SIGNATURE) Approval of Districe Energy's and District Cooling`s request to amend the heating and cooling rates. PLANNING COMMISSION CIB COMMITTEE CML SERVICE COMMISSION Has this Persan/firtn ederworked uMer a wntrac[ for Nis deparhneM� YES NO Vies this peraoMfirm erer be�m a cRy emGbYee9 YES NO Does thia P��m Possecs e Sltill nOt 1wrmallYP� bY enY wrtent citY emPloyee7 YES NO ts Nis pe�saNfirtn atetDete6vendoYt YES NO In accordance 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 recoinmends approval of the new rates T��•.'T OF TRANSACTION S SOURCE (CIRCLE ONE) YES NO ACTNITY NUMBER INFORMp7tON (E7�WN) 9'�' -�/6 SCHEDULE A (AMENDED) to HOT WATER FRANCHISE granted to District FIeating Development Co. d.b.a. DISTRICT ENERGY S'T. PAUL, INC. by the CITY OF ST. PAUL (Ordinance No.16947, adopted July 20,1982, as amended) $�: The following rates shall be effective beginning with the billing month of October 1997 and shall remain in effect until superseded: Singie rate: Two-part rate: Demand: Energy: $0.0422 per kilowatt-hour $435 per kilowatt per month $11.50 per megawatt-hour : A charge of 5(five) percent will be added to the net bill computed at the rate shown above, which charge 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. FT JFT Ti 74TMENT: In the event that the energy refund (assessment) per megawatt-hour accrued pursuant to the Hot Water Delivery Agreement as of Mazch 31 of any year is greater than 5 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 1 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 yeaz is computed. S�TR�HARC'rF.: A Ciry fee surchazge 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. SFR�__�_!�CE CI3ARGES: Service charges shall remain in effect as previously filed (see attachment). Us4amshtglschedula.doc 9�' //� DISTRICT ENERGY ST. PAUL, INC. Service Charges Effective Ocfober 1, 1988 Scfiedule A Attachment 1 Pursuant to Section 8.5 of the Hot Water Delivery Agreement as amended, the following rates are established for performance of specific services more properly charged to an individual Customer than to all Customers as a whole. Service charges are payable within 30 days of billing and aze in addition to Demand Chazges and Energy Chazges. �: � . .� � - r ,� �. � � � � • C�stomer demand under 100 kW: Customer demand 100 kW or over: ��,.U�� . 1• • - 11 - a .sa'1 $15.�0 $50.00 Actual cost of repair or replacement as deternvned by District Energy plus service charge of $30.00. � . � � - . � . , • - � � � - � - � Tfie sum of the foliowing: (a) Estimated quantity of water lost times combined water and sewage rate paid by District Energy during period of drainage; (b) Estimated heat value of water lost tunes 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. �ervice calis made at Cusiomer's re�u st y Distr;r-r Fnerg��ersnnnei for proble**�c frn,r,ri ia be in Customer's and not Di�trict EnergX'a rc�uipment: Between 8:00 a.m. and 3:30 p.m. on Monday through Friday (exciuding holidays observed by District Energy}: $30.00 All other times: $50.00 [Is\nteshtg\servchg doc �I �-l16 SCHEDULE A (AMENDED) to DISTRICT COOLING F'RANCHISE granted to BISTRICT COOLING ST. PAUL, INC. f.k.a. District Energ,y Services, Inc. by the CITY OF ST. PAUL (Ordinance No. 17816, adopted March 28, 1991) RATES: The following rates shall be effective beginning with the billing month of October 1997 and shall remain in effect until superseded: Demand: $21.73 per ton per month Energy: $0.06 per ton-hour PROMPT PAYMENT PROVISION: A charge of 5(five) percent wili 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 specifically provided in the District Cooling Service Agreement. St3RCHARGE: A City franchise fee surcharge of 3.5 percent will be added to the gross and net monthly bills computed under this rate schedule except as otherwise pr4vided by taw. SERVICE CHARGES: Service charges shall remain in effect as previously filed (see attachment). ds�raresclg\schecluia.doc 9�-//6 DISTRICT COOLING ST. PAUL, INC. Service Charges Effective Ap�il 1993 Schedule A Anachment i Pursuant to Sections 8.3 and 8.4 of the District Cooling Service Agreement as aznended, the following rates aze established for performance of specific services more properly chazged to an individual Customer than to all Customers as a whole. Service charges aze payable within 30 days of billing and are in addition to Demand Charges and Energy Charges. �- . •� � .- i- � . � •• �• Flat charge: �. � � �� -� .�t $50.00 Actual cost of repair or replacement as determined by District Cooling plus service charge of $30.00. 3., tinauthorized drainaQe of district cooling,system water: The sum of the following: (a) Estimated quantity of water lost times combined water and sewage rate and prorated water treatment cost paid by District Cooting during period of drainage; (b) Estimated thermal energy value of water lost tunes applicable- Energy Rate; and (c) Service charge of $30.00. Note: Drainage of system water may cause harm to other Customers and is cause for suspension of service until corrected. 4. SPrvice calls made at Customer'e request b�District Cooling�ersonnel for nroblems found to be in Customer's and not District Cooling's e uc��i ment: , Between 8:00 a.m. and 3:30 p.m. on Monday through Friday (excluding holidays observed by District Cooling): $30.00 Att other times: �50.00 9d�//6 5. Charge for chilled water flow exceeding 110 gallons per ton-hour during June, July, August ot September biiling period: 6. Credit for chilled water flow below 75 gallons per ton-hour during June, July, August or September billing period: Schedule A Attachment 1 Page 2 $0.40 per thousand gallons ($0.40) per thousand gallons tls�ra[esclg\scrvchg.dac 9� i�� EXH]BTT 1 V I W � ��y `.V � � 1\ � � A� � ■ r_ `� '"�'�d � ^` � W � � U Q� ■� Y� � ` � � O � v sus � 3 0 Y � N a � � c a� C� � '� � � i �I � ii , LL. � � � � � � tt � P� � N � L � } T- � � U W O � � � � � � r � � � � � � � <D tn a' c'� N +-- O 9�-//6 i �.n: .ov ra at shall mean the rates and charges, which if collected by the Corporatioq would in the aggregate equal the amount necessarv to satisfy all of the Corporation's finaneial li ati ns, including, but not limited to, debt service with respect to the Series A Bonds, debt service with respecf to the obligations of the Corporation to the City and Bank under the City Loan Agreement and Reimbursement Agreement, and Operating Expenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficiently operate the System, assunin�that Franchise Fees are paid to the Citv (after accumulation of the Franchise Fee Requirement as provided in the I,oan Agreement an City Loan Agreement) on a current basis � not inciudin,� the deferred Bank Fees Reimbursements and deferred o l��i ations of the Corporation to the C�y�pavment of which is provided for in Section 3 03 hereof TargQt Rates shall mean, subject to the terms and conditions of the Service Agreements, the rates and chazges pemutted to be charged by the Corporation under the Service Agreement equal to a predeternuned percentage (which will vary over time) of actual firm natural gas prices; "predeternuned percentage" (for any given year) shall be that percentage Yhat results from dividing the Corporation's projected hot water rate for the Corporation's next fiscal year (expressed in $lMIvlBtu as contained in GilbertJCommonwealth December 2, 1982 computer analysis reported to the Corporation) by such fiscal year's pro}ected firm natural gas/IvIlviBtu end use rate (as contained in Table 9 of the Crilbert(Commonwealth Report to the Corporation dated 5epCember 30, 1982); provided, however, that the resulting percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted average of the prices actually charged by Northern States Power Company for its various ciasses of non-interruptible City of Saint Paui gas service customers, to be determined by assigning the demand for each DHDC customer to that customer's comparable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Priority Agreement (as amended) relating to HRA District Heating Revenue Bonds. 98' //b � ...��: CALCULATION OF "TARGET RATE" FOR FY 1998 PER PAYMENT AND PRIORITY AGREEMENT CUSTOMER CLASS COMM/ LG GENL LG GENL RESIDENTL INDUSTRL MALL ILARGE� OVERALL SISAGE DATA 1 CCF/DAY - LOW 2 CCF/DAY -HIGH 3 AVERAGE CCF/DAY 4 AVERAGE CCF/YEAR FIRM GAS RATES (JANUARY 1997� 5 CUSTOMER CHARGE ($/MO) 6 DEMAND ($/CCF/DAY/MO) 7 COMMODITY ($/CCF) � :_ • 8 TOTAL $/YEAR 9 AVERAGE $lCCF 9AAVERAGE $/MCF 10 END USE $1MMBTU @65% • •�� ;.. � � 0.61690 500 2,006 1,999 1,657 3,314 90,245 331,418 662,836 $14.00 $225.00 $225.00 1.62430 1.62430 0.58478 4.16160 4.16160 $627 $52,941 $1,414,228 $2,825,757 0.6969Q 0.58664 4.26720 428313 $6.97 $5.87 $42.67 $42.63 $10.72 $9.03 $65.65 $65.59 11 D.E. DEMAND % BY CLASS 2.00% 93.66% 0.00% 4.34°!0 12 WEIGH7ED AVG $/MMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASIBILITY STUDY 13A PROJECTED D.H. RATE $29,71 DIVIDED BY 13B PROJECTED GAS RATE $42.68 (MIN{MUM 72%) 14 ="TARGET RATE" PER PAYMENT AND PRIORITY AGREEMENT ($/MMBTU) 15 TARGET RATE PER KWH COVERAGE RATE CALCULATION 16 DEMAND RELATED COSTS 17 COVERAGE DEMAND RATE @ $7,830,000 150,000 KW DEMAND $4.35 $11.51 72.�% $829 U-Q2$� 18 OVERALL COVERAGE RATE PE12 KWH 0_4422 � � -�' OCj � � I.L.. � � � � .� � � � � � � U vJ r e_ � L � V/ � ■ �a � 9�' //6 ��.: �� .. ,. � �. � A . 1 � � � c� � L � S � H L v �.. � n� � � U � tJ._ c`7 � CV � T � O O O O O O O O O O f$ �f3 t�3 ff3 ff} f�3 E!? EtJ �� /��O Interdepartmental Memorandum CTI'Y OF SAINT PAUL TO: 7ce Reid, D'uector of Fi�n� cial Services � a,.�.-.w LCI y 0�— FROM: �ori ��n�es Snyder DATE: January 20, 1998 RE: Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates This memorandum discusses staff's review of District Energy and District Cooling proposed rate changes. PROCEDURAL EIISTORY Pursuant to Secrion 6(e) of City Ordinance 16947, District Energy filed notice on July 21, 1997 with the City Clerk of its intent to change its hot water rates effective October 1, 1997. Pursuant to Section 1.11(e) of City Ordinance 17816, District Cooling filed notice on 7uly 21, 1997 with the City Clerk of its intent to change cooling rates effecrive October 1, 1997. Customer meetings were held on September 12 for downtown customers and August 26 for Mount Airy customers. District Energy was informed that a City review staff consisting of Lori Lee and James Snyder would review the rates. City staff requested supplementary information during September and October and met with District Energy on October 30, November 25, and December 4, 1997 to ask guesflons and to review District Energy and District Cooling documents. For purposes of this rate review the City contracted with Schedin & Associates who are consultants in energy pluming, energy pricing and energy management. 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. I�8' //6 Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 2 PROPOSID FINDINGS OF FACT 1. District Energy proposes the following: a) The hearing demand rate changes from $4.25 per kilowatt per month to $4.35 per �lowatt per month, an increase of 2.4%. b) The heating energy rate changes from $11.'70 per megawatt hour to $11.50/mwh, a decrease of 1.7%. The energy rate is an estimate of fuel cost used to produce heat by District Energy. The elements of this esfimate include the contracts for fuel in place, the mix 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 $0.0417 to $0.0422, an increase of 1.2 %. The heating single nte 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. A comparison of heating rates is as follows: (See Exhibit #1) Actual Actual Actual Forecast Budget FY 1994 FY 1995 FY 1996 FY 1997 FY 1998 Rates: Demand (kw/mo) 4.15 Enexgy (mwh) 11.60 Single (kwh) .0409 Revenues: Demand 7,276,169 Enerqy 3,033,133 4.15 10.94 .0402 7,127,845 2,604,227 4.25 4.25 4.35 11.10 11.15 11,50 .0411 .0412 .0422 7,549,056 7,841,249 7,830,000 3,171,304 3,112,184 3,073,608 Coverage rates are higher than the target rates as specified in the Payment and Priority Agreement. Therefore, franchise fees which have been deferred in prior fiscal years continue to be defened. The totai of all defened franchise fees is $7,164,967. The defened franchise fees will remain the same, do not bear interest and are payable in 2014, unless the target nte is greater than the coverage rate. Coverage rates and target rates are defined in F�chibit #2. These ntes aze calculated in E�chibit #3 for FY 1998. �I8 °Il�O Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 3 4. Beginning October 1995, District Energy began depositing cunent franchise fees in the Franchise Fee Escrow account. In 1997,the City received all franchise fees held in this escrow account and will continue to receive cunent franchise fees on a monthly basis. 5. The interest paid on bonds is a material expense and is covered by the demand rate. The average interest rate projected for payments on Series A bonds is 4.2% for this budget year. Similar methods and sources were used in estimating the interest rate last year. It is the opinion of review staff that the projected rate is reasonable. The bond interest is reset every seven days based on 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 reasonabie. 6. District Cooling proposes the following rates for cooling: 7 a) The cooling demand rate changes from $21.09 to $21.73 per ton per month, an increase of 3.0%. b) The cooling energy rate changes from $0.062 to $0.060 per ton-hour a decrease of 3.2%. If actual costs aze less than estimated, customers receive a refund. A comparison of cooling rates is as follows: (See Exhibit #4) Rates: Demand ($/ton/mo) Energy ($/ton hr) Overall cost at 1200 hrs Revenues: Demand Energy Actual Actual EY 1994 FY 1995 18.81 19.58 0.060 0.055 0.248 0.251 940,808 1,543,648 299,505 506,188 Actual Forecast FY 1996 FY 1997 20.27 21.09 0.055 0.060 0.256 0.271 1,960,575 2,166,986 481,721 580,059 Budget FY 1998 21.73 0.060 0.277 2,377,088 614,179 98' ��/� Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 4 STAFF REVIEW The staff reviewed: Annual costs per MI�IBTLT for typical hot water customer and annual cost per Ton- Hour for typical chilled water customer. Application of the rate structure to normalized building demands and other factors. Percentage change in overall rates. Percentage change in various cost categories. Thermal efficiency of both systems Cost allocation between Heating and Cooling. Capital budgeting process. Research and development costs. The review staff compared past budget projections to actual results and verified that the informadon contained in the rate filing was accurate. Staff also compazed District Energy and District Cooling rates to similar utilities and determined the rates were comparable. Staff concerns during the review were in the following azeas: The increased budget for research and development. The budgeted expenses for repair and replacement projects and the actual projects which were completed. Research and Development Staff is concerned about the increased level of research and development expenditures which are included in the District Heating FY 98 rate calculation. Approumately half of these budgeted expenditures aze to be spent on a capital project. A better appmach would be to capitalize these expenditures and pro-rate the eacpense over the life of the project. Although this would not effect the rate, it would be prefenble to have this e�cpense classified as a capital pro}ect and be approved by ffie Boazd. District Energy has entered into a contract to manage the Energy Park utiliry. Any expenses on acrivities outside of heating or cooling services should be kept separate to ensure there is no subsidy flowing to and from each entity. 9�-�/�o Staff Report for District Energy and District Cooling Proposed Fiscal Year 1998 Heating and Cooling Rates Page 5 Repair and Replacement Projects Staff has communicated its concern about the process of changing repair and replacement budgeted expenses from one project to another in District Energy. During ihe FY97 rate review, the District Energy Board of D'uectors adopted a resolution that requires format Board approval for any significant reallocations or change in capital project expenditures. Staff reviewed this process and found the Board adopted a resolution on June 13 which adjusted the `97 budget on various projects. Although some progress was made in this area, there was not evidence in the board minutes of significant discussion regarding the reallocations. The Board's policy should continue to be followed in 1998. CONCLUSION Recommend approval. The rates proposed by District Energy and District Cooling appear to be just and reasonable. Rates aze not unreasonably preferential, unreasonably prejudicial or discriminatory. Based on the documentation submitted for review, the rates will generate sufficient revenue to allow the companies to recover reasonable operating costs and e�enses; provide for the timely and orderly retirement of debt; and provide for improvements, enlargements and extensions necessary to adequately service the territory. c!'8 //(o EXfIIBTT 1 � W � � �/ � L.L O�j r � Ch � �. ■�_ T� �� i � "�'�, � �� W � r � � � ■ a Q 7 O _ � iSS O Y � N f1 � � � N U m co rn � � w � rn u� rn rn � rn N � � t� � r � t� U � O � � � � � � � � � � t1 � (O � �' M N r O 98 -l/6 . ��: Coverag�,Rates shall mean the rates and charges, which if collected by the Corporation, would in the aggregate equal the amount neces�ry to satisfy all of the Corporation's financial o li rio , including, but not ]imit� 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 Expenses, funding of various repair and replacement and reserve accounts, and other amounts necessary to properly and efficiently operate the System, ��ming that Franchise Fees arg�aid to the Citv (after accumulation pf the Franchise Fee Requirement as provided in the Loan Agreemern an City I,oan Agreement) on a current basis � not includn,g the defened Bank Fees, Reimbnrsements and deferred oblieations of the Corporation tn the C n�yment ofwhich is provided for in Section 3 03 hereof Tazget Rates shall mean, subject to the terms and conditions of the Service Agreements, the rates and charges pemritted to be charged by the Corpotation under the Service Agreement equal to a predeternuned percentage (which will vary over time) of actual fum natural gas prices; "predetermined percentage" (for any given year) shall be that percentage that results from dividing the Corporation's projected hot water rate for the Corporation's next fiscal year (e�ressed in $/NIlV1Btu as wntained in GilbertlCommonwealth December 2, 1982 computer analysis reported to the Corporation) by such fiscal yeaz's projected firm natural gas/NIlvIBtu end use rate (as contained in Table 9 of the GilbertJCommonwealth Report to the Corporation dated September 30, 1982); provided, however, that the resuking percentage shall never be lower than 72%; the "actual firm natural gas prices" shall mean a weighted a�erage of the prices actually charged by Northem States Power Company for its various classes of non-interruptible City of Saint Paul gas service customers, to be detemuned by assigning the demand for each DHDC customer to that customer's compazable Northern States Power company class of non-interruptible customers. Note: Taken from the Payment and Priority Agreement (as amended) relating to HRA District Heating Revenue Bonds. q�-//b ExFIIBIT 3 • - CALCULATION OF "TARGET RATE" FOR FY 1998 PER PAYMENT AND PRIORITY AGREEMENT CUSTOMER CLASS COMMI LG GENL LG GENL RESiDENTL INDUSTRL SM L ILARGEI OVERALL USAGE DATA 1 CCFIDAY - LOW 2 CCF/DAY -HIGH 3 AVERAGE CCF/DAY 4 AVERAGE CCFlYEAR FIRM GAS RATES ��ANUARY 1997� 5 CUSTOMER CHARGE ($!MQ) 6 DEMAND ($/CCF/DAY/MO) 7 COMMODITY ($/CCF) C�P1�:7T��►Ti�3�� 8 TOTAL $/YEAR 9 AVERAGE $/CCF 9AAVERAGE $/MCF 10 END USE $/MMBTU @65% TARGET RATE CALCl1LAT10NS 5�P $6.00 0.61690 500 2,000 1,999 1,657 3,314 90,245 331,418 662,836 $14.�0 $225.00 $225.Q0 1.62430 1.62430 0.58478 4.16160 4.16160 $627 $52,941 $1,414,228 $2,825,757 0.69690 0.58664 4.26720 426313 $6.97 $5.87 $42.67 $42.63 $10.72 $9.03 $65.65 $65.59 11 D.E. DEMAND % BY CLASS 2.00% 93.66% 0.00% 4.34% 12 WEfGHTED AVG $/MMBTU 13 X TARGET PERCENTAGE FROM 1982 FEASIBILITY STUDY 13A PROJECTED D.H. RATE $29.71 DIVIDED BY 136 PROJECTED GAS RATE $42.68 (MINIMUM 72%) 14 ='TARGET R.4TE" PER PAYMENT AND PRIORITY AGREEMENT ($/MMBTU) 15 TARGET RATE PER KWH COVERAGE RATE CALCULATION 16 DEMAND RELATED COSTS 17 COVERAGE DEMAND RATE aQ $7,830,000 150,D00 KW DEMAND $4.35 $17.51 72.0°l0 $829 Q-02$� 18 OVERALL COVERAGE RATE PER KWH $0"0422 � t/a � _�� .L � � � � .� � — � o � V � � -�-+ � e _ i � � �— � � � � � f i ! • . ��: .. : n .,, � � � � CH3 C'7 � . � . 98-�/� f'� � N fV ,- O tn O O O O Q O O O O O O 4!? ff3 i�? ff3 84 #3 Ef} H}