91-1879 ������ �
,
, r � � � ,�:`"�� � �.'��� Cou�ncil File # ����7�
,
l n 4 Green Sheet ,�`
RESOLUTION
CITY OF SAINT P TA.
Presented By • ' �
Referred To ittee: Date
RESOLUTION ACKNOWLEDGING THE COST ALLOCATION AGREEMENT AND THE
PAYMENT ASSURANCE AGREEMENT BETWEEN DISTRICT ENERGY SAINT PAUL, INC. ,
("DISTRICT HEATING") AND DISTRICT ENERGY SERVICES, INC. ("DISTRICT COOLING')
WHEREAS, the City of Saint Paul has adopted the District Cooling Franchise
Ordinance Number 17816 on March 28, 1991 granting a non-exclusive franchise for a district
cooling system to District Energy, Inc. ("District Cooling"); and
WHEREAS, the City of Saint Paul has adopted District Heating Franchise Ordinance
Number 16947 on July 20, 1982 granting a non-exclusive franchise for a district heating
system to District Heating Development Company, d/b/a District Energy St. Paul, Inc.
("District Heating"); and
WHEREAS, District Heating and District Cooling will enter into (i) a Cost Allocation
Agreement dated as of October 8, 1991 (the "Cost Allocation Agreement") allocating between .
them certain common costs of operation and maintenance of the facilities serving the district
heating system owned and operated by District Heating, and the Cooling System owned and
operated by District Cooling, and (ii) a Payment Assurance Agreement dated as of October 8,
1991 (the "Payment Assurance Agreement� pursuant to which District Heating agrees to pay
certain amounts to District Cooling in the event the aggregate contracted customer load
being served by the Cooling System is less than 3,400 tons and both such agreements shall
be in the form as presented and attached hereto; and
WHEREAS, the City Council has received both oral and written evidence in support of
the Cost Allocation Agreement and the Payment Assurance Agreement, including, but not
limited to:
1. Oral testimony presented to the City Council and the Council Public
. Works Committee;
2. Written descriptions of the impact of the Agreements on the Project and
the customers; and
3. Graphical projections of the anticipated district cooling system
expansion;
�������. l/�79
. �
��
now, therefore, be it
RESOLVED, that the City Council of the City of Saint Paul finds that said evidence
demonstrates that the execution and implementation of said Cost Allocation Agreement and
" Payment Assurance Agreement will result in rafe charges to district heating and district
cooling ratepayers that will be just, reasonable and non-discriminatory: and be it
FINALLY RESOLVED that the City Council of the City of Saint Paul, Minnesota that the �
Cit�r, as the public body with regulatory jurisdiction over the rates and charges of both District
Heating and District Cooling hereby acknowledges and approves the terms and conditions of
the Cost Allocation Agreement and the Payment Assurance Agreement, in the forms as
aitached hereto. Amounts payable by District Cooling to District Heating under the Cost
Allocation Agreement shall be included in the "Demand Charge" component of the District
Cooling rates and charges. Amounts payable by District Heating to District Cooling (whether
directly or off-set against amounts due from District Cooling to District Heating under the
Cost Allocation Agreement) shall be included in the "Demand Charge" component of District
Heating rates and charges, and reimbursement of such amounts by District Cooling to
District Heating shall be included in the "demand Charge" component of District Cooling rates
and charges. The provisions of this Resolution shall be effective only as to amount payable
under the Cost Allocation Agreement and Payment Assurance Agreement as in effect as of
' the date of the closing on the district cooling financing. Except as contemplated herein, these
provisions shali not be construed to apply to any changes, amendments or modifications to
either agreement unless expressly approved by the City.
Yeas Navs Absent Requested by Department� of:
.zmon
oswitz
on
acc ee
e t tman -��'
une -�
i son -�` BY�
Adopted by Council: Date CT �
�gg� Form Approved by City Attorney
Adoption C ifie by Counc' c etary By.
By' Approved by Mayor for Submission to
Approved by May r: Date OCT 9 �9J� ' council
By: By�
', � 1� Council File ,� C/-/�'
�--' Green sheet ,� ( � 3 c�'7
` � RESOLUTION
CITY OF SAINT PAUL, MINNESOTA.
Preaented By � -
Referred To f� , (�c,v c� s �-vu.K � Committee: Date
v �
l
RESOLUTION ACKNOWLEDGIN THE COST ALLOCATION AGREEMENT AND THE
PAYMENT ASSURANCE AGREEME BETWEEN DISTRICT ENERGY SAINT PAUL, INC.
("DISTRICT HEATING") AND DISTRIC ENERGY SERVICES, INC. ("DISTRICT COOLING")
WHEREAS, the City of Saint Paul has a opted the District Cooling Franchise
Ordinance Number 17816 on March 28, 1991 gr nting a non-exclusive franchise for a district
cooling system to District Energy, Inc. ("District C oling"); and
WHEREAS, the City of Saint Paul has adopt District Heating Franchise Ordinance
Number 16947 on July 20, 1982 granting a non-exclu ive franchise for a district heating
� system to District Heating Development Company, d/ a District Energy St. Paul, Inc.
("District Heating"); and
WHEREAS, District Heating and District Cooling wi enter into (i) a Cost Allocation
Agreement dated as of October 1, 1991 (the "Cost Allocatio Agreement") allocating between _
them certain common costs of operation and maintenance o the facilities serving the district
heating system owned and operated by District Heating, and t e Cooling System owned and
operated by District Cooling, and (ii) a Payment Assurance Agr ment dated as of October 1,
1991 (the "Payment Assurance Agreement") pursuant to which Di trict Heating agrees to pay
certain amounts to District Cooling in the event the aggregate con acted customer load
being served by the Cooling System is less than 3,400 tons and bo such agreements shall
be in substantially the form as presented and attached hereto; now t refore, be it
RESOLVED by the City Council of the City of Saint Paul, Minnes a that the City, as
the public body with regulatory jurisdiction over the rates and charges of th District Heating
and District Cooling hereby acknowledges and approves the terms and co itions of the
Cost Allocation Agreement and the Payment Assurance Agreement, substan ' Ily in the forms
as attached hereto and with such subsequent changes as may be necessary d as
� approved by the City Attorney. Amounts payable by District Cooling to District ating under
the Cost Allocation Agreement shall be included in the "Demand Charge" compo nt of the
District Cooling rates and charges. Amounts payable by District Heating to District ooling
(whether directly or off-set against amounts due from District Cooling to District Heat g
under the Cost Allocation Agreement) shall be included in the "Demand Charge" com nent
of District Heating rates and charges, and reimbursement of such amounts by District �.
Cooling to District Heating shall be included in the "demand Charge" component of Distri�
Cooling rates and charges. The provisions of this Resolution shall be effective only as to ''*
q�-����
amount payable u er the Cost Ailocation Agreement and Payment Assurance Agreement as
in effect as of the d e of the closing on the district cooling financing. Except as
contemplated herein, these provisions shall not be construed to apply to any changes,
amendments or modi ations to either agreement unless expressly approved by the City.
•
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Yeas Navs Absent Re ested by Department- of:
smon
oswztz /
on ��h�. �e,,c(�
— acc ee
ettman
une -
i son BY�
Adopted by Council: Date Form Approved by City Attorney
Adoption Certified by Council Secretary By.
By� Approved by Mayor for Submission to �
' Council
Approved by Mayor: Date
By: ,��G4<.�
By:
. . ����� �
DEPAR���FICElCOUNCIL ��NITIATED / GREEN SH T
� 9 N° _ 12387
CONTACT ERSON 8�PHONE INITI ATE � �T IAUDATE
�DEPARTMENT DIRECTOR �CITY COUNCIL v
V I Y"`� D CeG`✓ � Z 2 3 �g$��N �CITY ATTORNEY �CITY CLERK
NUMBERFOR
MUST BE ON COUNCIL AOENDA (DATE) ROUTING �BUDGET DIRECTOR �FIN.&MQT.SERVICES DIR.
O�ro /�r � 4 � ORDER �MAYOR(OR ASSISTAN� � L„��n,
b �
TOTAL#OF SIGNATURE PAGES j (CLIP ALL LOCATIONS FOR SIGNATURE)
ACTION REQUESTED:
�� �
RECOMMENDATIONS:Approve(A)or Re)ect(R) pERSONAL SERVICE CONTRACTS MUST ANSWER THE FOLLOWING�UESTION3:
_PLANNING COMMISSION _ CIVIL SERVICE COMMISSION 1• Has this person/firm ever worked under a contract for this department?
_CIB COMMITTEE _ YES NO
2. Has this person/firm ever been a city employee?
_STAFF _
YES NO
_ DISTRICT COURT _ 3. Does this erson/firm
p possess a skill not normally possessed by any current city employee?
SUPPOqTS WHICH COUNCIL OBJECTIVE7 YES NO
Explaln all yes answers on separate sheet and attach to green ahaet
INITIATING PROBLEM,ISSUE,OPPORTUNITY(Who,�When,Whe�y):L �
r,� /�GOtit.fiu ti9 �
� , �� ��°���.;�...,,��..�,�.,,� �--,-�
�,,�.�`� �.�.r.�,�... � . �7 �.�'G-� c.o�-� � -c�
�:c�/L""P 7�° G`"'Ld`'� s,,a, 7��
��� �� . ��� �� �=�- �
,�.e� t� � .-� �-�,e.o �,Z�.s� � ,
ADVANTAGES IF APPROVED:
l I.c ��G���C.�,.c,� ��-c�+-� ��-y��— u+-t.�P G�� .� � 4''`r`'�a'` d"
0
2� �,.� --e� �°.�..�G ,�.�-,�.o � �.,� �
�L�'� °',�'�.`�. �
nor
DISADVANTAOE3 1F�APPROVED: �.,,,f � �
j� h"WJ�'i'!Y� �'l � . . e O"'+„'I'
� � � �°� � �
��,.� �a,a,�...,. -� �,.. �,-. � � �,�.-� -�.
�� � �v�' � ` °
DISADVANTACiES IF I�f APPROVED:
T� G�/t,.t h.o �c,�+-ui►--C`—•o�� �
TOTAL AMOUNT OF TRANSACTION S O COST/REVENUE BUDGETED(CIRCLE ONE) YES NO
FUNDING SOURCE .�/p ACTIVITY NUMBER � /�I
FINANCIAL INFORMATION:(EXPLAIN)
NOTE: COMPLETE DIRECTIONS ARE INCLUDED IN THE GREEN SHEET INSTRUCTIONAL
MANUAL AVAILABLE IN THE PURCHASING OFFICE(PHONE NO.298-4225). �- „
ROUTING ORDER:
Below are correct routings for the five most frequent types of dxuments:
CONTRACTS(assumes authorized budget exists) COUNCIL RESOLUTION(Amend Budgets/Accept. Grants)
1. Outside Agency 1. Department Director
2. Department Director 2. Ciry Attorney
3. City Attorney 3. Budget Director
4. Mayor(for contracts over$15,000) 4. Mayor/Assistant
5. Human Rights(for contracts over$50,000) 5. Ciry Council
6. Finance and Management Services Director 6. Chief Accountant, Finance and Management Services
7. Finance Accounting
ADMINISTRATIVE ORDERS(Budget Revfsion) COUNCIL RESOLUTION (all others, and O�dinances)
1. Activfty Manager 1. Department Director
2. Department Accountant 2. City Attorney
3. Department Director 3. Mayor Assistant
4. Budget Director 4. City Council
5. City Clerk
6. Chief Accountant, Finance and Management Services
ADMINISTRATIVE ORDERS(all others)
1. Department Director
2. City Attorney
3. Finance and Management Services Director
4. City Clerk
TOTAL NUMBER OF SIGNATURE PAC�ES
Indicate the#of pages on which signatures are required and paperclip or flag
each of the�e pages.
ti
ACTION REQUESTED
Describe what the project/request seeks to accomplish in either chronologi- �
cal order or order of importance,whichever is most appropriate for the
issue. Do not write c�mplete sentences. Begin each item in your list with
a verb.
RECOMMENDATIONS
Complete if the issue in question has been presented before any body, public
or private.
SUPPORTS WHICH COUNCIL OBJECTIVE?
Indicate which Council obJective(s)your projecVrequest supports by listing
the key word(s)(HOUSING, RECREATION, NEIOHBORHOODS, ECONOMIC DEVELOPMENT,
BUDGET, SEWER SEPARATION). (SEE COMPLETE LIST IN INSTRUCTIONAL MANUAL.) ,
PERSONAL SERVICE CONTRACTS:
This information will be used to determine the city's Ifabiliry for workers compensation claims,taxes and proper civil service hiring rules.
INITIATING PROBLEM, ISSUE, OPPORTUNITY
Explain the sftuation or conditions that created a need for your project
or request.
ADVANTAGES IF APPROVED
Indicate whether thfs is simply an annual budget procedure required by law/
charter or whether there are specific ways in which the City of Saint Paul
and its citizens will beneflt from this projecUaction.
DISADVANTAGES IF APPROVED
What negative effects or major changes to existing or past processes might
this projecUrequest produce if it is passed(e.g.,traffic delays, noise,
tax increases or assessments)?To Whom?When?For how long?
DISA�VANTAGES IF NOT APPROVED
What will be the negative consequences if the promised action is not
approved?Inabiliry to deliver service?Continued high traffic, noise,
accident rate?Loss of revenue?
FINANCiAL IMPACT
Although you must tailor the information you provide here to the issue you
are addressing, in general you must answer two questions: How much is it
going to cost?Who is going to pay?
: : � � �//�7g
[DRAFT AMENDED]
COST ALLOCATION AGREEMENT
DATED AS OF OCTOBER 1, 1991
BY AND BETWEEN
DISTRICT HEATING DEVELOPMENT COMPANY, d/b/a
DISTRICT ENERGY ST. PAUL, INC.
AND
DISTRICT ENERGY SERVICES, INC.
: � �/ ��?'9
[DRAFT AMENDED] [9/18/91]
COST ALLOCATION AGREEMENT
THIS AGREEMENT is entered into as of October 1, 1991 between
District Heating Development Company, d/b/a District Energy St.
Paul, Inc. , a Minnesota non-profit corporation (hereinafter
referred to as ��District Energy" and District Energy Services, -
Inc. , a Minnesota non-profit corporation (hereinafter referred to
as "DES") . �
RECITALS
WHEREAS, in response to a number of environmental and
economic factors, DES proposes the establishment of a district
cooling business to be owned and operated by DES; and
WHEREAS, District Energy owns, operates and maintains a
heating plant located at 76 West Kellogg Boulevard, Saint Paul,
Minnesota ("Heating Plant") and portions of the Heating Plant
will be modified by DES to accommodate the necessary equipment
required to operate the cooling business; and
WHEREAS, DES will finance, construct and own the cooling
production equipment and cooling distribution system and DES will
pay District Energy for use of the required Heating Plant space;
and
WHEREAS, District Energy will provide to DES the required
operation, maintenance and administration services to operate the
district cooling business and DES will pay District Energy for
such services; and
WHEREAS, it is necessary for operating, financing, and
regulatory reasons to define the principles and procedures which
shall govern the allocation of costs for such services between
District Energy and DES and the responsibility for payment of
such costs;
NOW, THEREFORE, the parties do, in consideration for the
mutual promises, covenants and agreements set forth herein, agree
as follows:
1. Principles. Al1 costs associated with the district cooling
operation shall be assessed consistent with this Cost Allocation
Agreement. Costs associated solely with the district cooling
business shall be charged directly to DES. Costs that benefit
both district heating and district cooling shall be allocated
between the two companies. All allocations shall be just and
1
� �i/-/8�7g
equitable to both District Energy and DES. Wherever practical,
the allocation and settlement shall be on a monthly basis.
2 . Assumptions.
A. District Energy, the operator of the district heating
system, owns the jointly used plant/office facility and most
equipment contained therein, employs all staff, and pays most
joint operating costs. DES operates the district cooling system
using both its own equipment and certain resources belonging to
District Energy, including plant, equipment, and employees, and
reimburses District Energy for an appropriate share of joint �
costs.
B. Where costs are solely attributable to the operation of
district cooling, they shall be billed directly to and paid by
DES. Where costs are shared costs or where DES receives the
benefit of or the use and/or enjoyment of services or ass�ts of
District Energy, cost allocation shall be done pursuant to this
agreement.
C. The goal of the cost allocation procedure set forth
herein is to allocate joint costs in a way which is (a) fair to
both heating and cooling customers, (b) simple and clear enough
to administer efficiently, and (c) recognized as just and
reasonable by customers and regulators.
D. Unless otherwise provided, DES 's share of joint costs
will be based on the Cooling Cost Allocation Percentage as
defined in Section 3 .B. (4) below.
E. The cost allocation procedure will be reviewed annually
and this agreement shall be amended, if necessary, by mutual
consent of the parties hereto, to better meet the goal stated in
C. above. A copy of this agreement and any amendments thereto
shall be provided to the Director of Finance and Management
Services of the City of Saint Paul.
3 . Allocation Procedures. Set forth hereafter are the
allocation procedures to be followed by management in allocating
costs incurred while both district heating and district cooling
systems are in operation:
A. Enerqy. Each month's total plant fuel and energy costs,
less those solely attributable to either company (e.g. , fuel to
hot water boilers) , will be allocated to each company based on
its use of plant steam output (either directly or as internally
generated electricity) during that month (see chart,
Attachment A) .
B. Costs for use of property, plant and equipment. DES
will pay to District Energy a monthly fee for use of property,
2
� ���/�79
plant and equipment owned by District Energy equal to one-twelfth
(1/12) of the Annual Property Use Charge, which shall be
determined prior to the beginning of each fiscal year according
to the following procedure (see sample calculation,
Attachment B) :
(1) Compute the percentage of total District Energy
property, plant, and equipment other than the hot water
distribution system (Total PP&E) which is jointly used (the
Joint Use Percentage) , based on the values thereof in the
latest property appraisal and the cost of items added since
that appraisal. For purposes of this calculation, the value �
of jointly used boilers shall be egual to twice the value of
Boiler ,�1, the primary steam boiler used during the cooling
season.
(2) From the undepreciated asset value of Total PP&E on
District Energy's books, subtract the amount by which that
value was written up over actual cost on acquisition, i.e. ,
$3 , 919, 658, to get Adjusted Total PP&E.
(3) Multiply the Joint Use Percentage from Step 1 by the
Adjusted Total PP&E from Step 2 to get Adjusted Joint Use
PP&E.
(4) Calculate normalized actual unit energy sales for DES
in the latest 12-month period ending on or about May 31
(which, for purposes of this calculation, shall be equal to
the average tons of demand billed during the period '
multiplied by a standard utilization factor of 900 hours)
and divide by normalized actual unit energy sales for
District Energy and DES combined during the same period
(using a conversion factor of 1 ton-hour equals 0. 0035
megawatt-hours) to get the Coolinq Cost Allocation
Percentaqe. In determining the Cooling Cost Allocation
Percentage for fiscal years 1993 through 1994, budgeted
fiscal year unit energy sales (adjusted for 900 utilization
hours) shall be used instead of normalized actual unit
energy sales as described above.
(5) Multiply the Adjusted Joint Use PP&E from Step 3 by the
Cooling Cost Allocation Percentage from Step 4 to get the
Allocated Cooling PP&E.
(6) The Annual Property Use Charge shall be the level
amortization payment computed using the Allocated Cooling
PP&E, an interest rate equal to the weighted average cost of
long term debt budgeted by District Energy for the year in
question, and a term of 20 years.
C. Operatinq and maintenance expenses. Each month's non-
fuel operating and maintenance expenses, less those solely
3
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attributable to the district heating system or the district
cooling system, will be allocated to DES based on the Cooling
Cost Allocation Percentage. (Any joint expenses paid by DES
rather than by District Energy will be allocated back to District
Energy on the same basis and offset against District Energy
charges. )
D. General and administrative personnel expenses. Salaries
of general and administrative personnel shown through a periodic
time study to have worked on district cooling activities will be
allocated based on such time study. Payroll taxes and personnel
benefits will be allocated in the same proportions as salaries. �
E. Other qeneral and administrative expenses. General and
admiriistrative expenses other than personnel, less those solely
attributable to the district heating system or the district
cooling system, will be allocated to DES based on the Cooling
Cost Allocation Percentage. (Any joint expenses paid by DES
rather than by District Energy will be allocated back to District
Energy on the same basis and offset against District Energy
charges. )
F. Costs incurred by District Enerqy on behalf of DE8. The
cost of any capital items, debt service, or operating expenses
paid for by District Energy which are not joint use items but
rather solely for the benefit of DES shall be billed in their
entirety to and paid by DES.
4. Repayment of Development Costs. Cooling system development
costs incurred by District Energy shall be repaid by DES
according to the following terms:
A. Definition. "Development costs" shall mean out-of-
pocket costs incurred by District Energy for preliminary design
work, marketing, communications and legal services, and other
costs related to the development of the downtown district cooling
system from October 1, 1990, through March 31, 1993 , other than
engineering design and financing costs paid from the proceeds of
the original district cooling system financing.
B. Recovery terms:
(1) Development costs shall accumulate without interest
through March 31, 1993 .
(2) From and after April 1, 1993, simple interest shall
accrue at 5 percent per annum.
(3) Beginning October 1, 1997, or such later date as
billable cooling demand equals or exceeds 3 , 900 tons,
repayment of the total amount due (principal plus accrued
4
� � , �%���9
interest) shall be made in accordance with subparaghaphs (4)
and (5) of this section 4 .B.
(4) Scheduled amortization shall be over 15 years at an
interest rate of five (5) percent per annum, with monthly
principal payments proportional to those required on the HRA
district cooling loan. The initial payment schedule shall
be reviewed in connection with any district cooiing
expansion financing and may be adjusted as mutually agreed
by the parties, provided that DES is in compliance with all
terms of the district cooling bond loan agreement and HRA
loan agreement. '
(5) Repayment shall be completed not later than one year
after the retirement of the last of the Series 1991A, 1991B
and 1991C bonds.
5. Monthly Settlement.
A. Cost allocations will be determined by District Energy
and billed to DES in the course of producing District Energy's
financial statements each month, and the net amount due shall be
payable to District Energy within 15 days after the date of such
statements.
B. Amounts not paid within 30 days shall accrue interest
monthly at the average rate earned by District Energy that month
on funds in its Operating Reserve.
6. Resolution of Allocation Issues. In the event District
Energy and DES management personnel are unable to determine the
appropriate treatment for a cost item, the following procedure
shall be utilized:
A. Management of District Energy or DES shall submit the
issue in writing to the independent public accounting firm
engaged to perform the annual audit of District Energy,
requesting the auditor' s recommendation based upon existing
facts and circumstances regarding that particular item or
items.
B. The auditor shall present a recommendation for
management's action. In the event District Energy or DES
elects not to adopt that recommendation, they may seek an
alternative recommendation from the Director of Finance and
Management Services of the City of Saint Paul.
5
. ' �'-/�7�'
Approved: Approved:
DISTRICT ENERGY SERVICES, INC. DISTRICT HEATING DEVELOPMENT CO.
d/b/a DISTRICT ENERGY ST. PAUL,
INC.
By: By:
Its• Its•
(Per Board Resolution 91- ) (Per Board Resolution 91- ) �
Attachments:
A. Cost allocation chart
B. Property, plant and equipment allocation example
\rab\costaloc.2
6
. ' �/���y�
Exhibit A
FUEL COST ALLOCATION PROCEDURE
Fl1EL
GAS/OIL COAL
YsUr
C A B
Gas/Oil Ga�/Oil Coal
Hot Water Steam Steam
Boilers Boiler Boilers
Steam
MeLr 2 61eUr 3 6letsr 4
D
lieat Co-generadon Steam-driven
Exchangers Turbine Chillere(tuture)
G v v v H
Yster b v v V Ustet 8
V V V
< GSteam< < V >$tliffl> >
V
V
Hot Water v Cooling
Distribution System v DisUibut3on Syatem
v
v
v
v< < < < < < < < �<
v
v
General Plant 6ectricity �ectric Chiller
Estimated Produced Estimated
Electrical Use: �ectrical Use:
;:>?»>.;%>.::>
Total E7scolcal(Ar�- Mster 7 Tc»�iain Output x
(roW Atrb�uCon+ M J N Kwh/ron-fiour
Brebfc CA�(At�) X X X X X X X X
L P
Hot Water x x x x x x x x Codinp
Diatribudon K Disfibution
Est.Dectrical Uee: Meura Est.Electricai Use:
TMrmd En�rsy Srndout x TMmul Enrr�S�ndour x
PYimphp lidr BeCU1Crty Purtphy RW
PufChaeed
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. .�
DRAFr
PAYMENT ASSURANCE AGREII��NT
DATED AS OF OCTOBER l, 1991
BY AND BEZWEEN
DISTRICT ENERGY SERVICES, INC.
AND
DISTRICT ENERGY ST. PAUL, INC.
MAHLUM & ASSOCIATES
A Professional Association
Suite 2222, North Central Life Tower
St. Paul, Minnesota 55101
�'i-/���
DRAFT
PAYMENT ASSURANCE AGREII��NT
THIS AGREEMENT is entered into as of the lst day of
October, 1991 . The parties to this Agreement shall be District
Heating Development Company, d/b/a District Energy St . Paul,
Inc. , 76 West Kellogg Boulevard, Saint Paul, Minnesota
55102-1611, (hereinafter referred to as "District Energy") , and
District Energy Services, Inc. , 76 West Kellogg Boulevard,
Saint Paul, Minnesota 55102-1611 (hereinafter referred to as
"DES") .
RECITALS
WHEREAS, DES has conceived, developed, promoted and is in
the process of marketing and financing a district cooling
project in the City of Saint Paul; and
WHEREAS, DES has prepared and customers have accepted a
uniform District Cooling Service Agreement ("Service
Agreements" ) providing for cost-based rates; and
WHEREAS, the financing of said district cooling project is
based upon 3400 tons of Initial Contract Demand as that term is
defined in the Service Agreements; and
WHEREAS, DES, as of the adoption of this Agreement, has
executed Service Agreements representing 2961 tons of Initial
Contract Demand; and
WHEREAS, DES has concluded that there is a reasonable
likelihood that the 3400 tons of egecuted Service Agreements
will be received by DES in the marketing of this district
cooling project; and
WHEREAS, District Energy will secure reduction in its figed
costs as a result of sharing District Energy figed costs with
DES; and
WHEREAS, DES and District Energy find it desirable to
proceed to conclude the financing and construction of the
district cooling system prior to receipt of ezecuted Service
Agreements in the aggregate amount of 3400 tons; and
WHEREAS, District Energy has agreed to assure payment of a
share of the fized costs corresponding to a maaimum of 500 tons
5625M/5806M (09/18/91)
1
. - ���-���9
DRAFT
of DES Demand Charges for aggregate Initial Contract Demand
below 3400 tons; and
WHEREAS, District Energy has received assurances from the
City of Saint Paul that the City will allow District Energy
, costs incurred hereunder as costs recoverable from District
Energy customers pursuant to the franchise by and between the
City of Saint Paul and District Energy; and
WHEREAS, District Energy and DES have mutually agreed upon
terms and conditions of this Payment Assurance Agreement.
NOW, THEREFORE, in consideration for the foregoing and the
mutual promises, covenants and agreements set forth hereafter,
the parties agree as follows :
1. Payment Assurance. District Energy shall, under the
terms and conditions set forth hereafter, up to a. mazimum of
500 tons, pay to DES a monthly amount equal to the Figed Cost
Portion of the DES Demand Charge Rate representing the
difference between the Actual Aggregate Initial Contract Demand
(as defined in Paragraph 2) and 3400 tons of Aggregate Initial
Contract Demand, as that Demand Charge Rate is determined
pursuant to the provisions of Article VI of the Service
Agreements; provided, however, that the District Energy
agreement to pay DES as set forth in this paragraph shall be
subjec� to the Adjustment and other limitations as set forth
hereafter. Fixed Cost Portion as used herein shall mean the
direct operating costs, city regulatory costs, net debt service
and financing cost and change in working capital cost portion
of the DES Demand Charge Rate for any fiscal year (see ezample,
Ezhibit A) .
2 . Adjustment. District Energy shall be released from one
ton of Payment Assurance for every one ton of Actual Aggregate
Initial Contract Demand received by DES above 2900 tons .
Actual Aggregate Initial Contract Demand, as used herein, shall
mean the total of all Initial Contract Demand as set forth in
Paragraph 1.4 of egecuted Service Agreements . The partial
release as set forth heretofore shall be a permanent partial
release of District Energy of its Payment Assurance obligations
under this Agreement. District Energy shall be fully released
from its Payment Assurance hereunder upon DES obtaining 3400
tons of Actual Aggregate Initial Contract Demand. The parties
recognize and acknowledge that upon ezecution hereof, DES has
ezecuted District Cooling Service Agreements in the aggregate
Initial Contract Demand amount of 2961 tons .
5625M/5806M (09/18/91)
2
� ��/� ��
DRAFT
To illustrate the operation of the Adjustment, the
following ezample is provided: Upon ezecution of
Service Agreements providing for 3245 of Actual
Aggregate Initial Contract Demand the Payment
Assurance would be adjusted to reflect the fact that
District Energy remains obligated for a share of the
fized costs corresponding to 155 tons of Demand.
(3400 tons minus 3245 tons equals 155 tons . )
The adjustment provided herein shall take effect upon the
earlier of the Customer Completion Date or First Service Date,
as defined in the Service Agreements for Service Agreements in
ezcess of 2900 tons of Aggregate Initial Contract Demand.
3 . First Payment Date. The parties agree that District
Energy shall not be obligated for Payment Assurance payments
hereunder prior to April l, 1993 .
4 . Method of Payment. Pursuant to the Cost Allocation
Agreement, DES shall, on an ongoing basis, incur obligations to
District Energy in connection with the providing of the
� premises, goods and services and other costs incurred on behalf
or for the benefit of DES. The parties contemplate that there
will be an ongoing setoff of obligations for cash payments to
DES from District Energy in an amount sufficient to provide for
the Payment Assurance to DES as provided herein. In the event
that there is a net cash obligation from District Energy to DES
for the Payment Assurance, said cash payment shall be timely
made by District Energy. The Demand Charge Rate to District
Energy reflecting the Payment Assurance shall reflect a
discount of five percent (5%) consistent with the provisions of
Section 10 . 6 of the Service Agreements . District Energy shall
be entitled to an Adjustment as set forth in Paragraph 2 herein
at any time during the DES fiscal year.
5 . Service Agreements Application. The parties recognize
and acknowledge that District Energy is not a Customer of DES
and, accordingly, ezcept as ezpressly set forth herein, the
Customer provisions of the Service Agreements do not apply to
District Energy. Ezcept as otherwise ezpressly provided
herein, the terms and conditions of the Service Agreements
shall not, directly or indirectly, be obligations of District
Energy. The provisions of Article VI of the Service Agreements
shall be limited in application to District Energy' s Payment
Assurance to the Demand Charge Rate ezpressed in a sum per ton
per month charged to all DES Customers under the Service
Agreements . District Energy shall be obligated to pay DES at
such times as all DES Customers are obligated to pay DES for
the Demand Charge Rate.
5625M/5806M (09/18/91)
3
. � , ��-����
DRAFT
6 . Repayment. DES shall be obligated to repay District
Energy for sums advanced or offset pursuant to the Payment
Assurance. The sums paid or offset shall remain an obligation
of DES to District Energy, but shall not bear interest and
shall not be subject to repayment until the earlier of (a) the
beginning of the first DES fiscal year in which Customer
Contract Demand ezceeds 4200 tons; or (b) 21 years from the
date of this Agreement. A schedule of repayments shall be
established with a term not to egceed ten (10) years or such
earlier term provided that the parties make a finding that the
repayment term will not adversely affect DES' ability to meet
all of its financial obligations during the ensuing fiscal year. �
7. Effect of this Agreement. The parties agree that
District Energy is not by e$ecution hereof, directly or
indirectly, obligated to DES, its Customers, vendors, lenders,
or others, ezcept as ezpressly stated herein.
8 . Miscellaneous.
A. Entire Agreement. This Agreement represents the
entire and integrated Payment Assurance Agreement between
District Energy and DES.
B. Not a Joint Venture. The parties hereto agree that
it is not their intention to create nor does this Agreement
create or constitute a joint venture between the parties
and the parties shall not, in any way, be construed as
being joint venturers .
C. Effect of Waiver. Whenever any act or failure to
act by one party is waived by the other party, directly or
indirectly, such waiver shall be limited to the particular
act or failure to act and shall not be determined to waive
any other agreement, covenant, obligation, requirement or
other promise or breach under this Agreement.
D. Governing Law. This Agreement is made under and
shall be construed and enforced in accordance with the laws
of the State of Minnesota.
E. Severability. The unenforceability or invalidity of
any provision or provisions of this Agreement shall not
render any other provision or provisions herein
unenforceable or invalid.
F. Eaecution Counterparts. This Agreement may be
simultaneously ezecuted in several Counterparts, each of
which shall be an original and all of which shall
constitute but one and the same instrument.
5625M/5806M (09/18/91)
4
_ � � �T-/���
DRAFT �
G. Amendments. The parties agree that any and all
amendments hereto shall not be deemed to be of force and
effect unless and until said amendments shall have the
written consent of the Housing and Redevelopment Authority
of the City of Saint Paul and the Trustee identified under
financing documents to be ezecuted contemporaneous with the
ezecution of this Agreement and providing for the financing
of the district cooling system project.
G. Notices. Notices shall be directed as follows :
District Energy St. Paul, Inc.
76 West Kellogg Boulevard
Saint Paul, Minnesota 55102-1611
Attention: President
District Energy Services, Inc.
76 West Kellogg Boulevard
Saint Paul, Minnesota 55102-1611
Attention: President
IN WITNESS WI�REOF, District Energy and DES have e$ecuted
this Agreement. This Agreement shall be effective on the date
first above written.
District Energy Services, Inc. District Energy St. Pau1, Inc.
By: By:
Its Its
5625M/5806M (09/18/91)
5
.. . l��- /�� �
Exhibit A
PAYMENT ASSURANCE AGREEMENT EXAMPLE
-----------------------------------
(Hypothetical Future Year Costs)
3,400 2,961
Total demand-related costs Tons Tons
-------------------------- ----- -----
Direct operating costs $85,592 $85,592
City regulatory costs 24,153 24,153
Net debt service and fin. cost 463,426 463,426
Change in working capital 124,224 124,224
Fixed costs aubtotal 697,395 69.7,395
Payment Assurance Amount* 0 (90,046)
Net fixed costs charged to customers 697,395 607,349
Allocated joint operating costs 176,809 153,980
------- -------
Total demand revenue requirement $874,204 $761,329
------- -------
Demand Charge rate calculation ($/ton/mo. )
------------------------------------------
Fixed coats before Payment Asaurance $17.10 $19.63
Payment Assurance credit 0.00 -2.53
Allocated costs 4.33 4.33
Demand Charge rate $21.43 $21.43
-----------------------------------------------------------------
3400 - 2961
Payment assurance amount = ---------------- X $697,395
3400
Council File # 9'��f��
Green sheet ,� ( � 3�'7
RESOLUTION
� CITY OF SAINT PAUL, MINNESOTA.
Presented By ` _
Referred To � Committee: Date g
RESOLUTION ACKNOWLEDGING THE COST ALLOCATION AGREE NT AND THE
PAYMENT ASSURANCE AGREEMENT BETWEEN DISTRICT ENERGY AINT PAUL, INC.
("DISTRICT HEATING") AND DISTRICT ENERGY SERVICES, INC. (" STRICT COOLING")
WHEREAS, the City of Saint Paul has adopted the Distr' t Cooling Franchise
Ordinance Number 17816 on March 28, 1991 granting a non- xclusive franchise for a district
cooling system to District Energy, Inc. ("District Cooling"); a d
WHEREAS, the City of Saint Paul has adopted Di rict Heating Franchise Ordinance
Number 16947 on July 20, 1982 granting a non-exclusiv franchise for a district heating
. system to District Heating Development Company, d/ /a District Energy St. Paul, Inc.
("District Heating"); and
WHEREAS, District Heating and District Co ing will enter into (i) a Cost Allocation
Agreement dated as of October 1, 1991 (the "Cos Allocation Agreement") allocating between
them certain common costs of operation and m ntenance of the facilities serving the district
heating system owned and operated by District eating, and the Cooling System owned and
operated by District Cooling, and (ii) a Payme Assurance Agreement dated as of October 1,
1991 (the "Payment Assurance Agreement") rsuant to which District Heating agrees to pay
certain amounts to District Cooling in the ev nt the aggregate contracted customer load
being served by the Cooling System is les than 3,400 tons and both such agreements shall
be in substantially the form as presented d attached hereto; now therefore, be it
RESOLVED by the City Council the City of Saint Paul, Minnesota that the City, as
the public body with regulatory jurisdict' n over the rates and charges of both District Heating
and District Cooling hereby acknowle es and approves the terms and conditions of the
Cost Allocation Agreement and the P yment Assurance Agreement, substantially in the forms
as attached hereto and with such su sequent changes as may be necessary and as
� approved by the City Attorney. Amo nts payable by District Cooling to District Heating under
the Cost Allocation Agreement sha be included in the "Demand Charge" component of the
District Cooling rates and charges Amounts payable by District Heating to District Cooling
(whether directly or off-set agains amounts due from District Cooting to District Heating
under the Cost Allocation Agree ent) shall be included in the "Demand Charge" component
• of District Heating rates and ch ges, and reimbursement of such amounts by District
Cooling to District Heating shal be included in the "demand Charge" component of District
Cooling rates and charges. The provisions of this Resolution shall be effective only as to
. 9/-/���
� amount payabie under the Cost Allocation Agreement and Payment Assurance Agreement as
in effect as of the date of the closing on the district cooling financing. Except as
contemplated herein, these provisions shall not be construed to apply to any changes,
amendments or modifications to either agreement unless expressly approved by the City.
i �
Yeas Navs Absent Re ested by Department� of:
imon �
osw.z�z /
on ��h� �.;ct�
acca ee
ettman
une -
i son By:
Adopted by Council: Date
Form Approved by City Attorney
Adoption Certified by Council Secretary By:
� By' Approved by Mayor for Submission to �
Approved by Mayor: Date
' Council
By:
' By: ,���eG+��
� �ry
. , � _.. ����
. i0-.
CITY OF SAINT PAUL RECEIVED
INTERDEPARTMENTAL MEMORANDUM
�C T 0 4 1991
CITY GIERK
�
October 3, 1991
TO: Molly O'Rourke, City Clerk
FROM: Richard Gehrman, Director ,(��-
Department of Finance and Management Services
RE: Administration's Filings For Cost Allocation Agreement and Payment Assurance
Agreement Between District Heating and District Cooling
The City Council was to hold a public hearing today on the matter of the District Cooling
financing. The Administration had prepared e�chibits to be distributed to the Council. 1'he
Council decided to hear the matter at the next meeting on Tuesday, October 8, 1991.
For convenience sake,the Administration would like to formally file the exhibits as attached
with your office today. I will also distribute a packet to each council member.
RG/jr
cc: City Council Members
Thomas Weyandt - City Attomey's Office
James O'Leary - PED
William M. Mahlum - Mahlum and Associates
_ � _ _ � �/�!���
� Districf Energy Services, Inc.
�
76 West Kellogg Boulevard
St.Paul,MN 55102-1611 RECtIVED
(612)297-8955
FAX(612)221-0353
� SEP 9 �gg� �
RECEIVED
OFFICE OF THE DIRECTOR
DEPARTMENT OF FINANCE G�P 61991
September 6, 1991 �ND MANAGEMENT S�RVICE�
�ITY CLERK
iris. 3rloily o°Rourke
City Clerk
City of Saint Paul , _
386 City Hall �
St. Paul, MN 55102
Re: Amendment to District Cooling Service Agreement
Dear Ms. O'Rourke:
Pursuant to Section . il(f) of �the district cooling franchise
(Ordinance 17816) , the attached amendments to the District
Cooling Service Agreement are filed herewith.
.
The required approval by the City Council for amendments to
Articles VI, VII and XXI will be requested in connection with
pending actions on the district cooling financing.
Sincerely,
�
Rudy Br olf n :
Vice President
cc: Richard Gehrman� - Director of Finance and Management �Svcs.
Tom Weyandt, James Hart - Office of City Attorney
William M. Mahlum - Mahlum and Associates
Richard H. Martin - Briggs and Morgan
\rabldcamd�i.itr
^ : �i- /�7�
FIRST AMENDMENT TO ARTICLE I .
� of the
DISTRICT COOLING SERVICE AGREEMENT
• by and between
District Energy Services, Inc. ("District Services")
and
. ("Customer")
WHEREAS, the parties have executed a District Cooling Service Agreement dated
, 1991; and
WHEREAS, certain changes in Article I of the Agreement are required to more accurately
reflect plans for the initial District Cooling System; :•
NOW THEREFORE, the parties do, in consideration for the mutual promises, acts and
actions set forth hereafter, agree as follows: . .
Article 1.6 of the Agreement is amended to read as follows:
. 1.6 On or before September 30, 1991, District Services shall deliver to Customer a financial forecast
of the operation of the district cooling system through fiscal year 2001, examined by an independent
accounting fum, together with the Cost Allocation Agreement containing the allocation proce�ures
referred to in�ections 6.7 and 7.3. If, in Customer's sole judgment, the rates in such forecast �
constitute an unacceptable increase from the Demand Rates set forth in Article VI as amended for
Fiscal Years 1993, 1994 and 1995, Customer shall have ten (10) business days from receipt of said
� forecast, not including day of receipt, to notify District Services, in writing, that Custvmer terminates
Customer's obligations under this Agreement. Failure of Customer to provide timely notice of
termination shall preclude Customer from terminating this Agreement pursuant to this Paragraph 1.6
and Customer shall continue to be bound hereby, provided that the total Initial Contract Demand of
all customers who do not submit notices of termination�together with the effective Contract Demand
reoresented bv the Pavment Assurance Agreement is at least 4;8A8 3,394 tons. District Services
aclmowledges that Customer will rely upon the written forecast of Demand Rates, as delivered, in
determining whether or not to provide a notice of termination. Customer acknowledges that,
subsequent to the eapiration of the ten (10) day notice of termination, District Services, its
mortgagees, lenders, contractors, vendors and others shall be acting in reliance on the fact that
Customer has not terminated this Agreement and shall be bound hereby. Following expiradon of the
ten day period for customers to review District Services' financial forecast pursuant to Section 1.6
and prior to completion of the sale of any bonds to finance the District Cooling System, District
Services shall confirm to Customer in writing that the total Initial Contract Demand of all customers
who have ezecuted the District Cooling Service Agreement and who have not submitted notices of
ternaination pursuant to Section 1.6. tog,ether with the effective Contract Demand represented by the
Pavment Assurance Agreement is at least 4,9AA 3,394 tons. . �
�e .
1
_ � �
IN WITNFSS WHEREOF, Customer and Districi Services have ezecuted and delivered this ,
Amendment as of the day of September, 1991.
CUSTOMER: ' DISTRICT ENERGY SERVICES, INC.:
By By .
Please PrintJType Name Please Print/Type Name
It� Its
.. . . By . . . _. .... .. . � .. _ . . •
Please Printll'ype Name
Its �
, �
,� 2 .
�
. � �
� � FIRST UI�IIFORM AMENDMENT
TO THE DISTRICT COOLING SERVICE AGREEMENT
WHEREAS, the District Cooling Service Agreement provides for Uniform Provisions which
shall be identical for all customers and which may be amended pursuant to Article XIX; and
WHEREAS, District�Energy Services has been requested and has agreed to propose certai.n
changes ia the Uniform Provisions which are beneficial to customers;
NOW THEREFORE, it is agreed by Customer that as of October 8, 199I, or upon adoption
by the Saint Paul City Council of a resolution of approval as required under the district cooling
franchise ordinance, whichever is later, the District Cooling Service Agreements by and beiween
' District Energy Services, Inc., and its customers shall be amended as follows:
1. Fized Demand Ra#e fo:FY �995.
� Amend the table of fized demand rates in Section 6.2 to read:
Avnlicable Rate Period Demand Charge Rate
• �e�-�9�A ril I 3-Sept. 1993 a18.14 per ton per month
Oct. 1993-Sept. 1994 $18.81 per ton per month
Oct. 1994-Sept. 1995 $19.58 per ton ger month
2. Waiver of 30-Day Notice Period upon Demolition of Building.
A.mend Subsection 15.2(a) to read:
, "(a) Customer's building is permanently abandone�, destroyed, or demolished the 30-
dav period does not appl�► to destruction or demolitionl or substantially destroyed or
demolished for which rebuilding or substantial repairs ue not undertaken or planned
within six (� months following such destruction;"
3. Deleiion of Expansion Reserve Surcharge. .
Amend Subsection 21.1(2) to delete the phrase "and any advances from the Expansion Reserve fund
established below," and delete Subsections Z1.2 ihrough 21.4 in their entirety.
APPROVED BY CUSTOMER
By Date
Please Print/Type Name
Its � .
kabWeumead
Sepcember 6, 1991 .
. - �X�� e ��
:o=
� CITY OF SAINT PAUL
INTERDEPARTMENTAL MEMORANDUM
.
TO: Councilmembers:
Tom Dimond
Bob Long
Paula Maccabee
Janice Rettman
Dave Thune
FROM: Richard Gehrman �v
�
SU&T: Attached letter to Rudy Brynolfson, District Energy,
Saint Paul, Inc.
In reference to City Council Agenda, Tuesday, September 17, 1991,
item #3 and item #4, I am attaching a letter, dated September 12,
1991, which was sent to Rudy Brynolfson, District Energy, Saint
Paul, Inc. , and was not included with the other material for
today's City Council meeting.
RG/rb
attachment
(dist.ener) .
- � ::. �r��7�
' � 4,``�'�T*�.; CITY OF SAlNT AUL
_- ; � DEPARTMENT OF FINANCE AND MANAGEMENT SERVICES
� nnu mn .
m� !uu �
. �
.... RICHARD A. GEHRMAN, DIRECTOR .
JAMES SCHEIBEL 234 City Hall,Saint Paul,Minnesota 55102
MAYOR (612)298-4637
Fax(612) 292-7786
September 12, 1991
Rudy Brynolfson �
Vice President
District Energy, Saint Paul, Inc.
76 West Kellogg Boulevard
Saint Paul, MN 55102-1611
Re: First Uniform Amendment to the District Energy Services
Customer Service Agreement
Second Uniform Amendment to Hot Water Delivery Agreement
� Dear Mr. Brynolfson:
A preliminary review of these two documents, and the respective
franchises, leads me to conclude that the cooling agreement must
be rejected as an incomplete filing. In addition I disagree with
the idea that the Payment Assurance Agreement can be approved .
with only a change to section 1.6 of the Customer �Service
Agreement. Finally, I also disagree with the idea that the
Incentive Rate Proposal only requires approval of the submitted
document.
The cooling franchise requires that DES file the requested
changes with myself and the City Clerk. The application for
modification must include statements of all material facts,
opinions and evidence supporting the application. There were no
documents accompanying the request, not even a copy of the
"Payment Assurance Agreement. " The request purports tv change
only section 1. 6 of the Customer Service `Agreement. This section
allows for automatic approval of any change that is not rejected
by the City Council within 30 days of filing. This letter
rejecting that filing is designed to toll that 30 days, in large
part so as to require that supporting documents be provided to
the City for review and comment.
It appears to me based on the very sketchy information I have
been given, that the purpose of the Payment Assurance Agreement
is to obtain regulatory approval of a plan� whereby District ,
.� .�-°'�. 3
�
.. � .
Energy (heating company) guarantees payment of up to 500 tons of
demand charges incurred by District Energy Services (cooling
company) . Apparently this guarantee will exist until such time
as the cooling company obtains 3400 tons of customer demand, with
the guarantee decreasing as new customers sign up. Absent any
detail, it would appear that such a proposal represents a change
at least in the cost allocation requirements of Section 11 of the
DES franchise. As you know the City regulatory staff has
concerns about possible cross utility subsidization, and the
Payment Assurance Agreement is a key point of that concern. We
are considering obtaining some outside e�pertise to assist us in
dealing with this cross-subsidy issue. Another issue is the
possibility that the Payment Assurance Agreement may require some
modification of the heating franchise. Again, the lack of
information prevents any definitive decision on this point.
The extension of the incentive rate plan is rejected because it
. requires an amendment to the heating franchise. Section 6 A(1)
et seq of that franchise specifically approves the first
incentive rate plan with references to dates, and at a minimum �
that section of the franchise will require modification.
It is my feeling that nearly all of these filings are
inter-related, and my desire is to have them all move through the
Council together, most likely along with the 1992 heating rate
case. To that end I ask that you prepare your supporting
materials as required by the franchise, and re-file the requests
when those materials are complete. It would probably be best if
those materials, including any proposed language for resolutions,
be reviewed by all of the various parties and to the extent
" possible agreements reached prior to bringing the matter forward
in Council. I appreciate your desire to move this matter
forward, but I must point out that things such as your September
11 letter to Councilmember Thune along with a draft resolution we
have not even seen, is in my opinion counter-productive. My
responsibility to oversee the regulatory responsibilities of the
City cannot be ignored, and cooperation will most likely produce
a result that is acceptable to all parties.
Sincerely,
, �i�E%� �
I���-' � ���c
Richard Gehrman .
Director of Finance
cc: Mayor Scheibel
Council President Wilson •
Councilmember Goswitz
Jane McPeak
City Rate Review Team
� Ex ���� T �� .
� �� Districf Energy ST. PAUL, �N�. _
�
76 West Kellogg Boulevard
St.Paul,MN 55102-1611
FAX(6 2)221-0353 p S' �CC/��c`
��FpF,�F F�j, O
U qi�T'1'�F,�,T'S'F �991
September 17, �99� ��F�,F�o°���o
TS q� ,Q
F,�`�c�'S
Richard Gehrman
Director of Finance and Management Services
City of Saint Paul
234 City Hall
St. Paul, MN 55102
Re: First Uniform Amendment to the District Cooling Service
Agreement ("Cooling Amendment")
Payment Assurance Agreement
Second Uniform Amendment to the Hot Water Delivery Agreement
("Heating Amendment")
Dear Mr. Gehrman:
This letter, on behalf of both District Energy St. Paul, Inc.
("District Heating") and District Energy Services, Inc.
("District Cooling") , is in response to your letter dated
September 12, 1991, regarding the above subjects. As detailed
below, that letter contains a number of erXoneous statements and
conclusions regarding our filings dated September 6, 1991, and
the alleged need for heating and/or cooling franchise amendments
in connection with the above matters, and we strongly disagree
with it.
1. Coolinq Amendment
Your letter states that the Cooling Amendment "must be rejected
as an incomplete filing" . This statement appears to be based on
Section 24 of the cooling franchise, which deals with
applications for modifications to the franchise or changes in
Schedule A. The Cooling Amendment is not an application for a
modification of the franchise or for a chanqe in Schedule A; it
is a document by which our customers directly agree to change
certain language in the District Cooling Service Agreement.
Accordingly, the requirements of Section 24 do not apply.
Richard Gehrman
September 17, 1991
Page 2
Amendments to the District Cooling Service Agreement are governed
by Section 11(f) of the cooling franchise, which provides that
"[a]mendments . . . shall be filed with the City Clerk at least
thirty (30) days prior to the effective date of such . . .
amendments". The filing of the Cooling Amendment with the City
Clerk on September 6, 1991, is in complete compliance with the
filinq requirements of the coolinq franchise.
You correctly state that the Cooling Amendment is effective if
not rejected by the City Council within 30 days of filing. The
franchise ordinance states that such rejection must be by way of
"a resolution by the City Council disapproving such amendment. "
Thus, your letter of September 12, 1991, is insufficient to
"reject" the filing. The f iling remains in effect.
2. Payment Assurance Actreement
In your letter, you "disagree with the idea that the Payment
Assurance Agreement can be approved with only a change to
section 1. 6 of the [District Cooling) Service Agreement. " We
hold no such idea. The amendment to section 1. 6 relates to the
understanding between District Cooling and its customers
regarding minimum tonnage requirements for the initial district
cooling system, not whether the Payment Assurance Agreement
receives City approval.
As discussed over the past several months with the district
cooling financing team, including City representatives,
resolution lanauage approvina the Payment Assurance Agreement
will be presented for City Council action in conjunction with the
cooling financing (see draft attached) . While we fully expect
appropriate City staff review in conjunction with such action,
City staff persons have been aware of this agreement since at
least July of this year and have had ample time to explore their
issues in connection with it.
We are aware of no language in the heating or coolinq franchise
which needs modification in connection with Pavment Assurance
Agreement. Your letter raises the question whether the Agreement
"represents a change . . in the cost allocation requirements of
Section 11 of the [cooling] franchise. " Section il of the
cooling franchise as published in the Leqal Ledger contains no
cost allocation requirements. Neither the Cooling Amendment nor
the Payment Assurance Agreement contravene, in any manner, the
provisions of Section il or any other section of the cooling
franchise.
Richard Gehrman
September 17, 1991
Page 3
'
The Payment Assurance Agreement is simply a business arranctement
between District Heating and District Coolinct regarding the
timing of certain pavments. District Heating, to secure the
future benefits expected from being able to share its fixed costs
with a growing district cooling system, agrees to defer receipt
of certain cost sharing payments until cooling customer demand
reaches 3 ,400 tons. As a result, initial cooling customers are
assured that their rates will be reasonable, while heating
customers are in the same position they would have been without
district cooling. Above 3,400 tons, district heating customers
receive full current cost sharing payments; above 4,200 tons,
previously deferred costs are also recovered.
The policy issue of whether or not there is a reasonable and
beneficial relationship between the heating customers and the
advancement of district cooling was addressed by the City
Council's recent action approving the FY 1991 district heating
rates, including district cooling development expenditures.
The City's role in regulating district heating and cool'inq is
fundamentally different from the statutory mandates imposed on
the Minnesota Public Utilities Commission and those it requlates.
To the extent the alleged "cross-subsidy" issue is within the
limited regulatory role of the City, the City Council has
discretion to approve, as it did, the decision by District
Heating to provide a modicum of initial support for the cooling
project from which the heating customers are expected to receive
substantial long-term benefits.
3 . Heatinq Amendment
Contrary to the position taken in your letter, we submit that the
extension of the heatinct incentive rate t�lan does not require an
amendment to section 6A(lj of the heating franchise. Neither
that section nor any other provision of the franchise requires
that the extension of the plan must be by way of a franchise
amendment. The features of the plan as previously approved are
not being changed, and its extension by an amendment to the date
provision in section 1. 6 of the Hot Water Delivery Agreement does
not contravene any provision of the franchise. Under
section 6 (f) of the franchise, no City Council approval is
required. Our September 6, 1991, filing remains in effect.
In closing, I would like to echo your call for improved
cooperation in these matters. Developing a district cooling
system to meet the needs of the Saint Paul community is a
difficult enterprise, one which requires careful balancing of
Richard Gehrman
September 17, 1991
Page 4
regulatory concerns with a recognition of the needs of a start-up
project and the restricted choices available in an environment of
limited resources.
The development of district cooling is in the home stretch of a
marathon which began in late 1989 and is approaching the finish
line of bond closing on October 15. The issues involved have
been studied at length in both the financing and rate review
processes, and many decisions have been made, including those by
the City Council in approving the FY 1991 heating rates and
various elements of the cooling financing. Based on those
decisions, significant resources have been expended to bring the
project to its current stage. We are proceeding in good faith,
following the franchise procedures as we understand them, to seek
the final approvals necessary from our customers, the HRA, and
the City Council.
To the extent there are disagreements on procedural or
substantive issues, we urge that they be addressed from a
problem-solving approach, with due recognition of the tight
timetable for meeting project deadlines and the importance of
what is at stake for Saint Paul.
Sincerely,
Rudy Br 1 f s
Vice President
Encl: Draft resolution approving Payment Assurance Agreement
cc: Mayor Scheibel
City Council Members
Ken Peterson, Jane McPeak, Tom Weyandt
Jim Snyder, Lori Lee, Bruce Hoheisel
Hans Nyman, Christina Stalker, Joyce Anderson, Andrew Kasid
District Cooling Financing Team
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' ``'T* �'• „ � � CITY OF SAINT PAUL
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- : ������������ e � I . OFFICE OF THE CITY ATTORNEY
: � �x � � �
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� JANE A.MC PEAK, CITY ATTORNEY
800 I.andmsrk Towen
Saint Paul,Minnesota 55102
, 612-298-5121
7AME$ SCHEIBEL FAX 612-298-5619
MAYOR
September 24, 1991 �
The Honorable James Scheibel Councilmember Paula Maccabee
Office of the Mayor 714 City Hall
347 City Hall St. Paul, Mn. 55102
St. Paul, Mn. 55102
Council President Bill Wilson Councilmember Janice Rettman �
719 City Hall 716 City Hall
St. Paul, Mn. 55102 St. Paul, Mn. 55102
Councilmember Dave Thune Councilmember Roger Goswitz
702 City Hall 701 City Hall
St. Paul, Mn. 55102 St. Paul, Mn. 55102
Councilmember Robert Long Councilmember Tom Dimond
713 City Hall 706 City Hall �
St. Paul, Mn. 55102 St. Paul, Mn. 55102
RE: District Heating/ District Cooling
Dear Mayor Scheibel and Members of the City Council:
This office has been asked to approve a draft resolution �
accompanying Green Sheet 12387, the resolution dealing. with the
issues of a cost allocation agreement and a payment assurance
agreement for the district cooling franchise. We are not able to
approve this resolution for a number of reasons.
1. The resolution refers to a Cost Allocation Agreement. This
agreement was not presented to this office for review, nor is it
attached to the Resolution which references it. �
2 . The resolution purports to allow the City Attorney to approve
future modifications to the cost allocation agreement. The "
franchise requires the adoption of a cost allocation agreement and
due to the connection between that agreement and rates, it is our
opinion that it is necessary to obtain City Council approval of
future changes to the cost allocation agreement.
� ' , (:;� ���"
3 . It appears that the intent of the documents presented,
primarily the Payment Assurance Agreement, in essence negates the
intent of the cost allocation requirement of the franchise. To the
extent that it does so, it is our opinion that the change must be
occasioned by the passage of an ordinance, not a resolution.
4 . The issue of the allocation of the costs between these
utilities is tied to the rates charged by each utility and falls • -•
within the rate regulatory authority of the City Council. The
propriety of what has been labeled a "cross subsidy" is at least an
issue that requires the presentation�of evidence, and eventually a
policy decision by the City Council. To date no evidence has been
presented to the Council, and therefore we do not believe it is
appropriate to approve a document such as this, the legality of
which rests on these facts and subsequent findings by the Council.
Our opinion is based on the position that the rates charged to the
customers must be fair, reasonable and non-discriminatory, and that
one of the considerations in making this determination is whether
or not the items being charged for-are things that are used and
useful to the customers. Thus it is a fact determination for the
Council whether or not the cost allocation plan results in rates
that are just, reasonable and nondiscriminatory.
5. In prior correspondence District Energy Services and District
Energy purport to have the authority to engage in this Payment
Assurance Agreement through a contract between the two companies,
which has been approved by the Board of Directors of those
Companies. This office is not prepared to accept that such an
assertion is legally permissible without further consideration,
particularly when the result of such a contract involves an impact
on the rates charged customers. We have always taken the position
that the City Council has retained broad regulatory authority, and
that this authority cannot be usurped merely through agreement of
the Boards of Directors of the respective companies.
Very truly yours, '
%u.� �Q-. 7��c.c-�'cc�
Jane A. McPeak
City Attorney
4�-�
�
Thomas J. Weyandt
Assistant City Attorney
cc: Rich Gehrman
Stacy Becker
Jim O'Leary
�X.�I ��� �
LAW OPFiGE
. tv� �4HLURd �c ASSOC [ ATEy
A rROFE5510t1AL ASSOCIATION
' SUlTE 2322, NORTH CENTRAL LIFE TOWES
44s MINtJE507A 5TR£ET
5.41NT PAUL. MINNESOTA ,'',S1G1
7ELEPHONE
I6t21 292-iSg5
WILIIAM hi. MAHLLFt s� �,�rr.�er 26
CHRIS7tN^ STALK,ER p � ��SI'
�AX:�612-2$2-97G9
The honorable James �c:�eibel
riay�r of the City of Saint Paul
347 City Ha:.l '
St. Paul, tdinr►.esota 55102
Metr.bers of th� City Co•ancil
Cit�y of Saint Paul
7th r laor, Ci�y Ha11
St. Paul, I�Iinr.esota 55102 �
RE: DISTRIt�'T ENERGY aER'JICES, INC.
DISTRI�T ENERGY 5�'. PAUL, INC.
COST ALI�OC:ATICI� AND PA'�:YdT ASSU�2ANCG AGRE�A�NTS
GREEi�ISHEEI N0. 12387
Dear Mayor 8cheibzl and Memb�rs of the City C�uncii:
This letter is in response to tha September 29, Z991 ietter yau
received f rc�rn J�ne McPeak, City A�tnrne�, and Thomas Weyand},
Assistant City A�torney, regarding the caption�d met�ers.
Stated blun�ly, the City Attnrne�'s Iet�er is a pc�orly crafted
att�mpt to create issues wne�e none genuir_�ly eais't . How�ver,
our clients are cnM�ell�d to r�spand �rima:iZy because tY�z
assertions containcd �n t�i� letter ar� p�tent y w�or�.
Th� City Attorr.ay' s o££i.c� asserts that it is n�t able to
approve the c�ptionec� reso?�:tian, appr�vir.g the Cost A21�caticn
and Pa-,�rnent Assuranc� ��repmenzs b��Ewezn dis�?-i.C� heating and
di.strict cooling campani�s, f�r five "reasons. " Set forth
below, in f�rmat si.milar �o the Cit� Attarnej's l�tter, is the
j�int r��anse o� the r:ompa�i�s tc� the £ive stated reas4ns ,
1, Th� "missir�g" .�greLmer��s. �'he Cost AL�rJC3�I071 I�greement
{t�:e "CAA") was preserited t� 2�ir. �eyandt on at 2east two
accasions pri�r to March ].9r 19�1. Mareover, �r� �urrent
dra�ts o£ bcth the C.AA an�l the Payment Assurance P.qre�:r��nt (the
«PAA") were t'lelivGr�d to Mr. We�►andt' s offic2 on Sep�ember ��,
1991.
2. Cit,y Attorney approva]. o� "�uture changes" to thE
�.greements . The resolution language providing foL Council
approval of th�e Agr�ements "���an�-i�llY in the forrns
attached" permits only such subs�quent n-substantiv� changes
� � �il-l��
The H�raorabie� James Sci��ibel and
Mernbers of the Ci�y Cauncil.
September 26, 1�91
Page 2 .
as may be ner,�ssar� and as ��:proved by the Ciry At�c�rney.
(�mphasis s�pplied) . e� is ��c�ec�ed tha� ar.y sabstan�ive
changes pxiar t� clo�•i�g would no� be app;.oyed by the Ci�y
Attorne�y absenfi: Council ap�roval. The a�vi.o�i� intent and
effect of �h+� resol1aticn 3ar.gua�a xs to facilatate c�.o�ing on
thE finun�in� by �li�win; ni.r_or changes to the Aqreements arioz
to closing .
3 . Fr�nch�.se ii�gati+�n �.nd s�rciinaace ��. xes�2L�:i.�n, Th��
City At�ozney all�ges, a.n it�r� number 2, that the district
cooling £ranch�sa "rz�uires the ada�tion o� a cest alloca'tion
agreernent. " In itzm r.u.nber 3, l�owever, thE Cit� I�,tt�rr:�}�
a�ser'ts that company �doptir�n o� the GA.� and PAA "n4gates th�
intsnt" of this a1lEged cost �al,ocati�n requiremen�.
Tc� tre e�tent that a �r�st al�ocaticn rEquiren:2nt exis�s,
�,�n�thex b� cpe�ation of the franchise or the cus�om�r
contrac��, the CA?� fulfills, Xather thar� negates, that
r�qsirementf .� t::G cnmpanies are binding th�msel�es to �
pr�cedtare f.or a�.locat?ng join� cests to the companl r`sponsi�le
rflr t3��s� costs. Th�re i.s no "change" to t�e fra�.cn�se or to
anythinc� els� tii�� t�ust be approved b� oxdinance or, �or that
natter, by i�salu�:i�n, In poinf of fac�, t�;e district ��c].inc;
�ranchise cani:air.s no rt�Lirem2nt tna� the �ampany' s �dopti�r
cf any cos� alloca�ian procedure� nus� b� appro•ren by L•he
Council at a?� .
Sir�i3arly, the PA.A �oes noic canstitute a chang� to or negatic^.
of the f ranchise; the �AA is m�reZy an instr�ament g�ve�r.ing th�
timin� of cFrtain payn;�nts . �he PAa does not r�suit in nigl:�r
rai:es £or the ratepayers o� e�t?-,�r campany and ha� no effe�t on
the a?3oca�ion af �he .resp�c�ive costs thereof.
T�i� compani�� a�e requ�s�ir.q CLUncil appraval nr tne A�reaments
� for the comfort of band and und�rwriter's ccunsel. To tY�e
2sten� L-hat any apprcval is rzqi:ir�d, 5L'Ch apF�ova1 wauld Y;e,
at most, by �:our.cil resnluticn, ar�d certainly nat by or�inancz.
4 . Just �n.c# zeas�nabl.e rat�s �nd t�e "'cr�ss-subsic�y. °
A1thoEiah the City tittorne� conten�s that "th� iss�e of �ne
allocati�n s�f the �^asts �e�*,�ezn �heatir.g ar.d coolinc�] is tied
to the rat�s char��d b� each, " the City Attorney' s office
seeminyZy do�s nGt understand }hat it is enly wi�nou't the �Aa
that there could be th� potential icr a "crG�s-s�.�hsz�y, " 2he
• purpose and effect o� the CAA i� to cause heating ratepa�Ters tQ
p�y i;he costs ass�cia�Fd with provi3it:g heating ser�ice, while
cooling ratep�yer� �ay the costs associated w�th provid�r.g
cooling; in �o doir��, rat�pa�ers pay "just, r2asonable, and
The Hor.orable Ja�+zs Schei��l and
A':embers cf the Cit�• Council
Sept�mber 26, 1941
Page 3 .
nan�is�riminatory" rates and n�ithei cus�omer gro�►�
"subsi3izes" the otnex.
The requirer��nt that I3ES' rat2s �� just, reasanable, �r�d
r_ondiscrimi?�a�ory i� d�rivef3 from the £rar.chise snd from no •
other source. T'he City �tterney' s off�ce �ssexzs that "cne af
t'r_e considsration� ir� ;naki.ag t�iis detsrmin3�ion is whether or
not the i�ems �einr� charged for ar� thin�s that ar� usec� an�
useful �o the cua�oraers • " Th�s assertion, trl� caus� �f m�st.°h
misunderstar.ding in �e�en�: �istrict �heatinq rate res�iews, is
clearly erroneous .
�t is a aeneral grinciple uz utility requlatory 18>> tha� only .
pr�perty "used an� usesuZ" in providing service t� rat�payer�
m�y be inclu�nd within tY,z "rate base." Hawevez, thi.s concept
is releyant only in the cortea� of s�atutory rate regulatior. of
for-pro�it utilitie� . It is �he rate �ase on which the utility
is entitled �o earn a retu_:^. on its investe3 �;apital .
��_nrQ�� ��ilitiAs earn a rate of re�urn; bo�h DES an�
Da.str�ct Er.�rg� arz non-�ofit utiliti:2s w�th cost-based
ra�es. i�ioreaver, DES anc� District En�ergy are regul3+�ed
purstian� �o thsar respective franct2ises, not th� Minnesota
Public Utili.ta.es t'.i3ii�311i557LU31 statutory fra:r:eWOrk. The "rate
base" and "used a�ld useful" de�erminatiens are meaningless xn
the present contezt.
The Szpternber 24, 1�91 lett�r is na± the £irst time that
phantom i$sues ha�re baen raised in a seeming attempt tc
frustrate th� reasan�ble efforts of the heating � an� coolir�a
companies . Un£oi�unat2ly, khe contir�ued as�2r�ion o£ �u�h
non-issues was�ES valuable time and� resourcea, which could
o�herwise bP devot�d tQ legi�irnats, s�ibstan't�ve matters.
Distric� Er�2rgy an� DES we�come any ques�ions you may have witr
respect i:a the foregning.
Very �zuly yours,
T �& A�y�, TE�
�.
BY: C RISTINA STA�]KER
C5: jb/3544J
cc: Jane 7ncPeak, Tliomas W�}•andt, John �McCormick, �en Peterson,
R?�hard Gehr�nan, 5tac� Becker, �:ames O'L8�=y� hans C.
Nyman, Ruc3y Sryn�ltson
�I/��8�
' �� District Energy ST. PAUL, �N�. ��„_._
� �
76 West Kellogg Boulevard
St.Paul,MN 55102-1611 SEP �3 � 1991
(612)297-8955
FAX(612)221-0353 oFF►uE ��� rr�E p�R�CroR
D�F,��•r�,�LN7 l?F FINANCE
�:;VG N�ANAGEMENT SERVICES
September 30, 1991
Richard Gehrman
Director of Finance and Management Services
234 City Hall
St. Paul, MN 55102
Re: Cost Allocation and Payment Assurance Agreements
Dear Mr. Gehrman:
This letter is in response to your request for "evidence'�
regarding the reasonableness of the Cost Allocation Agreement and
Payment Assurance Agreement between District Energy St. Paul
(district heating) and District Energy Services, Inc. (district
cooling) .
As you may recall, the FY 1991 district heating rate case
involved extensive staff review of District Energy St. Paul's
support for the development of a district cooling system. It is
our position that since the City Council's action on the FY 1991
heating rates this "issue", to the extent it was a legitimate
issue, has been settled.
The supplemental information provided to James A. Snyder on
April 24, 1991, included over three single-spaced pages of
description, justification, and evidence of the reasonableness of
district cooling development activities. A copy of the Cost
Allocation Agreement as of March 8, 1991; was attached as an
exhibit.
Additional information provided to City Council members on
May 10, 1991, estimated the annual savings to heating customers
from the cost sharing payments made by cooling customers at
$100, 000 to $150, 000 per year, with a net present value of over
$1, 000, 000 over the next 2o years.
After considering this information along with the staff report,
the City Council on May 30, 1991, passed Resolution 91-199
approving District Energy' s FY 1991 heating rates. In the words
of this resolution, the information furnished by District Energy
demonstrated that "the rates are based on . . . appropriate
exercise of manaqement discretion and are just, reasonable, and
non-discriminatory". '
` �'/V �
�
' Cost Allocation and Payment Assurance Agreements
September 30, 1991
Page 2
To facilitate the timely construction of the initial district
cooling system for the convenience of the City Hall/Courthouse
and other initial customers, the Board of Directors of District
Energy St. Paul on June 13, 1991, approved the concept of the
Payment Assurance Agreement. Under this agreement, as further
developed in consultation with City representatives on the
district cooling financing team, certain cost sharing payments
may be deferred until district cooling demand reaches 3,400 tons.
Initial cooling demand is currently 2,966 tons; it is entirely
possible that this could increase to 3,400 tons or more by the
time the system begins operation in 1993. If this occurs, the
heating customers will immediately receive the full projected
benefits from district cooling, and the Payment Assurance
Agreement will have no impact. To the extent this does not
occur, the benefits to heating customers from district cooling
will be less substantial but nevertheless positive, as
illustrated on the attached District Heating Demand Rate
Comparison.
District heatinq customers are better off with district coolinq
than without it. This, along with the environmental and other
community benefits of district cooling, is why District Energy
has continued to work strenuously to make it a reality for
Saint Paul.
We believe that the information now provided, together with the
extensive information and documentation previously provided in
connection with the FY 1991 heating rate case, the FY 1992
heating rate case, and the district cooling project discussions
which have been going on since early 1990, is ample evidence of
the reasonableness, not only of the Cost Allocation Agreement and
the Payment Assurance Agreement, but of the entire district
cooling project as a whole.
Sincerely,
,
� ' '
Rudy B ynol n
Vice President
Encl: District Heating Demand Rate Comparison
cc: James O'Leary, Thomas Weyandt
Hans O. Nyman, William M. Mahlum
\rab\payassur.ltr ,
�� . � 9/-/� ��
� PAYASSRX.WK1 19-Sep-91
DISTRICT HEATING DEMAND RATE COMPARISON
(FORECASTED 1994)
WITHOUT WITH WITH
DISTRICT COOLING AT COOLING AT
ITEM CALC. COOLING 2900 TONS 3400 TONS
A. TOTAL DEMAND-RELATED GOSTS $7,400,890 $7,400,890 $7,400,890
B. NET COST ALLOCATION PMTS FROM COOLING 0 97,685 111,568
C. PAYMENT ASSURANCE DEFERRALS 0 (77,973) 0
D. NET COOLING CONTRIBUTION B-C 0 19,712 111,568
E. DEMAND REVENUE REQUIREMENT A-D $7,400,890 $7,381,178 $7,289,322
F. AGGREGATE DEMAND (KV1� 141,000 141,000 141,000
G. DEMAND RATE($/KW/MO) E/ F/ 12 $4.37 $4.36 $4.31
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