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HomeMy WebLinkAbout7A - Utility Franchise AgreemenSTAFF AGENDA REPORT AGENDA if: PREPARED BY: SUBJECT: DATE: 7A KEN SHERMAN, ENGINEERING TECHNICIAN CONSIDER APPROVAL OF REPORT ON UTILITY FRANCHISE AGREEMENTS (RIGHT OF WAY ACQUISITION, UNDERGROUNDING AND FRANCHISE FEES) MARCH 6, 1995 INTRODUCTION: BACKGROUND: DISCUSSION: The purpose of this Agenda item is to consider three (3) issues: 1. Current ordinances and statutes related to undergrounding of public utilities. 2. Recommended changes in city ordinance regarding undergrounding of utilities including possible negotiation of franchise agreements. 3. A franchise fee as a source of either general or specific revenue. On December 5, 1994, the Council issued directive 94-128 to the engineering staff to provide a report about the city's underground utility ordinance and whether or not modifications should be made to assure that utility suppliers underground their facilities. This directive was intended to resolve issues raised by proposed undergrounding of electric utilities on County Road 44. 1. The current ordinances and statutes related to undergrounding of public utilities. The only city ordinance specifically addressing undergrounding of public utilities is Title 6, of the subdivision ordinance, chapter 6, section 9, paragraph A, which reads as follows: In all new subdivisions requiring the installation of utilities, all utility cables and pipelines shall be placed underground. Transformers and pad mounted switching centers for electricity, line treatment and distribution points for telephone and television services, and pressure regulating and monitoring devices for natural gas, will be allowed to remain above ground. Any other facilities Or other similar associated utility services constructed on public or private property shall be placed underground. Currently, there are no city ordinances concerning the undergrounding of existing power and telephone lines. There are no State Statutes applicable to undergrounding of utilities within the framework of a franchise agreement. 16200 Eagle Creek Ave., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OP~NITY EMPLOYER . Recommended changes in the city ordinance regarding undergrounding of utilities including possible negotiation of franchise agreements. The engineering staff obtained utility franchise agreements and ordinances relating to public utilities for the following 14 cities: CITY COUNTY 1. Minneapolis Hennepin 2. Coon Rapids Anoka 3. Robbinsdale Hennepin 4. Farmington Dakota 5. Lester Prairie McLeod 6. Bloomington Hennepin 7. Circle Pines Anoka 8. Bronson Otter Tail 9. Brooklyn Park Hennepin 10. Buffalo Lake Renville 11. Arden Hills Ramsey 12. Faribault Rice 13. Savage Scott 14. Champlin Hennepin The financial directors and city engineers of several of these cities were interviewed by phone as well. Information was also obtained from St. Louis Park and Northfield. St. Louis Park has had an ordinance requiring utilities to underground existing above ground lines in the event of city improvements for over twenty years. Although St. Louis Park has attempted to apply this ordinance for city improvements, they have not successfully negotiated undergrounding at the utility's cost. In 1991, the City of Northfield passed an ordinance providing for a program for undergrounding of existing utilities. This legislation was driven by public support appeal and is funded by special assessment. In 1972 the City of Minneapolis negotiated a franchise utility agreement with NSP which instituted a program of undergrounding existing public utilities at NSP's cost. This was the only agreement found in which an undergrounding effort for existing utilities was funded by the public utility. This negotiation was conducted at a time that NSP had a favorable surplus of cash. The' program continued until the late 1970's at which time NSP petitioned for and was granted by Minneapolis, a release from the agreement. Minneapolis continues its policy of undergrounding existing utilities; however, the program has been greatly scaled back as it is now funded by the city. Based on research, staff has concluded that cities may direct public utilities to underground existing utilities in city right-of-way and even in county right-of-way, however, in virtually all cases the cost is borne by the city. Another consideration in undergrounding existing utilities is the cost to the private property owner. There are two components to this cost. -2- ISSUES: ALTERNATIVES: A. The cost of undergrounding a service from the property line to the building by the utility. B. The cost of modifying and reconnecting the meter socket from aerial to underground by a private electrician. The combined costs of this operation range from $1,000 to $2,500 for a residential service. This range is based on many variables, including length of run, upgrade to 200 amp service and whether obstacles need to be negotiated. Here again the costs need to be paid either by the property owner, city or utility. 3. Examine a franchise fee as a source of either general or specific revenue. The attached table labeled Appendix A identifies cities collecting franchise fees based on a study conducted in 1987. The table shows the year the fee began, the percentage and the latest renewal date (at the time) and the then current franchise percentage rate. Also included is the rationale for the fee. The most recent fee negotiation is 1978 for Lake City. The most recent renewal shown is 1987 for East Grand Fork. Since 1987, other than renewals, it appears no city has successfully negotiated a franchise agreement with a utility. Both Circle Pines and Fridley tried and failed to impose a franchise fee. NSP aggressively pursued the development of opposition to this fee partly through a massive letter campaign. It is the stated position of NSP and Minnegasco that they will react in this manner to any effort to impose a franchise fee. The City of Prior Lake has deemed it desirable to underground existing electrical lines along the length of the proposed County Road 44 project. An estimate has been obtained from NSP for approximately $170,000. The City does not have funding for this work and NSP is unwilling to do this at its own expense. In a more general vein, the possibility of undergrounding all existing electric utilities within the City limits has been raised. A survey of Prior Lake revealed that of an approximate total of 3,700 homes, 890 or 24 percent had overhead lines. Excluding main feeder lines, the cost of undergrounding all existing overhead electric lines is conservatively estimated at $2,000,000. This does not include the cost of undergrounding cable and telephone. For undergrounding of electric utilities: 1. Do nothing. New construction in residential areas would continue to be placed'underground. Negotiation of a new franchise agreement is irrelevant as no utility will agree to underground existing utilities at its own cost. . Place electric utilities underground for County Road 44 only. The cost to the City of Prior Lake would be $170,000. For future city improvements each project could be reviewed for the desirability/affordability of undergrounding existing utilities. -3- RECOMMENDATION: ACTION REQUIRED: . Create a new policy of undergrounding all existing utilities. The city would have to bear the cost of all work in public right of way. Commercial and residential property owners would be asked to bear the cost of undergrounding their private service. For negotiating a franchise .utility fee: 1. Do nothing. . Negotiate new franchise agreements with the utilities containing language granting the City Council the right to impose a franchise fee at a future times. 3. Negotiate new franchise agreements with the utilities imposing a franchise fee of up to 5 percent of the utilities gross annual revenue. There is no source of funding for'undergrounding of electric utilities along the County Road 44 project. If the Council elects to underground these services, we will need to identify a funding source for the estimated $170,000 cost. Considering the political climate of the times and the likelihood of strong opposition by public utilities against a utility franchise fee it is recommended that no further action be taken on this issue. If at some time it becomes necessary to negotiate a franchise utility agreement it is recommended that language granting the City Council the authority to impose a utility franchise fee be included. The following paragraph typifies this language: During the term of the franchise hereby granted, and in lieu of any permit or other fees being imposed on the Company, the City may impose on the Company a franchise fee of not more than five percent of the Company's gross revenues as hereinafter defined. The franchise fee shall be imposed by a separate ordinance duly adopted by the City Council. The City Council s,b~uld discuss these issues and provide direction to the staff{~j.~with respe~~.~. AG036. ENG95 -4- I I I I I I · · °~ ,.oD @ 0 0 o o ~e I ! I I ! I I I I I I I ii i Ii I I I ! - I ! # I · ! I ! ! i !