HomeMy WebLinkAbout9A2 - City Code Section 314
MEETING DATE:
AGENDA #:
PREPARED BY:
AGENDA ITEM:
DISCUSSION:
16200 Eagle Creek Avenue S.E.
Prior Lake, MN 55372-1714
CITY COUNCIL AGENDA REPORT
MARCH 20, 2006
9 A (2)
Ralph Teschner, Finance Director
CONSIDER APPROVAL OF ORDINANCES RELATING TO FRANCHISES:
ADOPTION OF SECTION 314 OF PRIOR LAKE CITY CODE
ESTABLISHING GAS AND ELECTRIC FRANCHISE FEES
Introduction
The purpose of this agenda item is to consider an ordinance that would
establish both gas and electric franchise fees.
Historv
The City Council initially conducted a public hearing on December 19, 2005 for
the purpose of hearing public testimony regarding gas and electric franchises
and associated franchise fees. Notice was also placed on the City's website
and a brief excerpt regarding the public hearing was also in the December
Wavelength. No citizen input was received. Representatives from Xcel Energy,
Minnesota Valley Electric, Shakopee Public Utilities and Reliant Energy were
present and offered comments.
Current Circumstances
Presently approximately 16 metro area cities charge a franchise fee as
reported by the latest AMM (Association of Metropolitan Municipalities) survey.
In addition to this number CenterPoint Energy has indicated that they have an
additional dozen or so cities that are contemplating franchise fees. Based upon
these numbers it is anticipated that nearly 25% of all metro cities of at least
5,000 in population will have a franchise fee in effect by the end of this year.
City
Fee Method
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. 2%
USQf!e
!.'.pple Valley
Brooklyn Center
Burnsville
Chaska
Cottage GroY~mm
I Deephaven
I Hastings
I Hopkins
I Mahtomedi
New Hope
Oakdale
Richfield
! Robbinsdale
St. Louis Park
Is
$1.48
$0.35
.0063/kilowatt
$2.50
4%
$1.00
$1.30
$1.50
$0.50
$1.60
.............
4%
$1.25
$2.50
3%
www.cityofpriorlake.com
Phone 952.447.4230 / Fax 952.447.4245
The legal authority is provided by Minnesota Statutes Section 216B.36 which
states that, "any public utility furnishing utility services ... or occupying streets,
highways or other public right of way within a municipality may be required to
obtain a license, permit, right or franchise in accordance with the regulatory
acts of the municipality... Under the license, permit, right or franchise the utility
may be obligated by a municipality to pay the municipality fees to raise
revenue or defray municipal costs accruing as the result of utility operations or
both."
ISSUES:
All the utility companies were willing to implement the franchise fee as
proposed. Minnesota Valley Electric requested that the effective time period for
initiating the charge be extended from 60 days to 90 days to allow for
adequate software modification and testing. This provision has been
incorporated so that July would be the first billing period that the franchise fee
would appear.
There are a number of reasons that would favor the City in charging franchise
fees:
1.) The City needs to address the issue of cost recovery for money spent for
acquisition of road right of way and associated expenses such as the
installation of curbing, sod and landscaping in improving the public right of
ways. Over the past five years the City has spent in excess of $1.7 million
dollars for the purchase of right of way property. This property benefits not only
us, for our placement of streets and water and sewer utilities, but also the gas
and electric companies as well, although they have not incurred any expense
in purchasing the property.
2.) There is the issue of equity. The City currently has a franchise agreement
with Mediacom for utilizing city right of way for cable installation that imposes a
franchise fee of 5% of gross revenues plus a separate subscriber fee of .65
cents that is paid each quarter to the City. In the interest of fairness it would
seem that all utility companies should be regulated by a franchise agreement.
The one exception to this rule would be telecommunication companies
because they are exempt by federal law.
3.) One of the goals of the 2030 Vision and Strategic Plan is to identify and
develop alternative revenue sources for the City. Diversifying the city's revenue
base is important not only from a property tax perspective but also from the
standpoint of providing the City flexibility when faced with levy limitations
imposed by the State.
4.) Franchise fees would provide less reliance on the property tax and provide
the Council with additional funding ability to offset state aid shortfalls.
Franchise fees may be based upon a percentage of utility revenues, a flat fee
based upon usage or a fixed fee per account or meter. A significant number of
metro communities (16) are already charging franchise fees and many more
are considering this tool in balancing their non-tax revenues against increasing
property taxes. The most common method used is the fixed account fee
because both the percentage and usage charge methods of imposing fees are
somewhat regressive as the fee escalates either due to winter weather or
FINANCIAL
IMPACT:
energy costs that are especially punitive to customers on fixed incomes.
One of the strategies that the Council discussed in last year's workshop was
on the use of franchise fees to backstop the loss of state aid in 2006 due to
the State's decision not to pay the market value credit. At present our budget
does not account for this deficiency that will amount to $333,385.00 this year.
If the Council were to approve gas and electric franchise fees, the affected
utility companies would be CenterPoint Energy for gas and the electric utility
companies of Xcel Energy, Minnesota Valley Electric and Shakopee Public
Utilities.
Based upon discussions with CenterPoint Energy, Connie Hargest has
indicated that they have approximately 9000 gas customers. Assuming there
are a similar number of electric customers between the three electric utilities, it
is projected that the account fee proposed of $1.50 for residential customers
plus the tiered rates for higher demand (CII) accounts per monthly bill would
generate between $325,000 to $340,000 annually. Since the utility companies
need a minimum of 90 days to implement the fee, the earliest the fee could
begin is with the July bills so actual franchise revenue realized in 2006 would
be closer to $165,000.
The proposed annual cost for city residents would be $36.00 if the utility
companies were to place the franchise fee as a surcharge on their billing
statements which is allowable by state law. They have the option to absorb the
cost as simply an operating expense but in all likelihood the franchise fee will
be indicated similar to what is on the cable bills.
ALTERNATIVES:
The following alternatives are available to the City Council:
RECOMMENDED
MOTION:
1. Approve Ordinance Adopting Section 314 of Prior Lake City Code
Establishing Gas and Electric Franchise Fees.
2. Amend ordinance per Council direction.
3. Deny approval of proposed ordinance.
Alternative 1.
Reviewed by:
--:h~/~.A", )tAPt
Frank BOYleS,i~';'ager /
16200 Eagle Creek Avenue S.E.
Prior Lake, MN 55372-1714
GAS AND ELECTRIC FRANCHISE FEES ORDINANCE
ORDINANCE NO.1 06.
AN ORDINANCE ADOPTING SECTION 314 OF THE PRIOR LAKE CITY CODE IMPLEMENTING GAS
AND ELECTRIC FRANCHISE FEES WITHIN THE CITY OF PRIOR LAKE
THE CITY OF PRIOR LAKE HEREBY ORDAINS THAT:
1. Section 314 ofthe Prior Lake City Code is hereby adopted as follows:
314.100 PurDose. The Prior Lake City Council has determined that it is in the best interest of the City to impose a
franchise fee on those public utility companies that provide natural gas and electric services within the City
of Prior Lake.
314.200
314.300
314.400
314.500
(a) Pursuant to City Ordinance Sections 312 and 313, and the City's Standard Franchise Agreements
for Gas Franchise and for Electric Franchise, the City has the right to impose a franchise fee in an amount
and fee design as authorized therein and in the fee schedule incorporated in 314.500 and 314.600 herein.
Franchise Fee Statement. A franchise fee is hereby imposed under City Code Section 312 and 313 in
accordance with the schedule incorporated under Section 314.500 and 314.600 herein.
Pavment and Fee Desian. Franchise fees shall be paid to the City quarterly, based upon a calendar year, with
payment due by the 30th day of the month after the end of each quarter. The franchise fees shall be payable to
the City in accordance with the terms set forth in Section 313 of the Franchise Ordinance. This fee is a monthly
account-based fee on each premise and not a meter-based fee. In the event that an entity covered by this
ordinance has more than one meter at a single premise, but only one account, only one fee shall be assessed to
that account. If a premise has two or more meters being billed at different rates, the Company may have an
account for each rate classification, which will result in more than one franchise fee assessment for service to
that premise. If the Company combines the rate classifications into a single account, the franchise fee assessed
to the account will be the largest franchise fee applicable to a single rate classification for energy delivered to
that premise. In the event any entities covered by this ordinance have more than one premise, each premise
(address) shall be subject to the appropriate fee. In the event a question arises as to the proper fee amount for
any premise, the Company's manner of billing for energy used at all similar premises in the city will control.
Surcharae. The City recognizes that the Minnesota Public Utilities Commission allows the utility company
to add a surcharge to customer rates to reimburse such utility company for the cost of the fee and that the
Gas andlor Electric Utilities Company will surcharge its customers in the City the amount of the fee.
Electric Fee Schedule.
Class
Residential
Sm C & I - Non-Oem
Sm C & 1- Demand
Large C & I
Monthlv Account Fee
$1.50
$5.00
$10.00
$50.00
R:\Agenda ReportslMar 20 20061Draft 314 franchise feelf1WHH;:~~ldBerlake.com
Phone 952.447.4230 / Fax 952.447.4245
Franchise fees are to be collected by the utility in the amounts set forth in the above schedule, and submitted to
the City on a quarterly basis as follows:
January - March collections due by April 30.
April- June collections due by July 31.
July - September collections due by October 31.
October - December collections due by January 31.
314.600
Gas Fee Schedule.
Class
Residential
Comm-A
Commllnd-B
Commllnd-C
SVDF-A
SVDF-B
LVDF
Monthlv Account Fee
$1.50
$1.50
$5.00
$5.00
$10.00
$10.00
$50.00
Franchise fees are to be collected by the utility in the amounts set forth in the above schedule, and submitted to
the City on a quarterly basis as follows:
January - March collections due by April 30.
April- June collections due by July 31.
July - September collections due by October 31.
October - December collections due by January 31.
314.700
Record SUDDort for Pavment. The Gas and/or Electric Utilities Company shall make each payment when
due and, if requested by the City, shall provide at the time of each payment a statement summarizing how
the franchise fee payment was determined, including information showing any adjustments to the total
surcharge billed in the period for which the payment is being made to account for any uncollectibles, refunds
or error corrections.
314.800
Enforcement. Any dispute, including enforcement of a default regarding this ordinance will be resolved in
accordance with Section 3.5 the Standard Franchise Agreement.
314.900
Effective Date of Franchise Fee. The effective date of this ordinance shall be after its publication and sixty
(60) days after the sending of written notice enclosing a copy of this adopted Ordinance to the Gas and/or
Electric Utility Company by certified mail. Collection of the fee shall commence with the bills for the month
of July 2006.
3. This ordinance shall become effective upon adoption and publication. Staff is hereby authorized to publish
this ordinance in summary.
Passed and adopted this 20th day of March 2006.
YES
NO
Haugen
Dornbush
Erickson
LeMair
Millar
Haugen
Dornbush
Erickson
LeMair
Millar
{Se~l}
City Manager, City of Prior Lake
R:\Agenda Reports\Mar 20 2006\Draft 314 franchise fees March 2006.doc