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Home My WebLink About07(A) - Adoption of an Ordinance Amending Chapter 3, Section 314 of the Prior Lake City Code Related to Gas and Electric Franchise Fees ReportO� P RIOT h U N x rn iqWe CITY COUNCIL AGENDA REPORT ITEM: 7A �'(VNESo'�t MEETING DATE: September 10, 2024 PREPARED BY: Nicole Klekner, Assistant Finance Director PRESENTED BY: Nicole Klekner AGENDA ITEM: Adoption of an Ordinance Amending Chapter 3, Section 314 of the Prior Lake City Code Related to Gas and Electric Franchise Fees RECOMMENDED ACTION: • Approve the adoption of an ordinance amendment to update the gas and electric franchise fees. • Adopt the resolution approving summary of the ordinance for publication. BACKGROUND: Minnesota Statute 216B.36 allows cities to charge a franchise fee to both electric and gas utility companies for operating in the city -owned public right-of-way. Many cities across Minnesota use franchise fees to offset city expenses for street maintenance that would otherwise go to the property tax levy. The city entered into franchise agreements with the gas and electric utility companies in 2006. The rates were last updated for the calendar year 2022. Franchise fees are governed by the franchise agreements and City Code Sections 312 (Gas) and 313 (Electric). The fees themselves are established in City Code Section 314 (Franchise Fees). City Code Sections 312 and 314 state that the gas and electric franchise fees may be changed from time to time. The change requires the city to provide notice to the utility companies. Prior Lake charges franchise fees on a flat fee basis using categories set by zoning designation and size. When a franchise fee change is proposed, a public hearing will be held to provide an opportunity for input on the proposed ordinance amendment to change the gas and electric franchise fees. In 2023, within the Xcel Energy and CenterPoint Energy service area, 86 cities collect electric franchise fees, and 73 cities collect gas franchise fees. See Attachment 3 for a link to the franchise fees for the CenterPoint Energy and Xcel Energy communities. Maintenance is critical for extending the usable life of city streets to 50+ years and avoiding costly road replacement. Prior Lake has 110 miles of street that require regular maintenance, including crack sealing, chip sealing, mill, and overlay (the process of rejuvenating asphalt roads by milling off the top two inches of the old asphalt and replacing it with new material), and eventually complete reconstruction. The projected cost of street maintenance in Prior Lake is estimated to be $95 million over 20 years or $5 million annually. The significant cost associated with maintaining the city's aging street infrastructure resulted in the need to identify a sustainable funding source to support Prior Lake's road network. Due to these circumstances the franchise fees were updated in 2022 with the franchise fee increase dedicated exclusively to pavement management City of Prior Lake 14646 Dakota Street SE I Prior Lake MN 55372 Revenue from electric and gas franchise fees totaled $1,455,223 in 2023. Of that total, $1,079,097 was dedicated to pavement management and $376,000 supported General Fund operations. Current Circumstances: Since the Construction Cost Index (CCI) has increased over the past four years, it is prudent to adjust the franchise fees to reflect the inflationary increase. The city's goals include maintaining a quality local street system based on a financially sustainable plan. Use of the franchise fees allows the city to diversify our revenue streams and provides a stable source of funding. Additionally, the franchise fees spread the cost of road repairs across all road users, including residential, commercial/industrial and nonresidential/tax exempt properties. The City Council has directed staff to minimize debt issuance by funding capital projects on a "pay as you go" basis. The franchise fee allows the city to build funds for "pay go" funding instead of debt issuance for ongoing street maintenance/replacement needs. The franchise fee review steps are shown on Attachment 5. If the Council approves the updated franchise fees, the approved fee ordinance must be received by the utility companies at least 90 days (by September 30) before the anticipated start of fee collection (January 1, 2025). FINANCIAL IMPACT: Staff proposed to adjust the franchise fees in 2025 to reflect inflationary increases at previous work sessions. The City Council supported the staff recommendation. The Construction Cost Index (CCI) has increased 12% over the past four years, so we are proposing a 12% increase in the gas and electric franchise fee rates. This would generate about $190,000 incremental annual revenue for pavement management as noted in the table below. Total Electric & Gas Incremental 2024 Budget 2025 Revenue Revenue Current Rates S 1.464.000 S 1.578.000 12'0 increase for CCI 1 768,000 190,000 Prior Lake residential property owners currently pay a total franchise fee of $10.00 per month ($5.00 gas and $5.00 electric) as part of their gas and electric bill. The proposed adjustment would increase the total fee to $11.20 per month, or an additional $1.20 per month ($0.60 gas and $0.60 electric). The fee would be the same for all residential properties, regardless of tax valuation. Commercial and industrial businesses and other nonresidential properties would pay based on the class fee used by the utility companies and identified in the city code Chapter 3, Section 314. The fee for these properties is based on usage and meter sizes. See Attachment 4 for a Summary of Current and Proposed Electric and Gas Franchise Fees by Customer Class. ALTERNATIVES: 1. Motion and a second to adopt an ordinance amending Chapter 3, Section 314 of the Prior Lake city code related to gas and electric franchise fees and adopt the resolution approving summaries of the ordinance for publication. 2. Motion and a second to remove this item. Item 7A Page13 ATTACHMENTS: 1. Resolution - Adoption of an Ordinance Amending Chapter 3, Section 314 of the Prior Lake City Code Related to Gas and Electric Franchise Fees 2. Ordinance - Adoption of an Ordinance Amending Chapter 3, Section 314 of the Prior Lake City Code Related to Gas and Electric Franchise Fees 3. Franchise Fees for CenterPoint Energy and Xcel Energy Communities 4. Summary of Current and Proposed Electric and Gas Franchise Fees by Customer Class. 5. Franchise Fees Review Timeline O" PRIpVe ti U ZL tx 4646 Dakota Street SE *OVNEs°s�' Prior Lake. MN 55372 RESOLUTION 24 — A RESOLUTION APPROVING ORDINANCE NO. 124 — XXX AMENDING CHAPTER 3, SECTION 314 OF THE PRIOR LAKE CITY CODE RELATED TO GAS AND ELECTRIC FRANCHISE FEES Motion By: Second By: WHEREAS, On September 10, 2024 the City Council adopted Ordinance No. amending Chapter 3, Section 314 of the Prior Lake City Code related to gas and electric franchise fees; and WHEREAS, Minnesota Statutes requires publication of an ordinance in the official newspaper before it becomes effective; and WHEREAS, Minnesota Statutes also allows the publication of a summary of an ordinance if the Council finds that the summary is an accurate representation of the ordinance; and WHEREAS, the City Council desires to publish a summary of the amendments to Chapter 3 of the Prior Lake City Code and has determined the publication of a summary of this ordinance will meet the intent of the statute. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. Ordinance No. is lengthy. 3. The text of summary of Ordinance No. attached hereto as Exhibit A, conforms to M.S. § 331A.01, Subd. 10, and is approved, and publication of the title and summary of the Ordinance will clearly inform the public of the intent and effect of the Ordinance. 4. The title and summary shall be published once in the Star Tribune in a body type no smaller than brevier or eight -point type. 5. A complete text of the newly amended City Code will be available for inspection at City Hall or in the Document Center on the City of Prior Lake Website after Passed and adopted by the Prior Lake City Council this 10th day of September 2024. VOTE Briggs Braid Burkart Churchill Lake Aye ❑ ❑ ❑ ❑ ❑ Nay ❑ ❑ ❑ ❑ ❑ Abstain ❑ ❑ ❑ ❑ ❑ Absent ❑ ❑ ❑ ❑ ❑ Jason Wedel, City Manager o.F PRip� x U i rif 4646 Dakota Street SE -'n,NES0" ' Prior Lake. MN 55372 CITY OF PRIOR LAKE ORDINANCE NO. 124- AN ORDINANCE AMENDING CHAPTER 3, SECTION 314 OF THE PRIOR LAKE CITY CODE RELATED TO GAS AND ELECTRIC FRANCHISE FEES The City Council of the City of Prior Lake, Minnesota, does hereby ordain that: Section 1. City Code Chapter 3, Section 314 is amended by updating subsection 314.500 with the franchise fees to be charged by the gas and electric companies in the City. Collection of the updated fee shall commence with the bills for the month of January 2025: 314.500 ELECTRIC FEE SCHEDULE Class Residential Sm C & I — Non-Dem Sm C & I — Demand Large C&I Monthly Account Fee $5.60 $16.75 $33.50 $168.00 Section 2. City Code Chapter 3, Section 314 is amended by updating subsection 314.600 with the franchise fees to be charged by the gas and electric companies in the City. Collection of the updated fee shall commence with the bills for the month of January 2025: 314.600 GAS FEE SCHEDULE Class Monthly Account Fee Residential $5.60 Comm -A $5.60 Comm/Ind-B $11.20 Comm/Ind-C $16.75 SVDF-A $33.50 SVDF-B $33.50 LVDF $168.00 Section 3. City Code Chapter 3, Section 314 is amended by updating the effective date in subsection 314.900: 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 January 2025. This ordinance shall become effective from and after its passage and publication. Passed and adopted by the Prior Lake City Council this 10th day of September 2024. ATTEST: City Manager Mayor A public hearing notice was published in the Star Tribune on the 31 st day of August 2024 . Franchise Fees for the CenterPoint Energy and Xcel Energy Communities What Other Cities Collect Utility Franchise Fees? In 2023, within the Xcel Energy and CenterPoint Energy service area, 86 cities collect electric franchise fees, and 73 cities collect gas franchise fees. Link to gas franchise fees for CenterPoint Energy communities: MN-Tariff-Book.pdf (centerpointenergy.com) See pages 79-81 of the pdf. Prior Lake is on page 80 of the pdf. [Section V, Page 24-24.b (three pages)]. Link to electric franchise fees for Xcel Energy communities: Me_Section_5.pdf (xcelenergy.com) See page 148-153 of the pdf. Prior Lake is on page 152 of the pdf. [Section No. 5, Revised Sheet No. 93.4] Communities with Population between 20,000 — 70,000: See pages two and three for a list of the Xcel Energy and CenterPoint Energy communities with populations between 20,000-70,0000 for reference. • Some cities charge based on a percentage of gross revenue as opposed to a flat fee. • There are additional Minnesota cities collecting utility franchise fees. However, they use a different gas or electric provider. Electric Franchise Fees for Xcel Energy communities (populations 20,000-70,000) Municipal Small C&I Public Pumping Municipal Non- Small C&I Street Non- Pumping Effective Expiration Residential demand Demand Large C&I Lighting demand Demand Date Date Brooklyn Center $1.65 $4.25 $22.75 $103.00 $13.50 $13.50 $13.50 1212023 10/08/2043 Burnsville $4.00 $12.00 $40.00 $180.00 - - - 09/2020 02/15/2036 Champlin $3.62 $9.80 $41.21 $144.24 $17.51 $17.51 $17.51 01/2020 11/23/2028 Chanhassen $5.00 $14.00 $40.00 $290.00 - - - 02/2020 10/27/2039 Coon Rapids' 4.0% 4.0% 4.0% 4.01fo - - - 04/2018 01/13/2032 Cottage Grove 3.75% 3.75% 3.75% 3.75% --- --- --- 11/2023 10/31/2043 Eden Prairie $6.50 $8.50 $20.50 $89.50 - - - 05/2023 06/18/2032 Edina $3.55 $6.00 $17.00 $71.00 - - - 0112024 11/03/2035 Faribault' $6.63 $21.94 $58.72 $438.80 - - - 04/2022 11/08/2024 Forest Lake $4.00 $2.50 $18.50 $75.00 $7.50 $2.50 $18.50 05/2013 01/27/2033 Golden Valley $6.00 $6.00 $30.00 $258.00 - - - 04/2018 12/17/2027 Inver Grove Heights $2.75 $3.00 $25.00 $95.00 - - - 01/2018 06/30/2029 Mankato $1.00 $1.55 $16.50 $223.00 $1.00 $0.25 $1.00 02/2015 09/21/2034 Maplewood $3.00 $4.75 $30.00 $180.00 $4.00 $4.00 $4.00 11/2018 09/26/2024 Minnetonka $4.50 $4.50 $13.50 $45.00 - $4.50 $4.50 01/2019 05/14/2038 New Brighton $3.00 $4.50 $28.00 $185.00 - - - 01/2024 08/21/2043 New Hope $4.00 $7.00 $31.00 $135.00 - - - 03/2023 06/26/2031 Oakdale 3.0% 3.0% 3.0% 3.045 3.01/e 3.0% 3.0% 04/2024 12/11/2043 Owatonna 3.5% 3.59s 3.5% 3.5% 3.5 3.Y4, 3.5% 05/2023 01/16/2043 Prior Lake $5.00 $15.00 $30.00 $150.00 - - - 01/2022 03/19/2026 Richfield $5.10 $17.00 $41.25 $263.00 - - - 01/2024 03/12/2027 Shakopee` 3.0% 3.0% 3.0% 3.091a - - - 01/2022 08/03/2041 Shoreview $3.75 $5.00 $36.00 $340.00 - - - 01/2021 07/17/2031 South St. Paul' 5.0% 5.0% 5.0% 5.090 - - - 04/2018 04/05/2030 St. Cloud 4.0% 4.0% 4.0°5 4.0°b - - - 12/2017 12/31/2024 St. Louis Park 1$6.75 1$12.00 1$48.50 1$148.50 - 1$12.00 1$48.50 1 06/2021 09/18/2036 Gas Franchise Fees for CenterPoint Energy communities (populations 20,000-70,000) Note: Expiration dates not available for gas franchise fees, only effective dates. Large Small Volume Firm Com/Ind B Volume Dual & Dual Fuel Com-A Less 1,500 > or < Com/Ind C > Fuel A < SVDF B > >1,999 than 1,500 5,000 5,000 120,000 120,000 therms Peak Effective City Residential therms/yr therms/yr therms/yr therms/yr therms/yr Day Date Brooklyn Center $1.66 $1.74 $5.63 $22.50 $56.23 $107.96 $107.96 01/01/2020 Burnsville $4.00 $12.00 $40.00 $180.00 $180.00 $180.00 $180.00 09/01/2020 Champlin $3.98 $3.98 $10.78 $45.33 $90.67 $158.66 $158.66 04/01/2021 Chanhassen $5.00 $5.00 $9.00 $20.00 $90.00 $90.00 $90.00 02/01/2020 Chaska $2.70 $2.85 $8.60 $39.50 $140.00 $315.00 $715.00 08/01/201.1 Coon Rapids 4% 4% 4Sc 4°r5 4% 4% 4% 01/01/1992 Cottage Grove 3.75% 3.75% 3.75% 3.75% 3.75�b 3.75% 3.75% 10/31/2023 Eden Prairie $6.50 $8.50 $20.50 $89.50 $89.50 $89.50 $89.50 05/01/2023 Edina $3.55 $6.00 $17.00 $71.00 $71.00 $71.00 $71.00 01/01/2024 Elk River $4.00 $4.00 $16.00 $50.00 $70.00 $70.00 $70.00 07/01/2013 Golden Valley $6.00 $7.50 $30.00 $30.00 $258.00 $258.00 $258.00 04/01/2018 Hopkins 5% 4.25% 4.25% 4.251,b 4.25% 4.25% 4.25% 03/01/2024 Mankato $1.00 $2.75 $6.50 $15.00 $20.00 $25.00 $30.00 02/01/2015 Minnetonka $4.50 $4.50 $13.50 $45.00 $45.00 $45.00 $45.00 01/01/2019 New Hope $3.00 $4.00 $11.00 $38.00 $74.00 $83.00 $164.00 01/01/2017 Oakdale 3% 3% 3% 3% 3% 3% 3% 02/05/2024 Owatonna 1.75% 1.75% 1.75% 1.00% 1.00ci•3 1.00% 1.00% 01/01/2003 Plymouth $3.53 $5.31 $17.71 $70.85 $70.85 $70.85 $70.85 03/11/2024 Prior Lake $5.00 $5.00 $10.00 $15.00 $30.00 $30.00 $150.00 01/01/2022 Richfield $5.10 $5.10 $16.50 $41.15 $41.15 $41.15 $259.00 01/01/2024 Shakopee 3% 13�/c 3% 3% 3% 3% 3% 01/01/2017 St. Louis Park 1$6.75 1$6.75 1$12.00 1$48.50 1$48.50 1$48.50 1$148.50 06/01/2021 Summary of Current and Proposed Electric and Gas Franchise Fees by Customer Class CURRENT PROPOSED EQUIVALENT EQUIVALENT MONTHLY MONTHLY ELECTRIC CUSTOMER CLASS FLAT FEE FLAT FEE Residential $5.00 $5.60 Small C&I — Non -Demand $15.00 $16.75 Small C&I — Demand $30.00 $33.50 Large C&I $150.00 $168.00 Public Street Lighting N/A N/A Municipal Pumping — Non -Demand N/A N/A Municipal Pumping — Demand j N/A N/A CURRENT PROPOSED EQUIVALENT EQUIVALENT MONTHLY MONTHLY GAS CUSTOMER CLASS FLAT FEE FLAT FEE Residential $5.00 $5.60 Small Com A $5.00 $5.60 Small Com/Ind B $10.00 $11.20 Small Com/Ind C $15.00 $16.75 Com/Ind Dual Fuel A $30.00 $33.50 Com/Ind Dual Fuel B $30.00 $33.50 Large Volume Dual Fuel $150.00 $168.00 Franchise Fee Review Timeline Finalize franchise fee analysis/ - Incorporate proposed franchise fee into Citv Financial Plan Discuss financial impacts of proposed franchise fees at a Council work session City provides utility companies with written notice of intent to enact a fee prior to formal consideration (notice 1) City and utility companies discuss the fee. Public hearing notice for Sept meeting Public Hearing/City Council Considers Adoption of Ordinance (In order to meet the PUC's requirements, the approved fee ordinance must be received by the utility companies at least 90 days before the anticipated start of fee collection. (notice 2) Serve copy of adopted ordinance on utility companies by certified mail (notice 2) Utility Companies implement fee on customers' bills Utility Companies pay the city at the end of the month after the quarter's fees have been collected FRANCHISE FEES PUBLIC HEARING September 10, 2024 PriorLakeM N.gov ► The significant cost associated with maintaining the city's aging street infrastructure resulted in the need to identify a sustainable funding source to support Prior Lake's road network. Due to these circumstances the franchise fees were updated in 2022, and the additional franchise fee revenue was dedicated exclusively to pavement management. ► Gas and electric franchise fees dedicated $1,079,000 to pavement management in 2023. ► The Construction Cost Index (CCI) has increased 12% over the past four years, so we are proposing a 12% increase in the gas and electric franchise fee rates. ► This would generate an additional $190,000 annual revenue for pavement management PriorLakeMN.gov ► Property owners currently pay a total franchise fee of $10.00 per month ($5.00 gas and $5.00 electric) as part of their gas and 5111M- UMMI ► The proposed adjustment would increase the total fee to $11.20 per month ($5.60 gas and $5.60 electric) ► Commercial and industrial pay based on their usage and meter sizes PriorLakeMN.gov ► Public Hearing ► Council adoption of ordinance amendment ► Serve copy of adopted ordinance on utility companies by certified mail ► Proposed franchise fee effective for gas and electric usage as of 1/1/2025 PriorLakeMN.gov • Public Hearing • Ordinance Adoption - Resolution: September 10, 2024 1) Adopt an Ordinance amending Chapter 3, Section 314 of the Prior Lake City Code Related to Gas and Electric Franchise Fees 2) Adopt the resolution approving summary of the ordinance for publication PriorLakeMN.gov 5 Questions/Discussion