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CR 03-174 Utility Franchise Fee Ordinance 2003-910 & 911 / C\IY OF " i - .... . December 2, 2003 HOPKINS Council Report 2003-174 Second Reading of Utility Franchise Fee Ordinances 2003-910 and 2003~911 Proposed Action Staff recommends adoption of the following motions: Move to Approve Ordinance 2003-910 Utility Franchise Fee Ordinance for Xcel Enerav for First Readina. Move to Approve Ordinance 2003-911 Utilitv Franchise Fee Ordinance for Centerpoint Enerav Minneaasco for First Readina. Overview Minnesota Statutes 216B.36 grants Cities the authority to impose franchise fees on gas and electric utility services "to raise revenue or defray increased municipal costs accruing as a result of utility operations, or both." Hopkins currently has nonexclusive franchise agreements with CenterPoint Energy Minnegasco (gas franchise) and NSP/Xcel Energy (electric franchise). Based on the recommended fee schedule, annual franchise fee revenue is projected to be approximately $299,000. If approved. it is expected that the companies would begin collecting franchise fees from customers in February of 2004 with the first quarterly payment due to the City by April 30, 2004. . Staff is recommending approval of the utility franchise fees ordinances. Primary Issues to Consider . Purpose and Amount of Proposed Utility Franchise Fees in Hopkins. . Collection and Administration of the Fees. . Can the City impose a higher/different fee on one of the utilities in relation to the other? . Differences in Residential Fee Collection for Gas and Electric Service. . Sunset Clause. . Staff Recommendation. Supportina Documentation . Ordinances 2003-910 and 2003-911. '. Proposed Fee Schedule and Revenue Projection ~y~/ Steven J. Stahmer Assistant to the City Manager Financial Impact: Approx. $299.000 annual revenue Budgeted: Y/N Source: . Related Documents (CIP, ERP, etc.): Notes: , Council Report 2003-174 Page 2 . Analvsis of Primary Issues Purpose and Amount of Proposed Utility Franchise Fees in Hopkins Minnesota Statutes 2168.36 states: "Under the license! permit, right, or franchise, the utility may be obligated by any municipality to pay to the municipality fees to raise revenue or defray increased municipal costs accruing as a result of utility operations, or both." The NSPlXcel franchise, which was negotiated in 1987, allows the City to impose a franchise fee of up to 5% of the gross revenues derived from sales within Hopkins. There is no such limitation on the recently negotiated franchise with CenterPoint Energy Minnegasco (2002). If the City were to implement franchise fees at the 5% maximum rate, it is estimated that a total of $925,000 in annual revenue could be collected from the two companies. The staff- recommended fee schedule would result in approximately $300,000 in annual revenue. Collection and Administration of the Fees If implemented! fees would be collected by the respective utility companies as part of their normal monthly billing processes. The companies would then submit fee revenue to the City on a quarterly basis. If approved for Second Reading by the Council in December of 2003, the companies would begin collecting fees during their respective February 2004 billing. Cycles. Under this scenario, the first quarterly payment to the City would be due April 30, 2004, and would include fees collected in February and March of 2004. . Discussions with Utility Company Representatives Staff has discussed the potential implementation of franchise fees with the respective representatives from Xcel Energy and CenterPoint Energy Minnegasco. Patrick Cline of Excel and AI Swintek of CenterPoint have been very cooperative, and their input has helped make the proposed ordinances and anticipated administration process as efficient and as fair as possible. . Each representative stressed the importance the fees being substantially equal with regard to gas and electric service. Both have expressed that their respective companies officially oppose franchise fees, but that they understand the pressures that local governments like Hopkins are under, and they are committed to working with staff and the Council to implement the fees, if approved. Can the City impose a higher/different fee on one of the utilities in relation to the other? The NSP/Xcel Franchise Ordinance states: "The separate ordinance imposing the fee shall not be effective against the Company unless it lawfully imposes and the City quarterly or more often collects a fee or tax of the same or greater percentage on the receipts from sales of energy within the City by any other energy supplier, provided that, as to such a supplier, the City has the authority to require a franchise fee or to impose a tax." Therefore, as per the existing Franchise Ordinance with NSP/Xcel, the electric franchise fee cannot be substantially higher than the gas franchise fee as a percentage of the respective utilities' gross revenues in Hopkins. The CenterPoint Franchise Ordinance states only that fees on all gas utilities must be the same or substantially similar and that the City will attempt to not place CenterPoint at a "competitive disadvantage" in relation to other energy suppliers. . Differences in Residential Fee Collection for Gas and Electric Differences do exist regarding the manner in which gas and electric services are provided to residential customers. ,These differences may result in a multi-family housing complex having . ; Council Report 2003.174 Page 3 . just a single gas meter and account for the entire complex, while each individual apartment has a separate electric meter and account. City staff and utility company representatives have attempted to make both the gas and electric fees as fair as possible with regard to single-family versus multi-family households. Representatives of CenterPoint Energy have stated that there is no way of charging a gas franchise fee to each apartment unit if the entire complex has only a single meter. The recommended fee schedules represent the best attempt to impose equal fees given the practical limitations created by the respective natures of the different utility services. Under the recommended fee schedules, the respective Residential customer classes pay approximately 47-48% of the projected revenues from each utility fee (the Residential class pays 47% of total electric fees and 48% of the total gas fees). However, the number of Residential gas accounts is less than the number of Residential electric accounts and many apartments are included in the Commercial/lndustrial Band C classes for gas service, rather than in the Residential customer class. According to CenterPoint, the majority of multi-unit apartment complexes fall into the Commercial/Industrial B class. It is important to note that the recommended gas fees for the Residential class and the Commercial/lndustrial B class are very similar with regard to the fee as a percentage of billings. The recommended gas fee for the Residential class is $1 per month, or 1.9% of the class' average monthly gas bill, while the fee for the Commercial/Industrial B class is $3 per month, which is 2.1% ofthe class' average monthly gas bill. Sunset Clause. Each franchise fee contains a sunset clause which will automatically terminate the fees as of . December 31,2005 unless the council acts at that time to continue fees through a separate ordinance. Staff Recommendation. Staff is recommending approval of the utility franchise fee ordinances 2003-901 and 2003-911. . , . CITY OF HOPKINS Hennepin County, Minnesota ORDINANCE NO..2003-910 . UTILITY FRANCHISE FEE ORDINANCE AN ORDINANCE IMPOSING AN ELECTRIC UTILITY FRANCHISE FEE ON XCEL ENERGY, A MINNESOTA CORPORATION, ITS SUCCESSORS AND ASSIGNS, PURSUANT TO CITY OF HOPKINS FRANCHISE ORDINANCE 87-578 THE CITY COUNCIL OF THE CITY OF HOPKINS DOES HEREBY ORDAIN: 701.01. DEFINITIONS. For purposes of this Ordinance, the following capitalized terms shall have the following meanings: Subd. 1. City. The City of Hopkins, County of Hennepin, State of Minnesota. . Subd. 2. Company. Xcel Energy, a Minnesota Corporation (formerly Northern States Power), its successors and assigns. 701.03. Purpose. The Hopkins City Cormcil has determined that franchise fees should be imposed on gas and electric utilities in return for their use of City-owned rights-of-way. The purpose of this ordinance is to establish such franchise fees to be paid to the City by the Company. 701.05. City Authority. Minnesota Statutes 216B.36 grants cities the authority to impose a franchise fee on gas and electric utility services. Such fees are in return for basic right to operate within mrmicipally-owned rights-of-way and other public property as provided in utility franchise agreements/ordinances between a city and the respective utilities operating within the municipal boundaries. In addition, City of Hopkins Franchise Ordinance 87-578 authorizes the . City to impose, by separate ordinance, a franchise fee on the Company. 701.07. Franchise Fee Imposed. A franchise fee is hereby imposed on the Company, Xcel Energy, pursuant to City of Hopkins Franchise Ordinance 87-578 and Minnesota Statutes 216B.36 and subject to the fee schedule below. A franchise Fee is to be collected by the Company from each customer in the designated customer classification for service at each and every customer premise, as Indicated by the . . following schedule: 1 . c . Fee Schedule Customer Classification Monthly Fee Per Customer Premise Residential $1.00 Small C & I - non demand $3.00 Small C & I -,- demand $9.00 Large C & I $63.00 This fee is an account-based fee on each premise and not a meter-based fee. In the event that a customer of the company covered by this ordinance has more than one meter at a single premise, but oulyone account, only one fee shall be assessed to that account. If a premise has two or more meters for a single customer 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 electric 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 customer of the Company covered by this ordinance has more than one premise, each premise (address) shall be subject to the applicable fee. In the event a question arises as to the proper fee amount for any premise, the Companis manner of billing for energy used at all similar premises in the city will control. 702.09. Date Franchise Fee Takes Effect The above utility franchise fees shall go into effect . in and be applicable to all of the Company's billings commencing with bills for the month of February 2004. 701.11. Limitation. Franchise Ordinance 87-578 limits the total amount of franchise fee which may be collected to 5% of the Company's gross revenues within the City limits. So long as this limitation remains in effect, in no event shall the total of the fees collected pursuant to Section 701.07 be greater than 5% of the Company's gross revenues within the City of Hopkins as defined in the Franchise Ordinance. 701.13. Payment of Fee. Franchise fees shall be paid to the City quarterly, based on a calendar year, with payment due by the 30th day after the end of each quarter. The first such payment will be for the first quarter of2004 and will be due April 30, 2004. 701.15. Dispute. Any disputes or other issues which arise will be subject to the terms of this Ordinance, Franchise Ordinance 87-578, Minnesota Statutes 261B.36 as well as any other agreements entered into by the City and the Company. 701.17. Termination of Ordinance. This ordinance and the franchise fee imposed by it shall remain in effect WItil December 31t 2005, at which time they shall tenninate and be of no further effectt except that the Company shall remain obligated after that date to pay the City all franchise fees due with respect to any period of time prior to December 31, 2005, and collected after that date. . 2 - - < , . . First Reading: November 18,2003 Second Reading: December 2, 2003 . Date of Publication: Date Ordinance Takes Effect: December 2, 2003 Gene Maxwell, Mayor ATTEST: Terry Obermaier, City Clerk APPROVED AS TO FOIDv1 AND LEGALITY: City Attorney Signature Date . . 3 . . CITY OF HOPKINS Hennepin County, Minnesota ORDINANCE NO. 2003-911 UTILITY FRANCHISE FEE ORDINANCE. AN ORDINANCE IMPOSING A GAS UTILITY FRANCHISE FEE ON CENTERPOINT ENERGY MINNEGASCO, A MINNESOTA CORPORATION, ITS SUCCESSORS AND ASSIGNS, PURSUANT TO CITY OF HOPKINS FRANCmSE ORDINANCE 2002-879 THE CITY COUNCIL OF THE CITY OF HOPKINS DOES HEREBY ORDAIN: 702.01. DEFINITIONS. For purposes of this Ordinance, the following capitalized terms shall have the following meanings: . Subd. 1. City. The City of Hopkins, County of Hennepin, State of Minnesota. . Subd. 2. Company. CenterPoint Energy Minnegasco, a Minnesota Corporation (formerly Reliant Energy Minnegasco), its successors and assigns. 702.03. Purpose. The Hopkins City Council has determined that franchise fees should be imposed on gas and electric utilities in return for their use of City-owned rights-of-way. The purpose of this ordinance is to establish such franchise fees to be paid to the City by the Company. 702.05. City Authority. Minnesota Statutes 216B.36 grants cities the authority to impose a franchise fee on gas and electric utility services. Such fees are in return for basic right to operate within rriunicipally-owned rights-of-way and other public property as provided in utility franchise agreements/ordinances between a city and the respective utilities operating within the. municipal boundaries. In addition, City of Hopkins Franchise Ordinance 2002-879 authorizes the City to impose, by separate ordinance, a franchise fee on the Company. 702.07. Franchise Fee Imposed. A franchise fee is hereby imposed on the Company, CenterPoint Energy Minnegasco, pursuant to City of Hopkins Franchise Ordinance 2002-879 and Minnesota Statutes 216B.36 and subject to the fee schedule below. A franchise Fee is to be collected by the Company from each customer in the designated customer classification for service at each and every customer premise, as indicated by the . following schedule: 1 ',)" . Fee Schedule Customer Classification Monthly Fee Per Customer Premise Residential $1. 00 Commercial A $1. 00 CommerciaIlIndustrial B $3.00 Commercia1/Industrial C $9.00 Small Dual Fuel A $18.00 Small Dual Fuel B $63.00 Large V oltune Dual Fuel $63.00 This fee is an account-based fee on each premise and not a meter-based fee. In the event that a customer of the company 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 for a single customer 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 gas 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 customer of the Company covered by this ordinance has more than one premise, each premise (address) shall be subject to the applicable fee. In the event a question arises as to the proper fee amount for any premise, the Companis manner of billing for energy used at all similar premises in the city will . control. 702.09. Date Franchise Fee Takes Effect. The above utility franchise fees shall go into effect in and be applicable to all of the Company's billings commencing with bills for the month of February 2004. 702.11. Payment of Fee. Franchise fees shall be paid to the City quarterly, based on a calendar year, with payment due by the 30th day after the end of each quarter. The first such payment will be for the first quarter of 2004 and will be due April 30, 2004. 702.13. Dispute. Any disputes or other issues which arise will be subject to the terms of this Ordinance, Franchise Ordinance 2002-879, Minnesota Statutes 261B.36 as well as any other agreements entered into by the City and the Company. 702.15. Termination of Ordinance. This ordinance and the franchise fee imposed by it shall remain in effect until December 31,2005, at which time they shall terminate and be of no further effect, except that the Company shall remain obligated after that date to pay the City all franchise fees due with respect to any period of time prior to December 31, 2005, and collected after that date. . 2 " . < . First Reading: November 18, 2003 Second Reading: December 2, 2003 Date of Publication: Date Ordinance Takes Effect: December 2, 2003 Gene Maxwell, Mayor ATTEST: Terry Obennaier, City Clerk APPROVED AS TO FORM AND LEGALITY: City Attorney Signature Date . . 3 ..:a .. .'- I" . Proposed Franchise Fee Schedule and Revenue Projection December 2, 2003 Xcel Energy Projected Annual Customer Classification Accounts Monthly Fee Revenue Residential 7822 $1.00 $93,864 Small C & I - non demand 695 $3.00 $25,020 Small C & I - demand 309 $9.00 $33,372 Large C & I 62 $63.00 $46,872 TOTAL ELECTRI FEE REVENUE $199,128 CenterPoint Energy Minnegasco Projected Annual Customer Classification Accounts Monthly Fee Revenue . Residential 4003 $1.00 $48,036 Commercial A 252 $1.00 $3,024 Commercial/Industrial B 201 $3.00 $7,236 Commercia1lIndustrial C 263 $9.00 $28,404 Small Dual Fuel A 28 $18.00 $6,048 Small Dual Fuel B 9 $63.00 $6,804 Large Volume Dual Fuel 0 $0 $0 TOTAL GAS FEE REVENUE $99,552 COMBINED ANNUAL REVENUE $298.680* *Note: 2003 will include only 11 months of fee revenue if first implemented in February, as expected. Therefore, 2004 collections are projected to be $273,790. .