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CR 2003-167 First Reading Of Utility Franchise fee Ordinances 2003-910 and 2003-911• GITY OF H OPKINS November 12, 2003 Council Report 2003 -167 First 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 Energy for First Reading with staff recommended changes. Move to Approve Ordinance 2003 -911 Utility Franchise Fee Ordinance for Centerpoint Energy Minnegasco for First Reading with staff recommended changes. Overview Minnesota Statutes 216B.36 grants Cities the authority to impose franchise fees on gas and electric utility services in return for their use of public rights -of -way. Hopkins currently has nonexclusive franchise agreements with CenterPoint Energy Minnegasco (gas franchise) and NSP /Xcel Energy (electric franchise). At the request of the Council, Staff sent written notice to each company in September of 2003 indicating the City's intent to consider the respective utility franchise fee ordinances. If implemented in Hopkins, the revenue source would help to fund right -of -way and street - related activities in the City. Based on the recommended fee schedule, annual franchise fee revenue is projected to be approximately $290,000. 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 with the changes detailed in the following report (see Staff Analysis and Recommendations). Primary Issues to Consider • Purpose and Amount of Proposed Utility Franchise Fees in Hopkins. • Collection and Administration of the Fees. • Staff Analysis and Recommendations. • Discussions with Utility Company Representatives. Supporting Documentation • Ordinances 2003 -910 and 2003 -911. • Revised Fee Schedule. • Notices of Proposed Fee Implementation. • TwinWest Franchise Fee Update and Letter from TwinWest Chamber Regarding Franchise Fees. Steven J. Stahmer Assistant to the City Manager Financial Impact: Approx. $290,000 annual revenue Budgeted: Y/N Source: Related Documents (CIP, ERP, etc.): Notes: Analysis of Primary Issues Purpose and Amount of Proposed Utility Franchise Fees in Hopkins Minnesota Statutes 216B.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 City spends over $500,000 per year on street - related maintenance. Utility franchise fees would be used to help fund such expenditures. The NSP /Xcel 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 $290,000 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. 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 Al 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. 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. Staff Analysis and Recommendation Staff is recommending approval of the utility franchise fees with the following additional changes /considerations to be incorporated into the respective ordinances: 1. Staff recommends that the fee schedules contained in the draft ordinances be changed to reflect a monthly fee of $1.00 for Residential customers (both gas and electric) and $1.00 for the Commercial A customer class (gas). Staff further recommends that fees for all other customer classes would remain as indicated in the respective ordinances (see attached Revised Fee Schedule). 2. Each of the fees should be structured as a monthly "fee per customer premise" rather than per meter or per customer. This change should have a negligible effect on total projected revenue. Section 701.07/702.07 should be changed to incorporate the following language: a. "This fee is an 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 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 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." 3. The Council may wish to consider a sunset provision which would terminate the franchise fees after a given number of years unless the Council were to extend fees at that time. This would provide for either an automatic end to franchise fees if no action were taken or a reconsideration of fees at the time of the sunset. At the end of the sunset, the Council could decide whether to discontinue to the fees or extend them into the future. The amount of such fees could also be modified (increased or decreased) to reflect future conditions should the Council decide to extend the fees at the time of the sunset. Alternatively, a "fee review" provision could be included in each ordinance which would require a review of franchise fees at some time in the future. At that time, the Council would be asked to determine whether or not fees should be continued. The "fee review" language would keep franchise fees in place as provided in the ordinances unless the Council acted to terminate or modify the fees. Therefore, the major difference between a sunset and a fee review is that the sunset provides for automatic termination at some future date unless the Council acts to extend franchise fees, whereas a fee review provides for automatic continuation unless the Council acts to terminate or modify the franchise fees at the time of review. In speaking with Patrick Cline of Xcel Energy, Mr. Cline suggested that a five -year sunset provision or fee review may be appropriate. • CITY OF HOPKINS Hennepin County, Minnesota ORDINANCE NO. 2003-910 UTILITY FRANCHISE FEE ORDINANCE FOR XCEL ENERGY 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 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, and in lieu of any permit or other fees. Such franchise fees are important in funding right-of-way - related maintenance and reconstruction costs. 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 municipally owned rights of way 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 in lieu of any permit or other fees. 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 subject to the fee schedule below. A franchise Fee is to be collected from each customer in the designated customer classification for metered service at each and every customer location as, indicated by the following schedule: 1 Metered Service -Based Fee Schedule Customer Classification Monthly Fee Per Meter Residential $1.50 Small C & I — non demand $3.00 Small C & I — demand $9.00 Large C & I $63.00 701.09. Limitation. Franchise Ordinance 87 -578 limits the total amount of franchise fee which may be collected to 5% of gross Company revenues within the Hopkins city limits. In no event shall the total of the fees collected pursuant to Section 701.05 be greater than 5% of the Company's gross revenues within the City of Hopkins. 701.11. Payment of Fee. Franchise fees shall be paid to the City quarterly, with payment due by the 30 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. 701.13. Dispute. Any disputes or other issues which arise will be subject to the terms of this Ordinance, Franchise Ordinance 87 -578, as well as any other agreements entered into by the City and the Company. First Reading: November 18, 2003 Second Reading: Date of Publication: Date Ordinance Takes Effect: February 2004 ATTEST: Terry Obermaier, City Clerk APPROVED AS TO FORM AND LEGALITY: City Attorney Signature Date 2 Gene Maxwell, Mayor • • CITY OF HOPKINS Hennepin County, Minnesota ORDINANCE NO. 2003-911 UTILITY FRANCHISE FEE ORDINANCE FOR CENTERPOINT ENERGY MINNEGASCO AN ORDINANCE IMPOSING A GAS UTILITY FRANCHISE FEE ON CENTERPOINT ENERGY MINNEGASCO, A MINNESOTA CORPORATION, ITS SUCCESSORS AND ASSIGNS, PURSUANT TO CITY OF HOPKINS FRANCHISE 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, and in lieu of any permit or other fees. Such franchise fees are important in funding right-of-way- related maintenance and reconstruction costs. 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 municipally owned rights of way 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 in lieu of any permit or other fees. 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 subject to the fee schedule below. 11 A franchise Fee is to be collected from each customer in the designated customer classification for metered service at each and every customer location, as indicated by the following schedule: 1 • 702.09. Payment of Fee. Franchise fees shall be paid to the City quarterly, with payment due by the 30 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. 702.11. Dispute. Any disputes or other issues which arise will be subject to the terms of this Ordinance, Franchise Ordinance 2002 -879, as well as any other agreements entered into by the City and the Company. First Reading: November 18, 2003 Second Reading: Date of Publication: Date Ordinance Takes Effect: February 2004 ATTEST: Terry Obermaier, City Clerk Customer Classification Monthly Fee Per Meter Residential $1.50 Commercial A $1.50 Commercial /Industrial B $3.00 Commercial /Industrial C $9.00 Small Dual Fuel A & B $9.00 APPROVED AS TO FORM AND LEGALITY: Metered Service - Based Fee Schedule City Attorney Signature Date Gene Maxwell, Mayor Customer Classification Residential Small C & I — non demand Small C & I — demand Large C & I Customer Classification Residential Commercial A Commercial /Industrial B Commercial /Industrial C Small Dual Fuel A & B COMBINED ANNUAL REVENUE — REVISED - Proposed Franchise Fee Schedule and Revenue Projection Xcel Energy Accounts 7822 695 309 62 Accounts 4003 252 201 263 37 Monthly Fee $1.00 $3.00 $9.00 $63.00 CenterPoint Energy Minnegasco Monthly Fee $1.00 $1.00 $3.00 $9.00 $9.00 Projected Annual Revenue $98,864 $25,020 $33,372 $46,872 Projected Annual Revenue $48,036 $3,024 $7,236 $28,404 $3,996 $289,824* *Note: 2003 will include only 11 months of fee revenue if first implemented in February, as expected. Therefore, 2004 collections are projected to be $265,672. September 14, 2003 Patrick Cline Xcel Energy 5309 West 70 Street Edina, MN 55345 Re: Notice of Proposed Electric Utility Franchise Fee Implementation Dear Mr. Cline: City of Hopkins Electric Franchise Ordinance 87 -578, which serves as the franchise agreement between Xcel Energy (formerly Northern States Power) and the City, requires that notice of proposed franchise fee implementation be given to the company no less than 60 days prior to adoption of such ordinance. This letter is to serve as notice that the City of Hopkins is currently proposing to impose electric utility franchise fees on Xcel Energy. This issue is currently scheduled for discussion at the November 18, 2003 City Council Meeting. The attached proposed ordinance describes the details of fee implementation and the fee schedule itself. A substantially similar ordinance /franchise fee is also being proposed for gas utility franchises in Hopkins. Sincerely, Steven C. Mielke City Manager Cit of Hopkins 1010 First Street South • Hopkins, MN 55343 -7573 • Phone: 952- 935 -8474 • Fax• 952- 935 -1834 '7446 address: wwwfopkinsmn.com Enc. cc: Jim Rhodes, Xcel Energy Partnering with the Community to Enhance the Quality of Life • Inspire • Educate • Involve • Communicate • • • September 14, 2003 City of �lopk�ns 1010 first Street South • Hopkins, gif.N 55343 -7573 • Phone: 952-935-8474 • Fa.: 952- 935 -1834 Wed address: www.hopkinsmn.com V.P. Regulatory and Supply Service CenterPoint Energy Minnegasco 800 LaSalle Avenue Minneapolis, MN 55402 Re: Notice of Proposed Gas Utility Franchise Fee Implementation Dear Sir or Madam: City of Hopkins Electric Franchise Ordinance 2002 -879, which serves as the franchise agreement between CenterPoint Energy Minnegasco (formerly Reliant Energy Minnegasco) and the City, requires that notice of proposed franchise fee implementation be given to the company no less than 30 days prior to adoption of such an ordinance. This letter is to serve as notice that the City of Hopkins is currently proposing to impose gas utility franchise fees on CenterPoint Energy Minnegasco. This issue is currently scheduled for discussion at the November 18, 2003 City Council Meeting. The attached proposed ordinance describes the details of fee implementation and the fee schedule itself. A substantially similar ordinance /franchise fee is also being proposed for electric utility franchises in Hopkins. Please call me at (952) 939 -1326 if you have any questions, comments or concerns. Sincerely, Steven C. Mielke City Manager Enc. cc: Connie Hargest, CenterPoint Energy Minnegasco Partnering with the Community to enhance the Quality of Life • Inspire • Educate • Involve • Communicate • • City Updated information as of September 22, 2003. NEW HOPE PLYMOUTH TWINWEST FRANCHISE FEE UPDATE Timeline: February — TwinWest Business Councils begin discussing possible franchise fees March — Business Councils ask Government Affairs Committee to research and consider the issue throughout the TwinWest area April— TwinWest Government Affairs Committee issues a report to the Business Councils. Seven of the ten TwinWest cities are considering a franchise fee at the time. May — TwinWest Government Affairs Committee drafts a letter outlining TwinWest's position on franchise fees. The TwinWest Board of Directors approves the letter at their May 28 meeting. The letter is distributed to the Crystal Mayor and City Councilmembers on Friday, May 30. June — TwinWest Government Affairs Committee Chair Greg Korstad presented information on franchise fees to the Business Councils. July /August — TwinWest President Barb Obershaw testified against franchise fees at the Crystal City Council hearing and the St. Louis Park City Council hearing. Letter also sent to New Hope city officials outlining TwinWest position. TwinWest op-ed appears in local newspapers. Considering a franchise fee? Updated information Brooklyn Center City Council discussed franchise fees that would raise $600,000 at a council work session on June 16. Staff is preparing ordinance for a 3% franchise fee. City council having first reading on franchise fee BROOKLYN CENTER Yes on September 22. Second reading and public hearings on October 27. BROOKLYN PARK No Has talked about a franchise fee but is not considering one at this time. Considered 3 %, then a per meter rate on both gas and electric, first reading passed 6 -1 at Council meeting on Tuesday, April 1. Proposal would have raised $300,000 - $400,000 for city general fund. City council defeated CRYSTAL DEFEATED franchise fee proposal on 4 -3 vote on Tuesday, Sept. 16, 7 p.m. Feel like they will be able to handle any cost increases through the property tax levy, without a franchise fee. If a franchise fee was needed, they view it as a one -time assessment, specific to costs of an individual project, not as GOLDEN VALLEY No ongoing fee. City council considering options, including property tax levy -back and HOPKINS Yes franchise fees up to 5% (would generate $900,000). MEDICINE LAKE No Only 368 residents MINNETONKA No Yes No City staff is recommending a per -meter franchise fee. Council postponed a vote after significant public opposition at their council meeting on August 25. Would like to have it voted on by end of October in order to implement by Jan. 1, 2004. ST. LOUIS PARK ADOPTED Adopted a "per meter" franchise fee on gas and electric on August 4. AA • September 22, 2003 Honorable Mayor Eugene Maxwell and Hopkins City Councilmembers 1010 lst Street South Hopkins, MN 55343 Re: Franchise Fee - T - vv NJ s C H A M B E R O F C O M M E R C E To the Honorable Mayor Eugene Maxwell and Hopkins City Councilmembers: As you consider implementing a franchise fee on utility services in your city under Minnesota Statute § 216B.36, we ask that you consider the views of the TwinWest Chamber of Commerce. As you know, TwinWest represents the interests of approximately 1,000 businesses in the suburban communities of Brooklyn Park, Brooklyn Center, Crystal, Golden Valley, Hopkins, Medicine Lake, Minnetonka, New Hope, Plymouth and St. Louis Park. TwinWest members provide jobs for approximately 30,000 people in this trade area. TwinWest promotes business interests on behalf of its members and their employees. TwinWest values the positive working relationship we have with the ten cities in our trade area. We believe that a strong partnership between the business community and our cities is essential for the continued success of each. Over the years, we have striven to build a bond between our Chamber and the mayors, city councilmembers and city managers across our region. We support a mutual commitment to one another's success. In the context of the current discussion regarding franchise fees, TwinWest opposes the imposition of franchise fees on utilities simply as a revenue raising measure for several reasons: 1. TwinWest opposes new taxes. In the case of a franchise fee, if it is simply a revenue generator, not based on the cost of providing the franchise, the fee would be considered a tax. It is our understanding that the costs of the right -of -way work done (disturbing streets, curbs, municipal utilities, etc.) are paid for directly by the utilities at the time of the project. 2. TwinWest believes taxes should be "clean, not hidden, in all levels of government. The people who are paying the tax should know what the tax is for and whom they are paying." (TwinWest Chamber 2003 Business Agenda). Although a franchise fee is imposed on the utility companies, they pass the cost on to their customers, tuming utilities into tax collectors. 3. The rate of consumption of electricity, natural gas or other utilities does not change the cost to the city, nor does it accurately reflect the demand on city services made by the consumer. 4. Thinking long term, the imposition of a tax on doing business in a community will be one more differentiation used by businesses in deciding where they should be located. 5. Franchise fees would disproportionately fall on businesses, non-profit organizations and other units of government, none of whom have elected representation on the city councils. 10550 WAYZATA BOULEVARD s MINNETONKA, MINNESOTA 55305 Ph: (952) 540 -0234 s Fax: (952) 540 -0237 • www.twinwest.com Brooklyn Center, Brooklyn Park, Crystal, Golden Valley, Hopkins, Medicine Lake, Minnetonka, New Hope, Plymouth, St. Louis Park • We recognize that cities have increased pressure to obtain revenue from all available sources. While we are opposed to the implementation of franchise fees, if your city should determine that you must impose one we believe the least objectionable method would be a flat rate "per customer" charge with a "sunset" provision, so that the ordinance would be reexamined and adjustments could be made on a timely basis. We recognize the important role that cities play in building a strong business climate. The policy decisions made at the local government level impact the ability of local merchants, manufacturers, restaurants, retailers and others to provide jobs and pay taxes. We feel it is important that the TwinWest Chamber of Commerce and our cities work hand -in -hand to ensure the continued success of both cities and business. We look forward to discussing this issue in greater detail should the opportunity arise. Please do not hesitate to contact us with any questions. Very truly yours, Joe Boston Chair, TwinWest Board of Directors North Memorial Health Care Cc: Bruce Rowan, Hopkins City Councilmember Karen Jensen, Hopkins City Councilmember Diane Johnson, Hopkins City Councilmember Rick Brausen, Hopkins City Councilmember Steve Mielke, Hopkins City Manager Barb a Obershaw President, TwinWest Chamber of Commerce