4.1. SR 09-23-2002MEMORANDUM
Item ~ 4.1.
TO:
FROM:
DATE:
Mayor and City Council
Pat Klaers, City Admi~at<n
September 23, 2002 ¥
SUBJECT: Discuss Gas Franchise with Reliant Energy Representative Arne
Hendrickson
The 25-year non-exclusive gas franchise agreement with Reliant Energy expires in April
2003. Earlier this year I met with Arne Hendrickson from Reliant Energy regarding renewal
of the gas franchise agreement. Mr. Hendrickson is the Reliant Energy Program Manager for
local government and economic development.
I have requested that Mr. Hendrickson attend this City Coundl meeting to answer general
questions regarding the franchise agreement renewal, service area, potential franchise fees,
etc. Attached for your information is the map of the Reliant Energy gas mains in Elk River.
The city has adopted the short version of the League of Minnesota Cities (LMC) model
right-of-way ordinance. The LMC also has a model gas franchise ordinance. This model gas
franchise ordinance goes "hand in hand" with the model right-of-way ordinance so there are
no conflicts between the two ordinances in terms of language consistency and enforcement
issues. Attached for your information is the model gas franchise ordinance from the LMC
along with some background material (from the LMC) on this model ordinance.
One of the big issues facing the City Council is the possible establishment of a franchise fee
that wood be charged to Reliant for its fight to operate within the city limits. This fee would
be passed on to the customers. For ease of administration, the suggested method by Reliant
for collecting franchise fees is to do it on a meter (customer) basis. Different rates could be
established between residential and non-residential users as well as between small non-
residential users and large non-residential users.
The gas mains are located in the public right-of-way adjacent to or under city streets.
Management of public street fight-of-way is a city obligation and responsibility and the city is
currently looking for funding sources to complete an ongoing street rehabilitation program.
One of the three revenue sources being considered for this street rehabilitation program is
tax revenues. (The other two revenue sources being evaluated are the street reserves and
special assessments.) Two years ago, the city placed some of its tax monies into a street levy
category in anticipation of this street rehabilitation program. With levy limits now being
enforced on municipalities, there is a need for this money to go into the general fund for
general municipal services. Accordingly, it is necessary and makes sense to establish a gas
franchise fee to pay for part of the pavement rehabilitation program so that the street levy
can go into the general fund.
Using revenue from a gas franchise fee in lieu of a tax levy seems more fair and equitable as
this fee is collected from all property owners that have gas service, including churches,
schools, and governmental units. In some cases, churches, schools, or governmental units
can be the largest generator of traffic in the neighborhood and be the major cause for a
street rehabilitation project. If one of the funding sources for the street rehabilitation project
was tax revenue (rather than franchise fees) then these major users of the street would not
be participating in funding this share of the program.
The gas franchise fee is not intended to dominate the discussion with Mr. Hendrickson but
I'm sure it will be part of the conversation. The majority of municipalities in the
metropolitan area do not charge a gas franchise fee, although a few do have an established
fee. According to LMC, the list includes the cities of Newport, Mounds View, North St.
Paul, Coon Rapids and Edina, and from recent newspaper articles we know that other
communities are exploring options relative to this revenue source. Also, some outside
communities like Moorhead, Lake City, and St. Cloud collect a gas franchise fee. By far,
franchise fees charged for cable TV is much more common than gas fees but this may
change in the future as levy limits continue.
BIG I~ ~-E TOWNSHi?
o~4 _
Plotted by:edl~ume RELIANT ENERGY MINNEGASCO - ELK RIVER GAS MAINS Scole: 1in:5400f~
Plot Dote: 09/10/2002 ot 08:41:01 BLUE = ACTIVE, GREEN = IN PROGRESS Nomh
SEP-12-2002 16:16 LEAGUE OF MN CITIES P.02×19
L
League of Minnesata Cities
Cities ~romoting excellence
Model Gas and Electric
Franchise Ordinance
Cooperative between
Suburban Rate Authority
and the League of Minnesota Cities
Revised 10/1/00
SEP-12-2002 16:16 LEAGUE OF MN CITIES P.03×19
BACKGROUND
The following model franchise ordinances are the result of a cooperative effort between James
Strommen of the Kennedy & Graven Law Firm, attorney for the Suburban Rate Authority
("SPA"), and Thomas Grundhoefer, General Counsel of the League of Minnesota Cities. The
ordinances modify previous models published in March 1996.
The SRA is a joint powers organization consisting of 36 Twin City suburban municipalities. The
SRA has actively intervened in electric, gas and telecommunications matters before the
Minnesota Public Utilities Commission (MPUC). Prior to the Commission's creation in 1974,
the SRA. acted as a regulatory body governing gas and electric utilities on behalf of member
municipalities.
The purpose of the two franchise ordinances is to provide uniform provisions that incorporate the
broad municipal statutory franchise fights that exist under Minnesota Statutes Chapters 216B and
300. The franchises also incorporate many of the MPUC's right-of-way management rules
adopted in April 1999. (To take full advantage of the rules and to fully implement the fight-of-
way management authority granted to cities by Minnesota Statute Sections 237.161 -. 163, a city
should consider adopting a comprehensive right-of-way management ordinance by exercising its
option under Section 237.163 subd. 2(b).) In Minnesota, franchises are negotiated and take the
form ora contract set forth in an ordinance. Yet cities have the right to require franchises and to
include certain terms, e, g., franchise fees. There is no case law guidance on what specific
franchise terms may be required by the city. Accordingly, a franchise can incorporate all
reasonable terms within the limits of a city's statutory franchise and police power authority.
These rights are extensive and can be found in Minnesota Statutes, Sections 216B.36, 300.03,
222.37, 237.162 and 236.163 and in case law.
NOTES
The city's legal right to include a particular franchise provision and the practical realities facing a
city when the utility refuses to agree, are two quite different matters however. For example,
though a city may have the right to insist on a franchise fee, potentially as high as 8% of the
utility's gross revenues, it is unlikely that the utility would readily agree to such a percentage
even though the utility passes the fee through to its customers within the city. Utilities are very
concerned in today's increasingly deregulated environment that franchise fees will harm their
competitive position relative to perceived competitors. This fee pass-through also becomes an
issue to the residential and business customers who truly pay it. Thus, cities must be careful to
gauge the level of local acceptance or resistance to the exercise of their full franchise fights under
the law. As a result of the realities of the franchise negotiation and community acceptance
process, a "take it or leave it" franchise ordinance that includes the imposition of franchise fees
and strict right-of-way management provisions may be difficult to enact without compromise.
SEP-12-2002 1G:16 LEAGUE DF MN CITIES P.O4×lS
These models are based on actual ordinances that have been reviewed by gas and electric
companies. Because these models are more city-oriented than many currently existing
franchises, and because of increasing competition between and among energy providers, utilities
have objected to many of the provisions contained in these models. As a result, there is likely to
be vigorous negotiation on at least the following provisions:
I) franchise fees; in form, mount and class of service/large customer distinctions;
2) fee obligation on competitors;
3) rights regarding city-requested location and relocation of facilities; and
4) the scope of the utility's indemnity of the city.
It should be noted that many of the revisions to the March, 1996 Model were made in order to
incorporate MPUC's right-of-way rules on such matters as street restoration, relocation for
utilities, construction performance bonds, mapping information, street vacation, removal of
abandoned facilities, and indemnification. The MPUC right-of-way rules were largely a product
of negotiations between local government units and members of the utility including a number of
gas and electric providers.
Each city must evaluate the importance of the provisions contained in these models as such
provisions may affect the city's particular needs. One franchise cannot fit all because of the
many variations of city-utility relationships, including factors such as: urban, suburban or rural
settings; developing v. redeveloping cities; single v. multiple utilities serving the city;
residential-commercial customer mix; larger employer v. diversified economic base; the presence
of a municipal utility or contemplated utility; and revenue needs of the city.
The authors should be contact if there are any questions about a clause or section. You can call
Tom Gmndhoefer at (651) 251-1266 or James Strommen at (612) 337-9233.
SEP-12-2002 16:1G LEAGUE OF MN CITIES P.05×19
Model Ordinance
LMC/SRA Gas Franchise Ordinance
ORDINANCE NO.
CITY OF
COUNTY, MINNESOTA
AN ORDINANCE GRANTING
A CORPORATION, ITS SUCCESSORS AND ASSIGNS, A
NONEXCLUSIVE FRANCHISE TO CONSTRUCT, OPERATE, REPAIR AND
MAINTAIN FACILITIES AND EQUIPMENT FOR THE TRANSPORTATION,
DISTRIBUTION, MANUFACTURE AND SALE OF GAS ENERGY FOR PUBLIC AND
PRIVATE USE AND TO USE TIlE PUBLIC GROUND OF THE CITY OF
, MINNESOTA, FOR SUCH PURPOSE; AND, PRESCRIBING
CERTAIN TERMS AND CONDITIONS THEREOF.
THE CITY COUNCIL OF THE CITY OF
MINNESOTA, ORDAINS:
COUNTY,
SECTION 1. DEFINITIONS.
For purposes of this Ordinance, the following capitalized terms listed in alphabetical order
shall have the following meanings:
City. The City of , County of
, State Of Mirmesota.
City Utili~ System. Facilities used for providing public utility service owned or operated
by City or agency thereof, including sewer, storm sewer, water service, street lighting and traffic
signals, but excluding facilities for providing heating, lighting, or other forms of energy.
Commission. The Minnesota Public Utilities Commission, or any successor agency or
agencies, including an agency of the federal government, which preempts all or part of the authority
to regulate gas retail rates now vested in the Minnesota Public Utilities Commission.
Company.
, a corporation,
its successors and assigns including all successors or assigns that own or operate any part or parts of
the Gas Facilities subject to this franchise.
Gas Facilities. Gas transmission and distribution pipes, lines, ducts, fixtures, and all
necessary equipment and appurtenances owned or operated by the Company for the purpose of
providing gas energy for public or private use.
SEP-12-2002 16:17 LEAGUE OF MN CITIES P.06×19
Notice. A writing served by any party or parties on any other part3, or parties. Notice to
Company shall be mailed to Notice to the City
shall be mailed to
· Any
party may change its respective address for the purpose of this Ordinance by written notice to the
other parties.
Public Way. Any street, alley or other public right-of-way within the City.
Public Ground. Land owned or otherwise controlled by the City for park, open space or
similar public purpose, which is held for use in common by the public.
SECTION 2. ADOPTION OF FRANCO;~.,
2.1 Grant of Franchise, City hereby grants Company, for a period of years from
the date this Ordinance is passed and approved by the City, the right to import, manufacture,
distribute and sell gas for public and private use within and through the limits of the City as its
boundaries now exist or as they may be extended in the future. For these purposes, Company may
construct, operate, repair and maintain Gas Facilities in, on, over, under and across the PubIic Ways
and Public Grounds, subject to the provisions of this Ordinance. Company may do all reasonable
things necessary or customary to accomplish these purposes, subject however, to such reasonable
regulations as may be imposed by the City pursuant to ordinance or pemait requirements and to the
further provisions of this franchise agreement.
2.2 Effective Date~ Written Aceep~n~ce. This franchise shall be in force and effect
from and after its passage of this Ordinance and publication as required by law and its acceptance
by Company. If Company does not file a written acceptance with the City within 60 days after the
date the City Council adopts this Ordinance, or otherwise informs the City, at any time, that the
Company does not accept this franchise, the City Council by resolution may revoke this franchise
or seek its enforcement in a court of competent jurisdiction.
2.3. Servie~ and Gas Ratae. The service to be provided and the rates to be charged by
Company for gas service in City are subject to the jurisdiction of the Commission.
2.4,
Ordinance.
Publication Expe. nse, Company shall pay the expense of publication of this
2.5. Disput. e Resolutio_n. If either party asserts that the other party is in default in the
performance of any obligation hereunder, the complaining party shall notify the other party of the
default and the desired remedy. The notification shall be written. Representatives of the parties
must promptly meet and attempt in good faith to negotiate a resolution of the dizpute. If the dispute
is not resolved within 30 days of the written notice, the parties may jointly select a mediator to
facilitate further discussion. The parties will equally share the fees and expenses of this mediator.
If a mediator is not used or if the parties are unable to resolve the dispute within 30 days after first
SEP-12-2002 16:17 LEAGUE OF MN CITIES P.07/19
meeting with the selected mediator, either party may commence an action in District Court to
interpret and enforce this franchise or for such other relief as may be permitted by law or equity.
2.6. Continuation of Franchise, If the City and the Company are unable to agree on
the terms of a new franchise by thc time this franchise expires, this franchise will remain in effect
until a new franchise is agreed upon, or until 90 days after the City or the Company serves written
Notice to the other party of its intention to allow the franchise to expire. However, in no event shall
this franchise continue for more than one year after expiration of the -year term set forth in
Section 2.1.
SECTION 3. LOCATION~ OTHER REGULATIONE.
3.1. Location of Facilitie? Gas Facilities shall be located, constructed, and maintained
so as not to interfere with the safety and convenience of ordinary travel along and over Public Ways
and so as not to disrupt normal operation of any City Utility System. Gas Facilities may be located
on Public Grounds as determined by the City. Company's construction, reconstruction, operation,
repair, maintenance, location and relocation of Gas Facilities shall be subject to other reasonable
regulations of the City consistent with authority granted the City to manage its Public Ways and
Public Grounds under state law, to the extent not inconsistent with a specific term of this franchise.
3.2. Street Openin_~s. Company shall not open or disturb the surface of any Public Way
or Public G-round for any purpose without first having obtained a permit from the City, if required
by a separate ordinance, for which the City may impose a reasonable fee. Permit conditions
imposed on Company shall not be more burdensome than those imposed on other utilities for
similar thcilities or work. Company may, however, open and disturb the surface of any Public Way
or Public Ground without a permit if (i) an emergency exists requiring the immediate repair of Gas
Facilities and (ii) Company gives telephone, email or similar notice to the City before
commencement of the emergency repair, if reasonably possible. Within two business days after
commencing the repair, Company shall apply for any required permits and pay any required fees.
3.3. Restoration. After undertaking any work requiring the opening of any Public Way,
the Company shall restore the Public Way in accordance with Minnesota Rules, pan 7819.1100 .and
applicable City ordinances consistent with law. Company shall restore the Public Ground to as
good a condition as formerly existed, and shall maintain the surface in good condition for six
months thereafter. All work shall be completed as promptly as weather permits, and if Company
shall not promptly perform and complete the work, remove all dirt, rubbish, equipment and
material, and put the Public Ground in the said condition, the City shall have, after demand to
Company to cure and the passage of a reasonable period of time following the demand, but not to
exceed five days, the right to make the restoration of the Public Ground at the expense of Company.
Company shall pay to the City the cost of such work done for or performed by the City. This
remedy shall be in addition to any other remedy available to the City for noncompliance with this
Section 3.3. The Company shall also post a cons'auction performance bond consistent with the
provisions of Minnesota Rules parts 7819.3000 and 7819.0100, subpart 6.
SEP-12-2002 16:17 LEAGUE OF MN CITIES P.O8×lg
3.4. Avoid Damage to Gas Faciliti_'~,. The Company must take reasonable measures to
prevent the Gas Facilities from causing damage to persons or property. The Company must take
reasonabIe measures to protect the Gas Facilities from damage that could be inflicted on the
Facilities by persons, property, or the elements. ']['he Company must take protective measures when
the City performs work near the Gas Facilities, if given reasonable notice by the City of such work
prior to its commencement. '
3.5. Notice of Improvements to Street_~, The City will give Company reasonable
written Notice of plans for improvements to Public Ways where the City has mason to believe that
Gas Facilities may affect or be affected by the improvement. The notice will contain: (i) the nature
and character of the improvements, (ii) the Public Ways upon which the improvements are to be
made, (iii) the extent of the improvements, (iv) the time when the City will start the work, and (v) if
more than one-Public Way is involved, the order in which the work is to proceed. The notice will
be given to Company a sufficient length of time, considering seasonal working conditions, in
advance of the actual commencement of the work to permit Company to make any additions,
alterations or repairs to its Gas Facilities the Company deems necessary.
3.6 Maonin_~. Information. The Company must promptly provide complete and
accurate mapping information for any of its G-as Facilities in accordance with the requirements of
Minnesota Rules Pans 7819.4000 and 7819.4100.
SECTION 4. RELOCATION,~.
4.1. Relocation in Public Ways. Thc Company shall comply with Minnesota Rules,
part 7819.3100 and applicable City ordinances consistent with law.
4.2. Relocation in Public Groundaj City may require Company at Company's expense
to relocat~ or remove its Gas Facilities from Public Ground upon a finding by City that the C~s
Facilities have become or will become a substantial impairment to the existing or proposed public
use of the Public Ground. Relocation shall comply with applicable city ordinances consistent with
law.
4.3. Projects with Federal Funding% Relocation,. removal, or rearrangement of any
Company Oas Facilities made necessa~ because of the extension into or through City of a
federally-aided highway project shall be governed by the provisions of Minnesota Statutes Section
161.46.
SECTION 5. LNDEMNIFICATION.
5.1. Indemnity of Cit~. Company shall indemnify and hold the City harmless from any'
and all liability, on account of injury to persons or damage to property occasioned by the
construction, maintenance, repair, inspection, the issuance of permits, or the operation of the Gas
Facilities located in the Public Ways and Public Grounds. The City shall not be indemnified for
losses or claims occasioned through its own negligence except for losses or claims arising out of or
SEP-12-2002 16:18 LEAGUE OF MN CITIES P.Og×19
alleging the City's negligence as to the issuance ofpcnnits for, or inspection of, Company's plans or
work.
5.2. Defense of City. In the event a suit is brought against the City under circumstances
where this agreement to indemnify applies, Company at its sole cost and expense shall defend the
City in such suit if written notice thereof is promptly given to Company within a period wherein
Company is not prejudiced by lack of such notice. If Company is required to indemnify and
defend, it will thereafter have control of such lit/gation, but Company may not settle such litigation
without the consent of the City, which consent shall not be unreasonably withheld. This sect/on is
not, as to third parties, a waiver of any defense or immunity otherwise available to the City. The
Company, in defending any action on behalf of the City, shall bc entitled to assert in any action
every defense or immun/ty that the City could assert in its own behalf This franchise agreement
shall not be interpreted to constitute a wa/ver by the City of any of its defenses of immunity or
limitations on liability under Minnesota Statutes, Chapter 466.
SECTION 6. VACATION OF PUBLIC WAYS.
The City shall give Company at least two weeks prior written notice ora proposed vacation
of a Public Way. The City and thc Company shall comply with Minnesota Rules, 7819.3200 and
applicable ordinances consistent with law.
SECTION 7. CHANGE_IN FORM OF GOVERNMENT.
Any change in the form of government of the City shall not affect the validity of this
Ordinance. Any governmental unit succeeding the City shall, without the consent of Company,
succeed to all of the rights and obligations of the City provided in this Ordinance.
SECTION 8. FRANClgISE FEE.
8.1. Form. During the term of the franchise hereby granted, and in addition to permit
fees being imposed or that the City has a right to impose, the City may charge the Company a
franchise fee. The fee may be (i) a pcrcemage of gross revenues received by the Company for its
operations within thc City, or (ii) a flat fee per customer based on metered serv/ce to retail
customers within the City or on some other similar basis, or (iii) a fee based on units of energy
delivered to any class of retail customers within the corporate limits of the City. The method of
imposing the franchise fee, the percentage of revenue ram, or the flat rate based on metered service
may differ for each customer class or comb/ne the methods described in (i) - (iii) above in
assessing the fee. The City shall seek to use a formula that provides a stable and predictable
amount of fees, without placing the Company at a competitive disadvantage. If the Company
claims that the City required tge formula is discriminatory or other, vise places the Company at a
competitive disadvantage, the Company shall prey/de a formula that will produce a substantially
similar fee amount to thc City and reimburse the City's reasonable fees and costs in reviewing and
implementing the formula. The City will attempt to accommodate the Company but is under no
franchise obligation to adopt the Company-proposed franchise fee formula and each review will not
delay the implementation of the City-imposed fee.
SEP-12-2002 16:18 LEAGUE OF MN CITIES P.1Oxl9
8.2. Separate Ordinance. The franchise fcc shall be imposed by separate ordinance
duly adopted by the City Council, which ordinance shall not be adopted until at least thirty (30)
days a~er written notice enclosing such proposed ordinance has been served upon the Company.
The fee shall become effective ten (10) days after written notice enclosing such adopted ordinance
has been served upon the Company by certified mail.
8.3. Condition of Fee. The separate ordinance imposing the fee shall not be effective
against the Company unless it lawfully imposes a fee of the same or substantially similar amount
on the sale of gas energy within the City by any other gas energy supplier, provided that, as to such
supplier, the City has the authority or contrac~uat right to require a franchise fee or similar fee
through a previously agreed upon fi'anchise.
8.4. _Collection of Fee. The franchise fee shall be payable not less than quarterly during
complete billing months of the period for which payment is to be made. The franchise fee formula
may be changed from time to time, however, the change shall meet the same notice requirements
and the fee may not be changed more often than annually. Such fee shall not exceed any amount
that the Company may legally charge to its customers prior to payment to the City. Such fee i:s
subject to subsequent reductions to account for uucollectibles and customer refunds recurred by the
Company. The Company agrees to make available for inspection by the City at reasonable times
all records necessary to audit the Company's determination of thc franchise fee payments.
8.5. Continuation of Franchiae Fee_-: If this franchise expires and the City and the
Company are unable to agree upon terms of a new franchise, the franchise fee, if any being imposed
by the City at the time this franchise expires, will remain in effect until a new franchise is agreed
upon.
SECTION 9. ABANDONED FACILIT!K$.
The Company shall comply with City ordinances, Minnesota Statutes, Section 216D.01
~ and Minnesota Rules Part 7819.3300~ as they may be amended from time to time. The
Company shall maintain records describing the exact location of all abandoned and retired.
Facilities within the City, produce such records at the City's request and comply with the
location requirements of Section 216D.04 with respect to all Facilities, including abandoned and
retired Facilities.
SECTION 10. PROVISIONS OF ORDINANCI~.
10.1. SeverabiliW. Every section, provision, or part of this Ordinance is declared
separate from every other section, provision, or part; and if any section, provision, or part shall
be held invalid~ it shall not affect any other section, provision, or part. Where a provision of any
other City ordinance conflicts with the provisions of this Ordinance, the provisions of this
Ordinance shall prevail.
SEP-12-2002 16:19 LEAGUE OF MN CITIES P,11/19
10.2. Limitation on Ao01ieability. This Ordinance constitutes a franchise agreemem
between the City and Company as the only parties and no provision of this franchise shall in any
way inure to the benefit of any third person (including the public at large) so as to constitute any
such person as a third party beneficiary of the agreement or of any one or more of the terms
hereof, or otherwise give rise to any cause of action in any person not a party hereto.
SECTION 11. AMENDMENT-PROCEI~Ui~F..
Either parry to this franchise agreement may at any time propose that the agreement be
amended. This Ordinance may be mended at any time by the City passing a subsequent ordinance
declaring the provisions of the amendment, which amendatory ordinance shall become effective
upon the filing of Company's written consent thereto with the City Clerk within 60 days after the
effective date of the amendatory ordinance.
Passed and approved:
Mayor of the City of
, Minnesota
ARc~:
City Clerk, , Minnesota
L~_Sr~.- IDENTIAL
o~ )III1ERCIAL-A
· ~- ]il{1ERCIAL/IHD-B
~)MMERCIAL/IHD-C
~IALL DUAL FU/L-A ·
~I,qLL DUAL FUEL-B
IRGE. DUAL FUEL
· .'PORT. TO'FALS
244
110
139
13
4
1
4889
GAS USAGE
3846468
146373
283444
1613248
?745?2
501902
7266027
FOR ACCOUNTS 'EH ELI4 RIVER FOR TIlE LAST
TOTAL' CUST DliERS/THERHS/DOI-LARS
2,'036,379.60
96,731.71
152,221t. 90
7?7,373.69
237, O?tt. O?
170,906.30
2,400:O0
3, 4?3,118.2?
12 'HON I'HG
RESIDEIITIAL
COH[tERCIAL-'A
COUHERCIAL/IND-B
COHHE RC I AL/I ND-C
SrlALL DUAL FUEL-A'
SHALL DUAL. FUEL-B
LARGE DUAL. FUEL
REPORT TOTALS
4973
243
127.
144
12
4
3
5506
LAST
4168278
131144
317352
1735~268
643183
59010?
1~0~
9093559
12 I'IONTHS USAGE HISTORY FOR THE C:[TY OF
NUMBER OF ACCOUHI'S/THERMS/DOLLARS
2,599,788. 69
99,916. 51
202,285.94
1,027, 92,?.. 67
260,482. 15
228, 75% 82
541, 183.38
4,960,339. 16
El_l(
RIVER