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04-29-91 agenda3 CITY OF RICHFIELD, MINNESOTA Study Session Letter No. 21 Agenda April 29, 1991 Issue Statement: Discussion regarding the City's continued participation in the Suburban Rate Authority (SRA). Background: As previously stated in Council Memorandum No. 31, staff has suggested that the City Council should consider withdrawing from the SRA. Staff has reviewed all expenditures for possible reductions or elimination. The direct benefits the City is receiving from the SRA are difficult to quantify. The dues of this organization are $3,000 for 1991. The joint powers agreement for this organization indicates that any member may withdraw by filing a written notice by June 15. The withdrawal will then take effect at the end of the calendar year. Given this timeframe, it is appropriate for the Council to make a decision on this matter. Formal action will be required at the next regular City Council meeting to allow time for the City to file a written notice of withdrawl. Scheduled to attend this Study Session are: James Strommen from Holmes and Graven; Gloria Vierling, SRA Chair, who will speak on • behalf of the SRA Board; John Pidgeon who will be available for questions or comments; and Glenn Purdue who will answer questions regarding utility matters and other legal questions. Attached to this letter is a memorandum regarding the SRA's background and achievements. Recommended Motion: It is recommended that the City Council discuss the City's continued participation in the Suburban Rate Authority and place their recommendation on the May 13, 1991 City Council agenda for formal action. Basis of Recommendation: 1. Given the financial situation of the for the Council to make a decision as participation in the SRA. 2. The 1991 dues of the SRA are $3,000. 3. The direct benefits received from the quantify. 4. Formal Council action is required on regular Council meeting will give the written notice of withdrawal. City, it is appropriate to the City's continued SRA are difficult to this issue. The May 13 City time to submit a c 4 Alternative Recommendation: 1. The Council could decide not to withdraw from the SRA. 2. The Council could decide to delay their decision. However, if the June 15 deadline is missed, the City will be unable to withdraw for another year. Discussion/Decision Mode: This item is placed on the April 29 Special Study Session agenda for discussion. Respect lly submitted, Ja ZY D. Prosser Ci Manager JDP:cak is ¢¢ V HOLMES & GRAVEN CHARTERED JAMES M. STROMMEN 470 Pillsbury Center, Minneapolis, Minnesota 55402 Attorney at Law (612) 337-9300 Direct Dial (612) 337-9233 April 22, 1991 James Prosser, City Manager City of Richfield 6700 Portland Avenue Richfield, MN 55423 Re: Suburban Rate Authority Dear Jim: Facsimile (612) 337-9310 Enclosed is a Memorandum which provides information on the SRA. You have indicated you would distribute this to the City Council members for our meeting on April 29, 1991 at 6:00 p.m. at Richfield City Hall. As we discussed by telephone, the • SRA intends to have four people present at the April 29 meeting. Gloria Vierling, SRA Chair, will speak on behalf of the SRA Board. John Pidgeon will also be available for questions or comments. Glenn Purdue and I will answer questions regarding utility matters or other legal questions. Thank you for your consideration on this matter. Very truly yours, HOL ES & GRAVEN, CHARTERED James M. Strommen JMS:sd Enclosure cc: Gloria Vierling w/enc. John Pidgeon w/enc. Glenn Purdue, Esq. w/ enc . 0 SUBURBAN 0 RATE AUTHORITY MEMBERS BLOOMINGTON BROOKLYN PARK BURNSVILLE CHAMPLIN CIRCLE PINES COLUMBIA HEIGHTS DEEPHAVEN EDEN PRAIRIE EDINA FRIDLEY GREENWOOD HASTINGS HOPKINS LAUDERDALE MAPLE PLAIN MAPLEWOOD MINNETONKA MINNETRISTA NEW BRIGHTON NORTH ST. PAUL ORONO OSSEO PLYMOUTH RICHFIELD ROBBINSDALE ROSEVILLE • SAVAGE ST. LOUIS PARK SHAKOPEE SHOREVIEW SPRING PARK WAYZATA WEST ST. PAUL WOODLAND MEMORANDUM TO: Richfield City Council FROM: Suburban Rate Authority DATE: April 24, 1991 SUBJ: SRA Background and Achievements The Suburban Rate Authority ("SRA") was organized in 1963, for the purpose of providing group strength in negotiating franchises with the Minneapolis Gas Company, which served the original members. In 1974, the legislature adopted the Public Utilities Act to provide for state regulation of gas and electric utilities, except for cooperative electric associations and municipal utilities. SRA assisted the state in setting up regulation and intervened in the early gas and electric cases with the hope of providing leadership and direction in utility regulation. Since that time, it has been active in matters concerning the Metropolitan Waste Control Commission ("MWCC"), in providing uniform gas and electric ordinances to the membership, gas, electric and telephone rate regulation and in legislation concerning the Public Utilities Commission ("PUC"), with some notable successes. The following highlights SRA involvement in specific matters over the last several years. On page four is an analysis of the dollars the SRA has saved for members through intervention in utility and waste control matters. UNIFORM FRANCHISE ORDINANCES U The statutes allow cities to require gas and electric utilities operating within their boundaries to obtain non-exclusive franchises, which are granted by ordinance. Prior to 1974, these franchise ordinances regulated virtually all facets of gas and electric service, including pricing and conditions of service. SRA members adopted the first SRA uniform franchise in the early 1960s. These expired 20 years later. In 1982, SRA established a committee to work with Minnegasco on a replacement gas franchise. Such a franchise was agreed to in meetings which spanned the course of a year. Counsel is of the opinion that the strength presented by the SRA accomplished very much in terms of providing member cities with a strong gas franchise ordinance. Most SRA members adopted the franchise as negotiated, at insignificant cost. In 1984, the Board formed a committee to negotiate a uniform electric franchise with Northern States Power Company. After many spirited discussions between the committee and NSP representatives, a uniform electric franchise, generally acceptable to NSP, was adopted by the Board in April of 1987, and 470 PILLSBURY CENTER • MINNEAPOLIS, MINNESOTA 55402 • (612) 337-9300 distributed to members for action. Many members have adopted this franchise ordinance. While obtaining company approval of a franchise ordinance acceptable to SRA was far more difficult than with the Minnegasco ordinance, counsel is of the opinion that group strength provided a very significant advantage over the bargaining strength of individual cities, at small cost to individual cities. UTILITY AND WASTE CONTROL MATTERS 1991 NSP General Rate Filing The SRA has actively intervened in the present NSP filing, as well as in the 1990 case which the PUC rejected NSP's $120,000,000 rate increase request. The SRA has focused on the municipal pumpers' rate and street lighting. The SRA is traditionally the only intervenor seeking reduced increases in the municipal pumping rate and has seen consistent success in that effort. 1991 Waste Control Matters SRA maintains an active dialogue with the MWCC. SRA is reviewing the MWCC eighteen year budget for 1992 through 2010. SRA has lobbied the state legislature during the last few years for greater equity in the combined sewer overflow bonding proposals. SRA lobbies to reduce the amount of state general fund bonds used to finance the sewer separation program for Minneapolis, St. Paul and South St. Paul. Northwestern Bell Tier System Review • The PUC will be issuing an order shortly regarding study of the tier system rate design of Northwestern Bell. While a decision is not final, the PUC has indicated substantial interest in the comprehensive review of the Northwestern Bell Twin City Metropolitan Area rate design. SRA has advocated such a review, and is now joined in that portion by the Attorney General and the Department of Public Service. 1990 U.S. West Incentive Regulation Plan We actively intervened in the case involving U.S. West's request to be partially deregulated in its local service to residential and business customers. The final order established stable rates for Twin City local telephone customers of U.S. West through August of 1994. 1987 SAC Refund Plan Sewer Service Areas Rate Structure. SRA provided testimony through Grady Boeck at the legislature. Board resolution supporting changes in sewer services areas and the rate structure as proposed by the study commission. Northwestern Bell Extended Area Service Docket. The SRA made significant progress in demonstrating cost in equities in the Twin City Metropolitan Area Northwestern Bell service area. SRA participation in this case laid the ground work for the pending order reviewing the tier system. • 2 1986 NSP Gas General Rate Case. We monitored this case, which was refiled after the dismissal of the 1985 case because of NSP misconduct in hiring a commissioner before he acted on NSP's rate request. Redeliberation on Northwestern Bell Cases. We obtained very substantial reductions in the tier system ratios. These changes resulted in very significant savings in telephone rates for most SRA business and residential users. 1985 Directors DeGhetto and Honchell served on the Rate Structure Task Force. The Board was active in the formulation of funding proposals for the Combined Sewer Overflow projects in the Cities of Minneapolis, St. Paul and South St. Paul. SRA involvement probably limited the pass-through of these costs to member communities. Northern States Power General Rate Case. The SRA sponsored expert witness Derick Dahlen on, several issues. We "pioneered" an issue as to fossil fuel inventory. We also helped maintain the municipal pumping rate, and we defended prior SRA accomplishments as to accounting practices. Very substantial savings were realized through SRA intervention. This case was appealed to the Court of Appeals and the State Supreme Court and SRA (alone) participated with MPUC in successfully defending MPUC's action. 1984 SRA Director Jim Spore served on the MWCC Administrative Review Committee. Jim and Clayt LeFevere assisted Touche Ross with the • management review study of the MWCC (the "Boland Commission") 1983 Northwestern Bell General Rate Filing. We attacked the tier system of pricing. SRA director Gayle Norberg appeared as a witness. Some gains were made in reducing the tier system ratios, thus resulting in savings to most SRA business and residential customers. 1982 SRA organized and, with other organizations, sponsored a conference on the management of the MWCC. Dubbed "Spotlight on the MWCC," the conference started the ball rolling toward review of management practices, policies and philosophies of the MWCC. The one-day conference was attended by over 100 persons and it started a dialogue which resulted in the management study and rate structure reviews. Minnegasco General Rate Increase. We monitored the financial matters in this case. SRA supported Minnegasco in a failing effort to maintain free inside safety inspections as a condition of service. • 3 1981 SRA created an ad hoc committee on MWCC oversight. The committee, chaired by Bill Schoell, established subcommittees to study operating efficiency, storm sanitary sewer separation, total costs and allocation methodology, future construction program, wage rates, comparative costs and similar districts. Committee reports were received and forwarded to MWCC. NSP Electric General Rate Increase. We monitored the financial matters in this case to assist in preserving accounting principles established previously by the SRA. 1980 NSP Electric General Rate Case. SRA monitored the case, successfully preserving previously established accounting treatment as to nuclear fuel amortization, deferred taxes, and alleged lag in payment of depreciation. Minnegasco General Rate Filing. SRA participated as a party in this case but did not sponsor testimony. It reviewed financial data. 1977 NSP Electric General Rate Case. SRA sponsored testimony of George Hess concerning various accounting practices. 1975 NSP Electric General Rate Case. SRA sponsored the principle of original cost rate base rather then present value). This principle was accepted and had extremely significant and favorable consequences for all consumers. . PUC LEGISLATION Following the disclosures of alleged misconduct by commissioners of the MPUC in 1986 and early 1987, reactive legislation was proposed in the Minnesota legislature. SRA counsel appeared with the Attorney General and with the counsel for the MPUC in urging reasonable corrective action and advising against proposals with were deemed excessive. SRA counsel testified before legislative committees. The resulting statutory amendments provide safeguards for the public. ESTIMATED DOLLAR SAVINGS FROM SRA EFFORTS There are only a few instances where circumstances allow an estimate. In an effort to, be able to contrast savings with assessments, the calculations are made on a per vote basis (5,000 of population). 1975 NSP. George Hess estimated $18 to $ 20 per household. Using 3.4 persons per household, this would be approximately $26,500 per vote. The figure does not include business savings. 1977 NSP. I can find no estimate of dollar savings in the file. The 1975 principles were defended successfully. It is thus reasonable to state that the $ 26,500 per vote continued from 1975 and onward. To be conservative, use five years of $132,000 per vote for NSP electric through 1980. • 4 1980 Minnegasco, 1981 NSP, 1982 NSP, 1982 Minnegasco. I can find no • calculation i the file. We again defended principles previously established in NSP cases. No dollar impact can be fairly calculated. 1982 Northwestern Bell. We commenced our attack on the tier system. Northwestern Bell has estimated a shift away from suburban communities of about $ 2 million to $ 3 million per year as a result of SRA intervention in the three Bell rate cases through the 19801s. Using $ 2 million per year and the assumption that SRA represents approximately half of the suburban businesses and households (this has not been calculated, it is just an estimate), the savings is about $ 6500 per vote per year. Over three years, this is $ 20,000 per vote. 1985 NSP. Our consultant estimated savings due solely to SRA intervention at about $ 8 per household per year. Over the two years the rate was in effect, this is a savings of about $23,500 per vote. 1987 NSP. This case is addressed in a concurrent memo. Estimated savings from the fuel issue is $1,600 per vote per year. MWCC. We have been attentive to shifts of the revenue burden from the central cities to the suburbs. This was particularly true in CSO funding (the Legislature just "undid" some of that success in the "Garbage Bill"). Savings were likely realized in the sewer service area changes and the administrative changes urged by SRA. It is our judgment that these savings were very significant, but they are not quantificable without an undue amount of research, and assumptions which could not be well-supported. Uniform Franchises. The gas and electric uniform franchises were negotiated at a cost of approximately $40 per vote. If as favorable terms could be negotiated individually, which is quite doubtful, cost of staff and attorney time would considerably more. an average member might have 3.5 votes and its costs would thus be $140 for the SRA product. Attorney and staff costs for doing it individually might easily be ten times that, a savings of $1260 per member or $ 360 per vote. Summary. A conservative estimate of dollar savings to SRA members because of SRA activities over the years since 1975 is $177,460 per vote. Very likely a case could be made for multiples of this figure. SRA assessments through 1988 total $1,513.50 per vote or 0.85 percent of the estimated savings, without regard for the non-qualifiable rewards of membership. The per vote assessment history is: 1984 - $245.40 1985 - 368.10 1986 - 200.00 1987 - 350.00 1988 - 350.00 1989 - 350.00 1990 - 350.00 1991 - 375.00 0