Discussion:
On Tuesday, December 3, 2019, City Councilor (and SPUC Liaison) Lehman informed the City Council that SPUC was in the process of unilaterally changing the longstanding and agreed to contribution amounts to the City of Shakopee.
Following that announcement, an inquiry was made to SPUC regarding the issue since SPUC staff had at no point made any attempt to notify city staff or council regarding this action, nor made any request to enter into discussions on the issue. Renee Schmid, SPUC's Director of Finance and Administration responded, "The Shakopee Public Utilities Commission is the governing body with authority for setting rates for the electric and water utilities and determining the municipal contribution amounts, neither of which require City Council approval."
On December 6, 2019, I inquired of Ms. Schmid, "Can you please help me understand where SPUC gets the authority to determine municipal contribution amounts without city agreement? This appears to be very different than our history and contrary to city ordinances." I also copied Mr. John Crooks, SPUC Utilities Manager, and Mr. Terry Joos, SPUC President. I received no response to my inquiry.
On Monday, December 16, 2019, SPUC moved ahead and unilaterally changed the formula used to determine the contributions made to the city - without any notice or discussion - effectively severing the long-standing contribution agreement between the two entities.
Based upon City Council's concerns, the City Attorney reviewed the issue and has determined among other findings that:
1) Historically since 1950, SPUC's payment to the City in lieu of taxes has been determined either by agreement between the parties or by a separate action of the City or the state legislature, and
2) In 2001, the City and SPUC agreed to the current formula and the City has not agreed to modify that agreement.
It should be noted that staff has always been willing to discuss reviewing the transfer fees and specifically addressed the issue as part of a June 7, 2019 memo. (SPUC initially voted to table this memo and not address any of the issues it contained, but answered upon City Council's formal request to do so.).
In a section of the memo entitled "Overview of the SPUC City Contribution", it noted that, "SPUC, as do most public utilities, provides a yearly transfer to the city's general fund from both their water and electrical utility operations... SPUC has the second largest sales in water and pays the second largest water contribution to a city, but had the largest sales in electric and is behind 5 of the top 6 in city contributions - several by millions. Based upon this information, would SPUC be amenable to reviewing their contribution in regard to its electrical revenues?" In their July 25, 2019 response, SPUC failed to answer the question directly instead they simply noted the current contribution level.
This issue certainly needs to be discussed by the city and SPUC. The city recently had a comparison of Utility Franchise Fees and Transfers completed by BakerTilly which concluded that, "... the Shakopee Electric Utility budget transfers are considerably less than the comparison utilities and less than the average transfers of the members of APPA. Budgeted transfers from the water utility are considerably greater than the comparison; however, the water utility revenues are also significantly less for each utility than the electric revenues. Perhaps the most relevant comparison is the combined budgeted revenues which shows Shakopee Public Utilities budgets transfers are less than half of the budgeted transfers of the comparison utilities." By adjusting the SPUC contribution rate, we could essentially provide property tax relief to lower income residents - who are disproportionally hit by tax increases due to market forces impact upon the value of affordable housing.