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HomeMy WebLinkAbout05703AMENDED SEPTEMBER 9, 19 91 ORDINANNCE NO. 5703 AN ORDINANCE CONSENTING TO THE TRANSFER OF FRANCHISE RIGHTS FROM CENTEL CORPORATION TO UTILICORP UNITED, INC. WITH CONDITIONS WHEREAS, Centel Corporation ( "Centel ") currently provides electric utility service to the City of Pueblo and its residents by virtue of a franchise granted by Ordinance No. 5222, the duration of which is twenty -five (25) years commencing August 12, 1985; and WHEREAS, under the provisions of the franchise ordinance, Ordinance No. 5222, the City reserved the right to consent to any transfer of the franchise rights and obligations granted to Centel; and WHEREAS, the right of consent and approval to transfer was retained in order that the City could protect its interests and the interests of its citizens as provided in the franchise; and WHEREAS, Centel wishes to sell its Colorado operations to UtiliCorp United, Inc. ( "UtiliCorp ") and in the context of such transaction has requested consent and approval to the transfer of its franchise rights to UtiliCorp; and WHEREAS, the City instituted a proceeding to investigate the potential effects of the franchise transfer on the City and its residents and entertained public comment concerning the franchise transfer at a duly noticed public meeting held on August 21, 1991; and WHEREAS, if consent to transfer the franchise is granted, the City will retain all rights delineated in Ordinance No. 5222. NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF PUEBLO, that: SECTION 1. The City Council does hereby find and determine: 1. UtiliCorp owns and operates a number of electric and natural gas utilities in the United States and Canada. 2. Centel and UtiliCorp have entered a sale agreement which involves the transfer of the Centel Colorado assets either directly to UtiliCorp or through a subsidiary of Centel whose stock will be sold to and merged into UtiliCorp, for a price of approximately $86.8 million, of which $14.5 million is a premium over net book value. 3. In addition to consent to the transfer of the Centel franchise, UtiliCorp is required to obtain other regulatory approvals for the sale of the Centel system. To date, UtiliCorp has received approval from the Federal Energy Regulatory Commis- sion, such approval being conditioned upon certain ratemaking treatment of the premium being paid and the tax consequences of the transaction. The Colorado Public Utilities Commission has established Docket No. 91A -159E to review the asset transfer application filed jointly by Centel and UtiliCorp. By virtue of Decision No. R91 -1077, Administrative Law Judge Kirkpatrick recommended the approval of the transfer unconditionally. The period for the filing of exceptions to Decision No. R91 -1077 is pending. Approvals have yet to be received from the Kansas Corporation Commission and the Missouri Public Service Commission. 4. In the context of the municipal consent proceeding and the pending Public Utilities Commission docket, the City and UtiliCorp have discussed resolution of the disputed issues. Prior to the August 21 public hearing the City received a proposal from UtiliCorp. This proposal was entered as evidence in the record of the August 21 hearing as Exhibit No. 7. According to Exhibit No. 7, if consent to an assignment is granted UtiliCorp will adopt the rates and tariffs of Centel and provide electric service in the same manner as Centel. This commitment conforms to the require- ments of Decision No. R91 -1077. UtiliCorp further commits to -2- retain the Centel retail base rates (residential, commercial and industrial) for a period of three years from the closing of the transaction; however, UtiliCorp excepts from this commitment rate increases associated with regulatory and taxation requirements. Changes in the electric cost adjustment clause also are beyond the scope of this commitment. 5. Through Exhibit No. 7, UtiliCorp represents that it will seek recovery of the $14.5 million premium paid for the Centel Colorado operations during future rate cases only in instances in which the acquisition provides measurable benefits to ratepayers. 6. Account balances in the deferred income tax and the accelerated depreciation accounts currently constitute a credit in the amount of approximately $14 million. The benefit of these accounts may be lost in whole or in part to Colorado ratepayers once this sale transaction between Centel and UtiliCorp takes place. Through Exhibit No. 7, UtiliCorp represents that it will not seek a rate increase simply because of any income tax consequences of the asset sale. 7. UtiliCorp states further that it will retain all existing employees of Centel but will make no commitment to retain an equivalent level of employment in Pueblo. Exhibit No. 7 at page 4. 8. During the hearing held on August 21, Mr. Richard Green, the President and Chief Executive Officer of UtiliCorp, testified concerning the terms contained in Exhibit No. 7. Mr. Green testified that for reasons of prudency UtiliCorp could not entirely waive the right to seek an acquisition adjustment for the -3- premium being paid for the Colorado property. Nevertheless, Mr. Green did express a willingness to tentatively commit to certain conditions being placed upon recovery of an acquisition adjust- ment. Specifically, Mr. Green indicated that UtiliCorp would not seek an acquisition adjustment corresponding with any cost savings resulting from the reduction of employment levels, service levels, or facilities within Pueblo. Further, Mr. Green stated that UtiliCorp would not seek an acquisition adjustment based upon any cost savings resulting from the negotiation and execution of a wholesale power supply contract which is less expensive than the current Public Service Company wholesale power contract. When questioned concerning the removal of the word "simply" from the language UtiliCorp has suggested regarding the tax consequences of the transaction, Mr. Green responded that in order to ensure the rate neutrality of this transaction there would be no effect on rates in the future as a result of the tax consequences of this transaction. Finally, Mr. Green testified that UtiliCorp would be willing to honor the reimbursement ordinance enacted by the City, Ordinance No. 5640, provided the fees and costs associated with the consultants retained to investigate the proposed franchise transfer were reasonable. 9. The purpose for which the City of Pueblo retained consent rights concerning any transfer of the Centel franchise was to assure itself that the rights granted by the franchise to the City and its citizens would be protected in the event that Centel were to transfer its system and obligations to a third party. Under the terms of the franchise, specifically Article III, §1, -4- the franchisee is obligated to provide electric utility service "at the lowest possible cost." The evidence adduced at hearing, both before the Public Utilities Commission and during the August 21 public hearing, indicates that Centel may not have met this obligation when it did not enter into a renegotiated contract with Public Service Company of Colorado which may have saved Centel ratepayers approximately $4 million per year. The evidence suggests that Centel did not enter into the renegotiated Public Service Company contract because the sale agreement between Centel and UtiliCorp prohibited Centel from entering into a new wholesale power supply contract absent approval from UtiliCorp. 10. Based on the record evidence, it is clear that in order to protect the interests of the City and its citizens under Article III, §1, as well as other provisions of the franchise, any approval of the franchise assignment must be conditional. Discus- sions between the City and UtiliCorp have been ongoing concerning the formulation of conditions which adequately protect the City and its citizens yet are acceptable to UtiliCorp. 11. The testimony and responses of Mr. Green to questions from Council focused on a number of concerns with the commitments contained in Exhibit No. 7. Some of the statements made by Mr. Green, although they were not firm commitments, may serve to create a basis upon which the City may grant approval and consent in this matter. Accordingly, the conditions listed below correlate with the requests of the City and explanations received from Mr. Green to certain of the questions posed by Council and staff. The City, through this ordinance, will consent and approve 96.1 the transfer of the Centel franchise to UtiliCorp, either directly or through a subsidiary of Centel, but only upon the conditions set forth below: A. UtiliCorp must commit to forego the recovery of any acquisition adjustment for any costs savings resulting from the reduction in employment levels or services and facilities within the City of Pueblo prior to 2001. B. UtiliCorp must agree to forego any attempt to recover an acquisition adjustment based upon savings resulting from the negotiation and /or arrangement of a wholesale power supply contract which supersedes or replaces the current Public Service Company contract. C. The three year rate moratorium on retail base rate increases will exclude the monthly Electric Cost Adjustment (ECA) filing, and cost increases associated exclusively with any pros- pective changes in state and federal legislation, including tax codes, or mandatory regulatory or accounting requirements D. In addition to the payment required by Art. VIII, §2 of the franchise, UtiliCorp and /or Centel must further commit to reimbursement of the reasonable expenses incurred by the City in the investigation of the proposed franchise assignment as required by Ordinance No. 5640. SECTION 2 The City agrees and UtiliCorp has represented that the effects of this transfer must be "rate neutral." Council believes that only through the inclusion of the conditions set forth in Section 3 hereof will the public interest be protected and the City and ratepayers held harmless from the effects of this transaction. The agreement including the terms and conditions for consent and approval in substantial form are set forth and adopted herein as follows: S TIPULATION AND AGREEMENT UtiliCorp United Inc. ( "UtiliCorp "), Centel Corporation ( "Centel ") and the City of Pueblo, ( "City" or "Pueblo ") stipulate and agree as follows: WHEREAS, the City presently receives electric utility service from Centel, and WHEREAS, UtiliCorp intends to purchase the Colorado electric utility assets, business and operations of Centel (the "Transaction ") and is currently seeking approval of this transfer of assets under C.R.S. 40 -5 -105 from the Colorado Public Utilities Commission ( "Commission "), and WHEREAS, Docket No. 91A -159E is currently pending before the Commission, the purpose of which is to determine whether the Commission will approve, under the standards appropriate to C.R.S. 40 -5 -105, the proposed sale of assets from Centel to UtiliCorp, and WHEREAS, the City is a party to Docket No. 91A -159E, and WHEREAS, the City established separate municipal consent proceedings for the granting or denial of municipal consent to the proposed transfer as required by the franchise agree- ment with Centel, and NOW, THEREFORE, as a condition to City's consent and approval of the Transaction and in an attempt to resolve all issues between the parties with respect to the above -noted matters, the parties stipulate and agree as follows: The City will not file exceptions to or otherwise oppose or seek to appeal Decision No. R91 -1077 as entered in Docket No. 91A -159E. The City will consent to and approve the transfer of the Centel franchise to UtiliCorp either directly to UtiliCorp or through a subsidiary of Centel whose stock will be sold to and merged into UtiliCorp at the closing of the Transaction which is anticipated to take place on September 30, 1991. Immediately after the closing will adopt the electric rates and in effect for Centel. of the Transaction, UtiliCorp and tariffs currently on file UtiliCorp agrees to freeze -7- Colorado retail base rates for a period of three (3) years after the closing date and, if UtiliCorp seeks to increase base rates, will not implement increased base rates until the expiration of the three (3) year period. This rate moratorium specifically excludes the monthly Electric Cost Adjustment filings, and filings to change rates due to prospective state and federal tax changes and filings to implement rate changes resulting from prospective mandatory legislative, regulatory, or accounting requirements which are beyond UtiliCorp's control. During the three year rate moratorium, Pueblo agrees not to file a complaint with the Commission as to the justness or reasonableness of retail rates charged by UtiliCorp such that any action resulting from the complaint could cause an adjustment to rates before the expiration of the three year moratorium. Pueblo reserves the right to intervene in any Commission proceedings concerning any rate change, cost adjustment or other tariff proceedings instituted or filed by UtiliCorp. In any future rate case filed with the Commission, if Utili- Corp should seek rate recovery of any acquisition premium associated with the Transaction, any such request will be based upon measurable benefits to ratepayers resulting from the Transaction. Measurable benefits shall not include any savings which may result from a reduction in employment levels, services or facilities in Pueblo prior to 2001 or from any savings which may result from a new wholesale purchase power contract which UtiliCorp may negotiate or otherwise arrange to replace the existing purchase power contract between Centel and Public Service Company of Colorado. UtiliCorp reserves the right, however, to submit to the Commission as a measurable benefit any savings which may result from UtiliCorp securing a source of power, other than a wholesale purchase power contract, but only to the extent that such savings exceed those which would have resulted from a new wholesale purchase power contract which could have been entered into by UtiliCorp at that time. UtiliCorp will not seek a retail rate increase in Colorado because of the deferred tax and investment tax consequences of the asset purchase and Transaction so long as the depre- ciation and investment tax credit normalization rules of the Internal Revenue Code are not violated. UtiliCorp will continue with its examination of power supply options to replace the wholesale power currently purchased under the contract from the Public Service Company of Colorado. These options include wholesale purchases, life extension of existing power plants, demand side management programs, cogeneration, and construction to interconnect with other sources of energy. UtiliCorp will select the power supply which in its judgment will result in the provision of safe and adequate service to its Colorado customers at just and reasonable rates. The City reserves all rights to intervene in any Commission proceeding concerning the power supply source chosen by UtiliCorp. UtiliCorp will maintain the existing office and service facilities in Pueblo, and will continue to offer existing services through these facilities for a minimum period of five (5) years. UtiliCorp pledges and agrees that no existing Centel Colorado employee will lose his or her job as a result of this Transaction and that such existing employees will be employed by UtiliCorp at their aggregate salary and benefit levels in effect on the date of closing or better. UtiliCorp will appoint an executive liaison to cooperate with the Cities on economic development. UtiliCorp will also join and remain actively involved in the local chambers of commerce and other appropriate economic development organiza- tions. UtiliCorp will also permit the use of its facilities (except generation, transmission and distribution facilities) for economic development activities given reasonable notice and subject to availability. UtiliCorp will establish an advisory panel /board comprised of community and business leaders from Colorado and Kansas service territories. This panel /board will be designed to insure that the citizens located in the Colorado and Kansas service territories have first -hand input into the operations of the division. The panel /board will be composed of at least six individuals and three will be from Colorado. UtiliCorp will make every effort to provide the lowest possible industrial rates consistent with the Colorado Public Utilities Law. UtiliCorp will establish a special engineering and audit unit within its Colorado operating division. This unit may be composed of existing employees. During the six months following the closing of the Transaction, this unit will conduct an extensive energy audit in conjunction with personnel from the City, except to the extent that seasonal usage patterns prevent an effective audit during the referenced six month period, the audit may be performed within the next six months period. The purpose of this audit will be to examine the electric usage of City's governmental facilities. Site - specific examination of the load centers, including, for example, pumping and streetlighting facili- ties, will be conducted. Based upon the data collected and in coordination with relevant City engineering officials, UtiliCorp will make specific recommendations as to how the City can reduce its electric billings through, for example, scheduling of operations, improved equipment, and efficiency improvements. UtiliCorp will provide continuing technical assistance in order to best effectuate the recommendation. Centel or UtiliCorp will pay Pueblo the sum of $375,000 as payment for the franchise transfer fee required by Art. VIII, §2 of the franchise. Centel will reimburse Pueblo the reasonable costs and expenses of its consultants as required by Ordinance No. 5640. Documentation supporting such costs and expenses will be provided prior to payment and the aggregate amount of such costs and expenses incurred with respect to the consent and approval of the franchise transfer and assignment shall not exceed $100,000 for Pueblo and the cities of Canon City and Florence, Colorado. Should the Transaction contemplated by the Centel - UtiliCorp Agreement fail to close for any reason, this Stipulation And Agreement except the last two sentences of the prior paragraph shall become null and void, and none of the parties to this Stipulation And Agreement shall have any obligation to the other parties under the terms of this Stipulation And Agreement except Centel shall still be obligated to comply with the last two sentences of the prior paragraph. UtiliCorp accepts and agrees to be bound by all the terms, conditions and provisions of the franchise granted by Pueblo to Centel by Ordinance No. 5222 (the "Franchise ") and the Street Lighting Agreement between Centel and Pueblo. If any provision of this Stipulation And Agreement conflicts with the Franchise, the provisions of the Franchise shall control. SECTION 3 Consent and approval is hereby granted to the transfer of franchise from Centel to UtiliCorp under the terms and conditions set forth in Section 2 above, consent being effective upon execution of the above referenced Stipulation And Agreement incorporating those terms and conditions, but if such Stipulation And Agreement is not executed within seventy two (72) hours after the effective date of this Ordinance consent and approval to the transfer shall be deemed to be and hereby is withdrawn. SECTION 4 This Ordinance shall become effective immediately upon final passage. If the Transaction contemplated by the Centel - UtiliCorp Agreement fails to close for any reason, this Ordinance shall be -10- deemed to be repealed. ATTEST: C Clerk / f INTRODUCED: August 26, 1991 By JOHN CALIFANO Councilperson APPROV D: Pr sident of the City Council -11- STIPULATION AND AGREEMENT UtiliCorp United ( "Centel ") and the City and agree as follows: WHEREAS, the City f from Centel, and WHEREAS, UtiliCorp Inc. ( "UtiliCorp "), Centel Corporation of Pueblo, ( "City" or "Pueblo ") stipulate resently receives electric utility service intends to purchase the Colorado electric utility assets, business and operations of Centel (the "Transac- tion") and is currently seeking approval of this transfer of assets under C.R.S. 40 -5 -105 from the Colorado Public Utilities Commission ( "Commission "), and WHEREAS, Docket No. 91A -159E is currently pending before the Commission, the purpose of which is to determine whether the Commission will approve, under the standards appropriate to C.R.S. 40 -5 -105, the proposed sale of assets from Centel to UtiliCorp, and WHEREAS, the City is a party to Docket No. 91A -159E, and WHEREAS, the City established separate municipal consent proceedings for the granting or denial of municipal consent to the proposed transfer as required by the franchise agreement with Centel, and NOW, THEREFORE, as a condition to City's consent and approval of the Transaction and in an attempt to resolve all issues between the parties with respect to the above -noted matters, the parties stipulate and agree as follows: The City will not file exceptions to or otherwise oppose or seek to appeal Decision No. R91 -1077 as entered in Docket No. 91A -159E. The City will consent to and approve the transfer of the Centel franchise to UtiliCorp either directly to UtiliCorp or through a subsidiary of Centel whose stock will be sold to and merged into UtiliCorp at the closing of the Transaction which is anticipated to take place on September 30, 1991. Immediately after the closing of the Transaction, UtiliCorp will adopt the electric rates and tariffs currently on file and in effect for Centel. UtiliCorp agrees to freeze Colorado retail base rates for a period of three (3) years after the closing date and, if UtiliCorp seeks to increase base rates, will not implement increased base rates until the expiration of the three (3) year period. This rate moratorium specifically excludes the monthly Electric Cost Adjustment filings, and filings to change rates due to prospective state and federal tax changes and filings to implement rate changes resulting from prospective mandatory legislative, regulatory, or accounting requirements which are beyond UtiliCorp's control. During the three year rate moratorium, Pueblo agrees not to file a complaint with the Commission as to the justness or reasonableness of retail rates charged by UtiliCorp such that any action resulting from the complaint could cause an adjustment to rates before the expiration of the three year moratorium. Pueblo reserves the right to intervene in any Commission proceedings concerning any rate change, cost adjustment or other tariff proceedings instituted or filed by UtiliCorp. -2- In any future rate case filed with the Commission, if Utili- Corp should seek rate recovery of any acquisition premium associated with the Transaction, any such request will be based upon measurable benefits to ratepayers resulting from the Trans- action. Measurable benefits shall not include any savings which may result from a reduction in employment levels, services or facilities in Pueblo prior to 2001 or from any savings which may result from a new wholesale purchase power contract which UtiliCorp may negotiate or otherwise arrange to replace the existing purchase power contract between Centel and Public Service Company of Colorado. UtiliCorp reserves the right, however, to submit to the Commission as a measurable benefit any savings which may result from UtiliCorp securing a source of power, other than a wholesale purchase power contract, but only to the extent that such savings exceed those which would have resulted from a new wholesale purchase power contract which could have been entered into by UtiliCorp at that time. UtiliCorp will not seek a retail rate increase in Colorado because of the deferred tax and investment tax consequences of the asset purchase and Transaction so long as the depreciation and investment tax credit normalization rules of the Internal Revenue Code are not violated. UtiliCorp will continue with its examination of power supply options to replace the wholesale power currently purchased under the contract from the Public Service Company of Colorado. These options include wholesale purchases, life extension of existing power plants, demand side management programs, cogeneration, and -3- construction to interconnect with other sources of energy. UtiliCorp will select the power supply which in its judgment will result in the provision of safe and adequate service to its Colorado customers at just and reasonable rates. The City reserves all rights to intervene in any Commission proceeding concerning the power supply source chosen by UtiliCorp. UtiliCorp will maintain the existing office and service facilities in Pueblo, and will continue to offer existing services through these facilities for a minimum period of five (5) years. UtiliCorp pledges and agrees that no existing Centel Colorado employee will lose his or her job as a result of this Transaction and that such existing employees will be employed by UtiliCorp at their aggregate salary and benefit levels in effect on the date of closing or better. UtiliCorp will appoint an executive liaison to cooperate with the Cities on economic development. UtiliCorp will also join and remain actively involved in the local chambers of commerce and other appropriate economic development organizations. UtiliCorp will also permit the use of its facilities (except generation, transmission and distribution facilities) for economic development activities given reasonable notice and subject to availability. UtiliCorp will establish an advisory panel /board comprised of community and business leaders from Colorado and Kansas service territories. This panel /board will be designed to insure that the citizens located in the Colorado and Kansas service territor- ies have first -hand input into the operations of the division. The panel /board will be composed of at least six individuals and -4- three will be from Colorado. UtiliCorp will make every effort to provide the lowest possible industrial rates consistent with the Colorado Public Utilities Law. UtiliCorp will establish a special engineering and audit unit within its Colorado operating division. This unit may be composed of existing employees. During the six months following the clos- ing of the Transaction, this unit will conduct an extensive energy audit in conjunction with personnel from the City, except to the extent that seasonal usage patterns prevent an effective audit during the referenced six month period, the audit may be performed within the next six months period. The purpose of this audit will be to examine the electric usage of City's governmental facili- ties. Site - specific examination of the load centers, including, for example, pumping and streetlighting facilities, will be conducted. Based upon the data collected and in coordination with relevant City engineering officials, UtiliCorp will make specific recommendations as to how the City can reduce its electric bill- ings through, for example, scheduling of operations, improved equipment, and efficiency improvements. UtiliCorp will provide continuing technical assistance in order to best effectuate the recommendation. Centel or UtiliCorp will pay Pueblo the sum of $375,000 as payment for the franchise transfer fee required by Art. VIII, §2 of the franchise. Centel will reimburse Pueblo the reasonable costs and expenses of its consultants as required by Ordinance No. 5640. Documentation supporting such costs and expenses will be -5- provided prior to payment and the aggregate amount of such costs and expenses incurred with respect to the consent and approval of the franchise transfer and assignment shall not exceed $100,000 for Pueblo and the cities of Canon City and Florence, Colorado. Should the Transaction contemplated by the Centel - UtiliCorp Agreement fail to close for any reason, this Stipulation And Agreement except the last two sentences of the prior paragraph shall become null and void, and none of the parties to this Stipulation And Agreement shall have any obligation to the other parties under the terms of this Stipulation And Agreement except Centel shall still be obligated to comply with the last two sentences of the prior paragraph. UtiliCorp accepts and agrees to be bound by all the terms, conditions and provisions of the franchise granted by Pueblo to Centel by Ordinance No. 5222 (the "Franchise ") and the Street Lighting Agreement between Centel and Pueblo. If any provision of this Stipulation And Agreement conflicts with the Franchise, the provisions of the Franchise shall control. IN WITNESS WHEREOF, the City of Pueblo Centel Corporation, and UtiliCorp United,Inc. have caused this Stipulation And Agreement to be executed in their respective names by their duly authorized officers this 9th day of September, 1991. Pueblo, a Municipal Corporation 2 ATTEST: c By Ci y Clerk Ti le:President of the ity Council APPROVED AS TO FORM: City Atto y ut ii i I By Title Centel Corpor By IL TJ 55.7 -7-