City Council
	Agenda Request
Agenda Of:	12-01-09	Agenda Request No:		viii-a
Initiated By:	Jeff Trinker Management Assistant i	Responsible Department:		Assistant City Manager
Presented By:	Eugenia cano Assistant city attorney	Department Head:		Karen Daly
		Additional Department. Head (s):		N/A
Subject / Proceeding:	Review and Discuss the Proposed Terms of the Gas and Electric Franchise Agreement Renewals with Centerpoint Energy
Exhibits:	N/A
Clearances			Approval
Legal:	Eugenia cano Assistant city Attorney		Executive Director:	N/A
Purchasing:	N/A		Asst. City Manager:	Karen Daly
Budget:	N/A		City Manager:	Allen Bogard/for AB
Budget
Expenditure Required: $			N/A
Current Budget: $			N/A
Additional Funding: $			N/A
Recommended Action
Review and discuss the proposed terms of the gas and electric franchise agreements with CenterPoint Energy Houston Electric, LLC (Electric Franchise) and CenterPoint Energy Resources Corp (Gas Franchise)
Executive Summary
Two of the earliest ordinances the City of Sugar Land’s original City Council approved were franchise agreements related to providing electric and natural gas services to the residents and businesses of Sugar Land. These franchise agreements allowed utility companies to maintain infrastructure and work in the City’s right-of-way in exchange for a fee paid to the City. The original electric franchise, with Houston Lighting and Power Company, was approved by the City Council on January 19, 1960 for a term of 50 years. The gas franchise agreement with Houston Natural Gas Corporation was passed on February 2, 1960, also for a term of 50 years. Consequently, both the current electric and gas franchises are set to expire, respectively, in January and February of 2010. The electric and gas divisions of CenterPoint Energy now hold the rights to these franchise agreements. Earlier this year, City staff contacted representatives from CenterPoint Energy in order to begin the process of negotiating terms for a renewed franchise agreement between the City and CenterPoint Energy. In the past 50 years, the trend for utilities companies has transitioned from negotiating individualized agreements with cities to developing a standardized agreement that is offered to most, if not all, cities served by the company. Furthermore, statutes passed since the original franchise agreements were approved place additional limits on the ability for cities to negotiate individualized agreements. The negotiations and terms to consider for the negotiation were discussed and agreed upon by the Audit & Finance Committee prior to considering the standardized franchise agreements. The City of Sugar Land’s original electric franchise agreement provided for payment to the City of $500 annually as well as 4% of gross receipts. This fee structure was changed upon state deregulation of the electric industry to a fee payment equal to the charge per kilowatt hour determined for 1998 multiplied times the number of kilowatt hours delivered within the City’s boundaries. This statutory fee structure became effective on January 1, 2002. The proposed electric franchise agreement provides for payment of a base fee of $3,331,266.74. The base fee will be adjusted annually by the following formula: (kWh current year/kWh 2005). The amount paid to the City during the franchise term will not go below the base fee. The new franchise fee payment will not change dramatically from the statutory calculation method. For comparison, the electric franchise fee paid to the City for FY09 was approximately $3,273,206. The COSL’s original natural gas franchise agreement provided for payment to the City of Sugar Land of 2% of gross receipts for the residential and commercial sales of gas in the City. CenterPoint’s new standard gas franchise fee offer is for 4% of gross receipts (when original jurisdiction is not surrendered) plus 7 cents per Mcf for gas transported in the City on a quarterly basis. Both City staff, as well as the Audit & Finance Committee, recommend not relinquishing original jurisdiction over rates for gas (the original jurisdiction issue does not apply to the electric franchise). As CenterPoint passes franchise fee costs along to consumers in the form of a pass-through line item on bills (labeled as a “Municipal Tax” by CenterPoint), there has been discussion that the franchise fee remain at 2% of gross receipts in order to avoid an effective increase for citizens. For comparison, the gas franchise fee paid to the City for FY09 at 2% was $372,540. If approved, both of these renewed franchise agreements would have terms of 30 years, with expiration on January 19, 2040.
Exhibits