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Memorandum <br />June 19, 2008 <br />2. This formula also can be adjusted for each customer class creating the ability to <br />reduce the potential fee for large customers. <br />3. This is a "deregulation proof' formula. In other words, even if the franchised utility <br />has a substantial drop in its revenues in the city because of customers purchasing their <br />power from an outside utility provider, the franchise fee will not change. This can be <br />demonstrated by the following example. Years ago there was discussion on and <br />experiments with aggregating smaller customers such as residents and allowing aggregated <br />as well as larger customers to purchase electricity or gas from a provider other than the <br />franchised utility. Currently, all residents in Minnesota must buy their gas and electricity <br />from the utility serving them at their place of residence, e.g., the franchised utility. If City <br />residents were allowed, e.g., to buy electricity from Minnesota power, it would be <br />"wheeled" by Xcel or Connexus into the city. Xcel or Connexus' gross revenues would <br />decrease by the amount of electricity aggregated residents had purchased from Minnesota <br />Power. On a collective basis, that could dramatically drop the gross revenues. The usage - <br />based fee would not be affected by this phenomenon because it is based on the customer's <br />usage, not the franchised utility's gross revenues.. <br />Cons: <br />1. Xcel has expressed its opposition to this method because it finds administration of <br />the separate formula to be cumbersome and more costly. This approach is used only in New <br />Brighton and St. Paul, in part, to my knowledge. These are both Xcel cities. <br />2. Arriving at a series of appropriate formulas that equalize franchise fee burdens <br />among different classes and gas and electric users of different utilities adds a level of <br />complexity to the franchise fee negotiation process and may need to be adjusted over time <br />due to changing commodity prices. <br />3. It may add to customer confusion because it would be based on a different formula <br />for a franchise fee than the formula established for the rest of a customer's bill. <br />335300v1 JMS LN140 -105 <br />