Management Report and Recommendations 12/31/1992

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City of Lino Lakes, Minnesota Management Report, Page 45 • Negotiated a new franchise agreement. • Considered exercising the City's option to purchase the gas utility. The new franchise agreement provides a revenue source to the City of Lino Lakes. Key features of the new agreement are as follows: 1. Term: January 1, 1987 through March 31, 2012. 2. Revenue to the City of Lino Lakes based on 7% of sales except for interruptible sales which are based on 3 %. 3. Cancelable by the City of Circle Pines commencing on January 1, 1992. The City of Lino Lakes has the right to cancel the franchise agreement through the purchase of this system beginning on January 1, 1992. 4. Right to inspect the financial/accounting records to verify revenue calculations. 5. Revenue began accruing on January 1, 1987. Revenue will be received four and one - half months after the year end (i.e., first receipt was in May, 1988). 6. The City has the right to purchase the system at stated terms beginning on January 1, 1992. We commend the City for the successful efforts to receive a supplemental financing source for the City. The City received $24,267 in 1993 which represents the 1992 share of earnings. Earnings from inception of the new agreement total $93,005. Financial uncertainties facing metropolitan cities require diversity of revenue sources to assure adequate funding of operations without severe property tax increases. In November, 1990, at the request of the City, our office prepared a discussion draft of issues related to the possible purchase of the Lino Lakes Gas Franchise. A summary of considerations is as follows: • The City must pay 125% of cost (less depreciation) for assets placed in service after July 1, 1986. • The tasks associated with administering the system may require added or re- assigned personnel. • The City's current Public Works Director has gas utility operation experience. If the City should lose this position, a replacement would be required at a possibly higher or lower cost.