Memorandum 15-056 Natural Gas Assessment District

Memorandum 15-056

TO:                       MAYOR AND COUNCIL

FROM:                 MARVIN L. YODER, INTERIM CITY MANAGER

DATE:                  APRIL 22, 2015

SUBJECT:         GAS ASSESSMENT DISTRICT LOOSE ENDS

At the City Council work-session in February, the City Council considered some of the loose ends regarding the Natural Gas Line Project.

There was discussion about the Free Main Allowance, Subdivision of lots that were already assessed, allocation of funds collected apart from the regular assessments, and the eventual distribution of any remaining funds after the construction loan is paid in full.

On the Council Regular agenda is an Ordinance which sets forth the procedure for lots that are not currently on the Assessment roll but may be connected to the Natural Gas line in the future.    Also, included is an email from the attorney providing background information for the Council.

The purpose of this Ordinance is to differentiate between adding new parcels to the City’s water and sewer utility districts and additions to the natural gas district.  The proposed Ordinance provides that all future additions to the gas district will be handled by Enstar.  The City will not be involved beyond receiving the free main allowance.   

Email from Tom Klinkner:

The “main extension advance” is the amount ($12,085,632) that the City paid ENSTAR to install the distribution system.  The reference to a “new Customer” is to a customer whose property was not included in the assessment district.  When such a new customer connects to the distribution system during the calendar year of its construction or in either of the two following calendar years, the ENSTAR tariff provides for allocation of part of the “main extension advance” to the new customer.  Thus, if there are 3,816 parcels in the district, ENSTAR would charge the new customer $12,085,632 ÷ 3,817 as its prorated share of the Main Extension Advance.   ENSTAR refunds this amount to the City, and the City eventually refunds it to property owners who paid assessments in the district.

Note that this Ordinance does not address the issues with Free Main Allowance.  Ordinance 13-03(S)(2), adopted 2/25/2013, establishes 3 funds.

The Sinking Fund - This fund receives the assessments and is to be used to pay the bonds.
The Reserve Fund - This fund receives revenue from  the Free Main Allowance and several other sources.
The Guaranty Fund - This is a trust fund, established by the City Council to make Bond payments in the event that there are insufficient funds in the Sinking and/or Reserve funds to pay the bonds.

The Ordinance clearly states that “Until the Bond has been discharged … the Reserve Fund may be used only to pay … principal and interest” on the bonds.

The Ordinance does not proscribe a method for distribution of any remaining balance after the Bonds are discharged.