City Council considering legal action against Shakopee Public Utilities

The ongoing power struggle between the city of Shakopee and Shakopee Public Utilities continues Tuesday night when the City Council plans to meet in closed session to discuss potential legal action against the utility.

According to the council agenda item, councilors will “discuss matters protected by the attorney-client privilege pertaining to potential litigation by the city relating to actions taken by the Shakopee Public Utilities Commission at its December 16, 2019 meeting.”

At its Dec. 16 meeting, SPUC approved changes to its annual contribution formula, which calculates how much money the utility pays the city each year in lieu of taxes. Historically, changes to SPUC’s payment-in-lieu-of-taxes (PILOT) have been determined as an agreement between SPUC and the city or by separate action of the city or state legislature, meaning SPUC’s December approval of a new PILOT rate is out of step with precedent dating back to 1950.

According to a memo sent to City Council by City Attorney Jim Thomson on Jan. 16, SPUC’s action to modify the PILOT rate is not effective without City Council approval.

The current agreement on the utility’s contribution was established in 2001. Since then, SPUC has paid the city 2.71% of gross annual electric sales and 23.77% of SPUC’s gross water margin, according to Thomson.

Per the new contribution formula, SPUC intends to pay the city 4.4% of its electric sales revenue and 4.4% of its water sales revenue.

In January, the Shakopee Valley News reported the change in rate would have been about $22,000 less per year based on SPUC’s last five years of PILOT contributions, according to Finance Director Nate Reinhardt.

“Until the City approves the new method adopted by SPUC on December 16, 2019, the 2001 agreement remains the operative agreement between SPUC and the City, and SPUC’s payment to the City should continue to be calculated pursuant to the terms of that agreement,” Thomson’s memo states.

According to the resolution passed by SPUC in December, the commission wanted to modify the PILOT rate “to preserve adequate utility reserves and to minimize or avoid a rate increase.”

The City Council meets Tuesday, Feb. 18, at 7 p.m. at City Hall. The closed session to discuss potential legal action will take place after the regular meeting.

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