14 November 2006

Colette Jurek

Xcel Energy

414 Nicollet Mall

Minneapolis, MN 55401-1993

Dear Ms. Jurek:

I am a resident of Maplewood, and am writing this open letter to you as both an Xcel customer and shareholder, on the topic of the proposed electric franchise fee/tax increase in Maplewood. I attended the council meeting last night and spoke there, but I wanted to put my thoughts in writing so that you could more easily bring them to your superiors as Xcel and the city of Maplewood continue negotiations on this issue.

Let me begin with some points of agreement. First, I appreciate Xcel sending this letter to Maplewood customers. I think you are right to alert the citizens, who should be encouraged to voice their opinions on tax increases like this, which too often get enacted with little fanfare or public comment.

I also agree in principle with Xcel`s position that the essential services of gas and electricity should not be taxed. A tax like this is regressive, charging the same rate to all taxpayers regardless of their income or ability to pay, and thus taking a bigger percentage of the assets or income of those on the bottom of the economic ladder. In my view, the council did not do themselves any favors by justifying the fee increase as a way to reduce property tax rates – in effect, to shift the tax burden in our community from the wealthier to the less well off. It may benefit my family by a few dollars a year, but the help to me is trivial compared to the harm it does to someone in an apartment building down the street living on a minimum wage job, or a retiree in our neighborhood living on a fixed income.

However, the practical fact is that cities can and do levy these taxes, and they do have reasonable motivations to do so – wishing to raise funds from entities (such as governmental organizations and non-profits) who benefit from city services without paying property tax, and wishing to diversify the city`s sources of revenue, for example. Thus the goal needs to be to negotiate the fee structure that is least harmful.

In the proposed fees discussed last night, all of the tiers in the fee structure were simply multiplied by 5.4. If I understood your explanation, the upper managers at Xcel chose a simple across-the-board multiplier because they believed the earlier rate structure`s proportions had been deemed fair by the council that enacted it.

That is a misunderstanding. In discussions at the previous city council meeting, which I attended, the current city manager and council members clearly stressed that the original 50 cent fee for residential customers was set not because the proportion was desirable, but because that was the minimum fee Xcel was willing to collect. The council began with that minimum, and then collected the balance of the funds from the other meter categories in order to reach their revenue target. The result of this is that residential customers pay taxes far out of proportion to their relative consumption of electricity. (I am sure you know the numbers better than I do, but my recollection is that they consume about 23% of the electricity but pay more than 50% of the electric franchise taxes.)

Also, if the city`s intent is partly to use this as a means of getting tax revenue from entities that do not pay property taxes, that end is not served by increasing the tax on residential meters. (It would surprise me if many residences are property tax exempt.)

I understand that the city is going to ask for adjustments to the specific fees for each Xcel customer type – presumably reducing the increase for the residential customers and asking for higher increases on the commercial/industrial customers, to keep the total revenue the same – in order to align the fee increases with their underlying intent.

As a business owner the idea of paying an even bigger increase is not attractive, of course. (Disclosure: The business I own is not in Maplewood, so I`m speaking in theory.) However, businesses have the ability to pass on increased expenses to their customers – an option that an elderly resident on a fixed income lacks.

I hope that Xcel will agree to these proposed changes. The result would still conform to Xcel`s wish for flat fees rather than fees that would vary month to month, and different rates of increase for the different meter categories thus seems like the least regressive or harmful way for Maplewood to increase the revenue from this tax.

Thank you again for bringing this to the attention of Maplewood residents, and for attending the meeting and answering questions so late into the night.

Sincerely,

John Nephew

Maplewood, MN

cc: Maplewood City Council