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Utility Franchise Fee
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Gas & Electric Franchise Fee

In February 2016, the Burnsville City Council established franchise fees on utilities (gas and electric) to help offset future property tax/special assessment increases.

Prior to implementing, City staff met with Burnsville’s four utility companies – Xcel Energy, Dakota Electric Association, Minnesota Valley Electric Cooperative and CenterPoint Energy to discuss these new fees. The utility companies operating within the City’s boundaries did not oppose franchise fees as they consider these fees a local government decision. 

What is a Franchise Fee?
Under Minnesota Statute (216B.36), cities can impose a fee on utility companies that use the public rights-of-way to deliver service. The City can determine the amount, structure and use of franchise fees. Generally, they are structured in one of two ways: 
 
  • A flat rate per utility account OR
  • A percentage of consumption used by each utility account

The City chose the “flat rate” fee, rather than one based on consumption - which would vary each month.

What Does This Mean for Residents? 
Utility companies have the right to pass franchise fees on to their customers.Utility customers have likely seen a line item on their gas and electric bills for a “City fee.” The utility companies collect this fee and remits it to the City.

Residential Franchise Fee
The current franchise fee $1 per month, per account on residential gas and electric bills. That means, utility customers see a $1 fee on BOTH their gas and electric bill.

Commercial Franchise Fee
Commercial rates vary based on the utility company’s account classification based on usage volume. The commercial fees range from $3-$10 for small to medium accounts and $45 per month for high volume accounts.


Why Franchise Fees?
Utility franchise fees help cities cover increasing costs of providing important services – such as maintaining aging facilities and infrastructure – without raising property taxes. Many cities in Minnesota have them in place.

These fees are also more equally distributed than property taxes, and would be paid by ALL utility customers - even those who do not currently pay property tax.

What Other Cities Collect Utility Franchise Fees?
In 2016, within the Xcel Energy service area, 66 cities collect electric franchise fees and 51 cities collect gas franchise fees. Below is a list of the City of Burnsville’s market cities as it relates to the collection of utility franchise fees. 

   

 City

Residential Electric Franchise Fee

Commercial Electric Franchise Fee

Residential Gas Franchise Fee

Commercial Gas Franchise Fee

Apple Valley

 2%

2%

No

No

Brooklyn Park

 $7

$7.50-$160

$7

$7.50-$160

Coon Rapids

 4%

4%

4%

4%

Eagan

 No

No

No

No

Eden Prairie

$2.50

$3-$45

$2.50

$3-$45

Edina

 $1.45

$2.90-$40

$1.95

$3.40-$40.50

Lakeville

No

No

No

No

Minnetonka

$2.50

$4.50

No

No

Plymouth

$2

$3-$40

$2

$3-$40

St. Louis Park

$3.25

$6.50-$105

$3.25

$6.50-$105


Other metropolitan cities collecting utility franchise fees include Brooklyn Center, Chaska, Cottage Grove, Deephaven, Excelsior, Golden Valley, Hopkins, Little Canada, Maplewood, Minneapolis, Mounds View, New Brighton, New Hope, Osseo, Prior Lake, Richfield, Robbinsdale, Rogers, Shoreview, South St. Paul, Spring Lake Park, St. Paul and Stillwater.

What are the Pros and Cons of Franchise Fees?
When comparing franchise fees as a revenue sources to property taxes, some advantages include:  
  • Cover a wider base than property taxes 
  • Will diversify the City’s revenue sources
  • Reliable sources of revenue
  • A flat-rate franchise fee would be the same for each property, making it easy to administer
  • New construction would contribute immediately, which would eliminate the one to two-year lag for the City to receive property taxes for property owners receiving municipal services

Some potential disadvantages include:
  • Everyone must pay since gas and electricity are needed. This is unlike a cable franchise fee where only subscribers choosing to receive the service are subject to paying the fee
  • A flat-rate franchise fee would be the same for all homes, regardless of their value
  • Franchise fees are not tax deductible

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