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Utility Franchise Fee
Proposed Gas & Electric Franchise Fee
The Burnsville City Council is considering establishing franchise fees on utilities (gas and electric) to help offset future property tax/special assessment increases.

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

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Click here to comment on the proposed Utility Franchise Fee




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

Currently, the City is focusing its discussions on the “flat rate” fee option, 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. If implemented, utility customers would likely see an increase on their gas and electric bills noted as a “City fee.” The utility companies would collect the franchise fees  and remit them to the City.

The current proposal is to add a $1 per month, per account fee on residential gas and electric bills. That means, utility customers would see the addition of a $1 fee on BOTH their gas and electric bill. Commercial rates are proposed to vary based on the utility company’s account classification based on usage volume. The commercial fees will range from $3-$10 for small to medium accounts and $45 per month for high volume accounts.

Why Implement a Franchise Fee?
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 already 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?
Currently, 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

What Happens Next?
The Burnsville City Council has asked staff to prepare an ordinance that would dedicate the new utility franchise fee toward the City's Infrastructure Trust Fund (to address long-term street repairs and maintenance) and its newly established Facility Fund (to help address deficiencies and long-term facility needs).

The City is currently negotiating with the utility companies regarding franchise fees. Once agreements are in place (anticipated to be sometime in February 2016), the City Council would establish a new ordinance to collect the fees. After the ordinance is adopted, utility companies would have 60 days to notify the Minnesota Public Utilities Commission before implementing the fee. 
 
Task Timeline (Start)
Negotiate Franchise Agreements with individual providers December 2015
Establish Franchise Fee Ordinance February 2016
Utility Companies Implement Franchise Fee and Notify Minnesota Public Utilities Commission March 2016
Utility Providers Collect Franchise Fees from Ratepayers June 2016
City Receives Franchise Fee From Utility Providers  July 2016

The City Wants to Hear From You
There is no general statutory public hearing or notice requirement. However, the City wants to provide the public the opportunity to provide comments, questions and concerns.

Please click HERE to submit comments or suggestions online.
You may also send comments or suggestions to Finance Director Kelly Strey via email at or via telephone at 952-895-4493.

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