Franchise Fee

Public Hearing
Tuesday
May 17, 2016

What is a Franchise Fee?

The ability of a municipality to impose a fee for
the use of the public right of way.
Authority for establishing granted by state law
(MN Statutes 216B.36).
Cities have the right to determine the amount,
structure, collection schedule and use of the
fee.
All options are on the table

What is a Franchise Fee? (cont.)

Fee is paid to the City by the utility provider
Apply to all utility customers including
schools, churches, governments
Most utilities pass on to the customer
SPUC = special case

How are Franchise Fees Structured?

Two ways to structure

Fixed charge per account

% of customer energy usage

Typically distinguishes between types or

classes of uses
Residential
Commercial/Industrial
Small (Demand and Non-demand)
Large business

Impact of Fixed vs. Percentage Charges

Estimated percentage impact of Estimated dollar impact of a 3%
a flat $3.00 monthly fee
monthly fee
Residential*

5.19%

$1.70

Com - Small

5.75%

$1.54

Com/Ind - Med

1.98%

$4.47

Com/Ind - Large

0.26%

$33.79

Dual Fuel-Small Volume

0.21%

$43.01

Dual Fuel-Large Volume

0.03%

$256.79

* - Average household gas bill estimated at $56.80/month

How is Franchise Fee put in place?

Established through the adoption of an
ordinance and a franchise agreement with
the utility that sets the fee.
No public hearing is required.
90-day waiting period between passage
and implementation.

What are the Fees Used For?

Can be used for any public purpose
Initial Thoughts - Use for future capital
improvements (Infrastructure)
Pavement management
Road maintenance
Construction Projects

Not for parks/trails/park assets

Well funded park system

Current Conditions/Impact
Currently Using Public Right of Way
SPUC (electricity and water)

Special Case as currently pays PILOT of 3.13%

Water no change as not affected by proposal

Xcel Energy (electricity and gas)

Minnesota Valley Electric Coop (electricity)
CenterPoint (gas)
Comcast (cable)
No change as not affected by proposal

Century Link (cable) in negotiation

SPUC PILOT
Payment In Lieu of Taxes
2.71% (set by resolution)

Contribution for Street Lights

0.42% (hours of operation multiplied by rate)

Total
3.13%
2015 = $1,313,996

Proposal Would Affect $

Xcel Energy
Electric & Gas combined estimated at $416,000
annually at 3%.

Minnesota Valley Electric Coop

Electric only estimated at $1,775 annually. 88
customers and all are residential.

CenterPoint
Gas only estimated at $503,000 annually at 3%.

Combined Franchise Fees across all

Utilities
Utility
SPUC

Gas or Electric

Both

CenterPoint

Gas

Total

$1,313,996

Electric

Xcel Energy

MVEC

Estimated Annual
Revenue

Electric

$416,000
$920,775

$503,000
$1,775
$2,234,771

* SPUC customers are already contributing this fee, $920,775 would be a

new revenue

Implementation by Cities MN
As of 2014
101 cities in the 7 county metro area
357 in the state

Burnsville adopted earlier this year

Wide range of fee structure
2% to 5%
$1.00 - $7.00 (residential) Fixed Charge

General Thoughts for Shakopee

Franchise Fee
3% of usage for residential, commercial and
industrial
All equal and no need to determine demand, nondemand or other categories

Would replace 3.13% SPUC PILOT and street

lighting contribution (structure TBD)
Dedicated to Capital Improvements and
Infrastructure

Why Looking at Now?

Directed to by Council on 9 Feb 2016

Preparation for future infrastructure needs
Diversification of Revenue Stream
Help offset need for future tax increases (affects all
energy users not just taxpayers)
Equity
All but a handful of residents, and a vast majority of
businesses currently participate in SPUC PILOT
With a lower % contribution to the city it will extend the
timeline until an energy increase for SPUC users.