Franchise Fee

Tuesday May 17, 2016

Public Hearing

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 a flat $3.00 monthly fee

Estimated dollar impact of a 3% 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 Gas or Electric Estimated Annual Revenue

SPUC Electric $1,313,996

Xcel Energy Both $416,000

CenterPoint Gas $503,000

MVEC Electric $1,775

Total $2,234,771

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

$920,775

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, non-

demand 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.