07-12-2023 Workshop Packet - Laserfiche WebLink

Home Browse Search

STAFF REPORT TO: Mayor Fischer and Members of City Council FROM: Chris Heineman, City Administrator Sam Magureanu, Finance Director DATE: July 12, 2023 RE: Consideration of Electric and Gas Franchise Fees ACTION TO BE CONSIDERED: No action required at this time. Staff will provide additional background information and answer questions regarding the existing utility franchise fees imposed on our energy providers. The City Council is asked to provide feedback on possible revisions to our existing franchise agreement with Xcel Energy BACKGROUND: The Minnesota Public Utilities Commission regulates public utilities and has authorized cities to impose a franchise fee on energy providers for utilization of public rights-of-way through a utility franchise agreement. When a franchise fee is levied on a private utility, it is passed on directly to customers and itemized on customer bills. These fees are invoiced and collected from all property classes, including residential and commercial property, public agencies, and non-profit businesses. Franchise fees are an equitable way to raise funds for important infrastructure needs. A franchise fee can only be implemented through a franchise agreement with the local energy provider (Xcel Energy). There are more than 370 franchise agreements that have been established in Minnesota which enhance the strong working relationships by providing clear expectations and support consistent and efficient operations. The City of Little Canada has a long history of working in partnership with Xcel Energy, and both gas and electric franchise agreements have been in place for many years. Even though the City of Little Canada has both gas and electric franchise agreements in place, we have only levied a franchise fee for the electric franchise. The current version of the Electric Franchise Fee was initially adopted in 2003 and the Ordinance was updated on May 12, 2010. Franchise Agreements with Xcel Energy have a 20-year term, and the current agreement is set to expire on August 26, 2023. Staff has been in communication with representatives from Xcel Energy, and a letter was submitted to the Minnesota Public Utilities Commission (PUC) extending the terms of the current agreement until a new franchise agreement is negotiated. Pursuant to Section 2.6 of our Electric Franchise Ordinance, the agreement will remain in effect until a new franchise agreement has been agreed upon, but no later than one year after expiration of the 20-year term, which means no later than August 25, 2024. As we evaluate the current franchise agreement and consider potential revisions to the franchise fees, one of the key questions will be how much revenue is needed on an annual basis from franchise fees. Capital infrastructure costs have increased significantly in the past decade, and staff are looking at the possibility of increasing the existing electrical franchise fees and/or adding a gas franchise fee in order to generate additional revenues to fund the increased cost for capital infrastructure.