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<br />STAFF REPORT <br /> <br /> Date: October 8, 2024 <br /> <br />TO: Mayor and Council <br />FROM: Clarissa Hadler, Finance Director <br />AGENDA ITEM: Utility Franchise Fees <br /> <br />Utility Franchise Fees are used by many cities to cover increasing costs of providing important services. <br />These fees would result in higher utility bills for Lake Elmo residents and businesses. <br /> <br />In 2022, city staff had received direction to move forward with utility franchise fees to generate additional <br />revenues for the city. Soon after that, there was staff turnover, and the project was set aside. Staff again <br />asked about it briefly at the July 2024 workshop, and council members seemed generally supportive of <br />pursuing the additional revenue stream. In discussing the topic again at the August Budget Workshop, <br />council members generally agreed that the preference was to have that revenue allocated to something in <br />particular, though nothing was decided specifically at that time. <br /> <br />The purpose of this workshop discussion is to establish the following; <br />1. Answer questions as necessary regarding the city’s authority is establish fees and what the process <br />is. <br />2. What are the specific fees we want to charge? <br />3. Where would we like that fee revenue to be allocated? <br /> <br />Attorney Robert Vose, Kennedy & Graven, is currently negotiating w/ Xcel regarding some of the terms of <br />the franchise agreement. As such, we won’t go into the details of that agreement until said negotiations are <br />more thoroughly worked through. Centerpoint Energy also has a number of customers in the city, so a <br />separate, but similar, franchise agreement will be negotiated with them after the Xcel agreement is <br />complete. <br /> <br />The tables below show the high/low/averages electrical and gas franchise fees for all MN cities (flat rates <br />only) and the Lake Elmo estimates provided at the August budget workshop. Staff looked at the fee <br />estimates that were evaluated in 2022, long-term financial goals of the city, including tax rate goals, and <br />started with a goal of $500,000 in annual franchise revenue. That goal is what Xcel utilizes to provide the <br />fee estimates. <br /> <br />Franchise Fees - Electricity <br /> <br />Residential Small C&I <br />Non-Demand <br />Small C&I <br />Demand <br />Large C&I <br />Average $ 3.08 $ 5.52 $ 20.60 $ 123.79 <br />High $ 7.00 $ 21.94 $ 63.00 $ 990.00 <br />Low $ 0.50 $ 0.50 $ 0.50 $ 0.50 <br />Lake Elmo <br />Prelim. Estimate ≤ $ 4.00 ≤ 6.00 ≤ 20.00 ≤ $ 125.00 <br />Number of Cities 83 82 83 82 <br /> <br />