VII.2. Gas and Electric Franchise Fee Update; Bishop
CITY OF HOPKINS
Memorandum
To: Honorable Mayor and Council Members
Mike Mornson, City Manager
From: Nick Bishop, Finance Director
Date: May 9, 2023
Subject: Gas and Electric Franchise Fee Update
_____________________________________________________________________
PURPOSE
To seek guidance on renewing or increasing franchise fees beginning on January 1,
2024.
INFORMATION
What are franchise fees? Are they a tax?
Minnesota Cites have statutory authority to impose a franchise fee on utility companies
for the use of public right-of-ways. The utility companies collect the fees from their
customers and remit back to the City. Hopkins collected $960,541 for gas and electric
franchise fees in 2022. The City also has separate cable franchise fees that will not be
addressed in this memo.
Franchise fees are not technically considered a tax, but do have similar properties.
Unlike property taxes, all users, including schools, governments, churches and other
non-profits will pay the fee. Franchise fees are not tied to the value of the property,
meaning all single-family homes would pay the same amount.
What can franchise fees be used for?
Franchise fees can be used for any public purpose. Currently, franchise fees in Hopkins
are being used to reduce the tax levy in the General Fund, for park improvement and to
pay debt for the 2019 City Hall remodel project. The attached chart shows 9
comparable cities with franchise fees and their purpose.
Finance Department
What are the current franchise fees in Hopkins?
The City of Hopkins adopted two franchise fee ordinances beginning on 1/1/2019 with
five year terms. They both expire at the end of 2023. Residential customers pay $3.50
monthly for electric service to Xcel Energy and $3.50 monthly for natural gas to
Centerpoint Energy. Both fees were increased by $1.30 or 59.1% per month.
Commercial and industrial customers pay higher rates based on type and size of meter.
A chart showing the detailed analysis of rates paid by type and number of customers is
attached.
How do property taxes and franchise fees differ for residential properties?
Different users will pay different amounts when levying taxes or collecting franchise
fees. In order to collect $250,000 of revenue a median value home ($361,000) would
pay taxes of $32.95 or franchise fees of $21.86 annually.
What are the issues to consider?
Renew or Increase – Franchise fees can be either renewed at their current rates
or increased beginning on 1/1/2024. The most recent increase in 2019 totaled
$2.60 per month or 59.1%.
Increase for a specific purpose – A franchise fee increase could be used for any
public purpose or used in the general fund to reduce the tax levy.
Length of Ordinance – Prior ordinances have been for 2 or 5 years. The most
recent ordinances were for 5 years.
FUTURE ACTION
Gas and electric franchise fees are each established by separate ordinance. Xcel and
Centerpoint each need to be provided with a written notice of proposed ordinances
before July 14th. The first reading and second reading/adoption could occur on
September 19th and October 3rd.
City of Hopkins
Monthly Franchise Fee Comparison
May 9, 2023
\\lisa\Share\FINANCE\Franchise Fees\2024 Fee Increase\5.9.2023\Summary of Proposed Increase v2
City Electric Gas Total Purpose
Brooklyn Center 1.65 1.66 3.31 Street Improvements
Edina 2.90 2.90 5.80 Pedestrian and cyclist safety, conservation and sustainability
Hopkins 3.50 3.50 7.00 General fund, parks, municipal buildings
Champlin 3.62 3.98 7.60 City infrastructure
Richfield 4.10 4.10 8.20 Street maintenance - mill & overlay, curb & gutter, sealcoating
Minnetonka 4.50 4.50 9.00 Undergrounding electrical wires, street light improvements and trails
Chanhassen 5.00 5.00 10.00 Pavement Maintenance Program
Golden Valley 6.00 6.00 12.00 Water, sewer, storms water and street infrastructure
Saint Louis Park 6.75 6.75 13.50 Pavement Management
Comparable Cities without Franchise Fees: Columbia Heights, Crystal, Fridley & Roseville
Shakopee collects 3% for both gas and electric
City of Hopkins
Franchise Fee Summary
May 9, 2023
\\lisa\Share\FINANCE\Franchise Fees\2024 Fee Increase\5.9.2023\Summary of Proposed Increase v2
Number of
2019-2023 Customers General Parks Capital Total
Xcel Energy Monthly Rate Dec 2022 Fund Fund Fund Collections
Residential 3.50 8,441 101,292 121,550 131,680 354,522
Small C & I Non Demand 6.15 674 16,176 14,963 18,602 49,741
Small C & I Demand 24.70 303 32,724 23,634 33,451 89,809
Large C & I 170.50 68 51,408 34,680 53,040 139,128
9,486 201,600 194,827 236,773 633,200
Number of
2019-2023 Customers General Parks Capital Total
Centerpoint Energy Monthly Rate Dec 2022 Fund Fund Fund Collections
Residential/Commercial A 3.50 5,073 60,876 73,051 79,139 213,066
Commercial B 8.75 200 7,200 6,000 7,800 21,000
Commercial/Industrial C 24.70 202 21,816 15,756 22,301 59,873
Small Dual Fuel A 48.55 15 3,240 2,250 3,249 8,739
Small Dual Fuel B 170.50 - - - - -
Large Volume Dual Fuel 170.50 1 756 510 780 2,046
5,491 93,888 97,567 113,269 304,724
Total Residential 7.00 Total 295,488.00 292,394.40 350,041.80 937,924.20