VII.2. Franchise Fee Proposal Based on Utility Revenues; Bishop
CITY OF HOPKINS
Memorandum
To: Honorable Mayor and Council Members
Mike Mornson, City Manager
From: Nick Bishop, Finance Director
Date: August 15, 2023
Subject: Franchise Fee Proposal Based on Utility Revenues
_____________________________________________________________________
PURPOSE
To seek feedback and guidance on a franchise fee proposal based on utility revenues.
INFORMATION
City Council has had three meetings to discuss gas and electric franchise fee
ordinances that expire on December 31, 2023. City Council directed staff to increase
fees for five-year term and to continue subsidizing the general fund and supporting the
parks and capital improvement funds. City Council was in support of increasing the fees
for parks and sustainability. City Council has directed staff to pursue a franchise fee
model based on utility revenues.
Recommended Proposal
Hopkins first implemented franchise fees in 2004. Fee updates have been based on
across the board increases for each account type and by making comparisons to other
communities. Staff has reviewed utility revenue by account type compared to franchise
revenue. The current breakdown of fees between residential and commercial properties
is 57% to 43%, respectively. This is compared to the utility revenue break down
between residential and commercial of 36% to 64% respectively. Residential properties
are paying a greater percentage when compared to the total utility costs.
A new fee methodology based on percentages will reduce the disparity. The following
charts show the recommended rates based on a percent of utility revenues and a
projected average fee for each account type. Customers would pay more or less than
the averages based on usage.
Residential
Small C&I
Non
Small C&I
Demand Large C&I
Current 3.50$ 6.15$ 24.70$ 170.50$
Proposed 5.00% 4.25% 4.25% 4.25%
Average Fee 3.78$ 5.16$ 36.72$ 619.86$
Xcel Energy
Finance Department
Residential
Commercial
A
Commercial
B
Commercial/
Industrial C
Small Dual
Fuel A
Small Dual
Fuel B
Large
Volume
Dual Fuel
Current 3.50$ 3.50$ 8.75$ 24.70$ 48.55$ 170.50$ 170.50$
Proposed 5.00% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25%
Average Fee 3.83$ 3.23$ 9.44$ 51.91$ 74.84$ 120.42$ 1,097.35$
Centerpoint Energy
The proposed fees are broken out between residential and commercial customers at
40% to 60%, respectively. The utility revenue breakdown is the same residential and
commercial customers at 36% to 64%, respectively.
Franchise fees continue to be a small part of both residential and commercial utility bills.
The following charts show the projected average monthly costs based on the proposed
rates:
This proposal would generate approximately $1.54 million of revenue. This is $127,811
higher than previous proposals. The additional amount can be used for any
governmental purpose. City Council can allocate the funds during the ongoing budget
process.
Proposed Uses of Franchise Fees
Current Uses (No Change)
General Fund 311,695
Parks Fund 308,000
Capital Fund 360,000
979,695
2024 Increase
Climate Solution Fund - Grants 200,000
Sustainability - Staffing, Consulting Etc.185,000
Parks Fund 50,000
Unallocated 127,811
562,811
Total Proposed Uses 1,542,506
FUTURE ACTION
The first and second reading of the fee ordinances need to occur on September 5th and
19th.