At its Sept. 6 meeting, the City Council approved establishing franchise fees on utilities (gas and electric) to help offset future property tax/special assessment increases.

Currently, three electric utilities (Shakopee Public Utilities, Xcel Energy and Minnesota Valley Electric Cooperative) and two gas utilities (CenterPoint Energy and Xcel) operate in Shakopee.

The City Council approved a 3-percent franchise fee with Minnesota Valley Electric Cooperative, Xcel Energy and CenterPoint Energy. The fee includes a circuit breaker maximum for Xcel's mega-users. SPU will continue to collect its payment in lieu of taxes.

Utilities may pass the fees onto their customers. Fee collection begins Jan. 1, 2017.

Background

Per state law, a city may impose a franchise fee on a gas or electric utility for the use of the public right-of-way by adopting an ordinance that establishes fee terms, including structure, collection, schedule and effective dates. Cities have the sole authority to determine the amount, structure and use of utility franchise fees.

There is no cap on the fee rate and the fees can be used for any public purpose. Many communities do opt to dedicate the franchise fees for a specific purpose including capital improvements, such as pavement management, road maintenance, sidewalks or trails.

Cities have the option of imposing a flat fee (e.g., $3 per month) or a percentage fee (e.g., 3 percent) based on utility usage. These fees can vary between residential customers and various commercial customer types. While a flat fee is constant from month-to-month, a percentage fee varies with the season. However, with flat fees, smaller utility users (e.g., most residential and small business customers) pay a higher fee as a percentage of their total bill compared to large consumption users. Thus, a percentage fee provides a more equitable fee across all users.

Franchise Fee Impact Table

FAQs

  • What is a franchise fee?
  • What does this mean for residents?
  • Why implement a franchise fee?
  • What other cities collect utility franchise fees?
  • What are the pros and cons of utility franchise fees?
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