Franchise fee increase approved to fund climate and energy action

Source to help pay for programs reducing climate change pollution

The City of Minneapolis approved two ordinances today to support programs that will help the City accelerate toward its energy and climate change goals. One ordinance for gas and one for electricity raises the franchise fees by half a percentage point – about 59 cents monthly for the average household. The rate increase will take effect in the spring.

What is a franchise fee?
The City of Minneapolis collects a utility franchise fee from Xcel Energy and CenterPoint Energy in return for their agreement to operate in the city. These fees are passed on to customers as a line item on their monthly energy bills. Fees are set by ordinance as a percentage of charges: currently 4.5 percent for residential customers, 5 percent for commercial customers, and 3 percent for industrial customers. The amount paid on a monthly bill correlates with energy use, which can vary by season.

Why is the city raising the fee by half a percentage point?
The money will help residents and businesses participate in and make the best use of the utilities’ energy conservation programs and City programs. It would help the City reach its goal of reducing energy use by 1.5 percent each year, annually resulting in about $8.5 million in new savings that benefit residents and businesses throughout the city. Achieving the City’s climate and energy goals would help more residents afford to own or rent their homes, help more businesses succeed and create significant environmental and economic benefits to the city.

How will the costs affect rate payers?
The average residential customer currently pays a franchise fee of about $5.30 per month (about $64 a year). If the increase passes, it would be another half percentage point, which would cost the average residential customer about 57 cents more a month (about $7 more a year) for a total franchise fee of less than $6 a month (about $71 a year).

The average commercial customer is expected to pay about $86 more per year or about $961 total for the 5.5 percent annual franchise fee. Due to significant differences in energy use between small and large businesses, a broad range of impacts (smaller and larger) than this average can be expected.