Franchise Fee

A franchise fee was implemented in January 2018 on our gas and utility companies as a long-term funding solution to cover annual costs related to city street maintenance and improvements.

What is a Franchise Fee?
Under Minnesota Statute (216B.36), cities can impose a fee on utility companies that use the public rights-of-way to deliver service. The city can determine the amount, structure, and use of franchise fees. Generally, they are structured in two ways: a flat rate per utility account OR a percentage of consumption used by each utility account. 

Why Franchise Fees?
Franchise fees help cities cover increasing costs of providing important services - such as maintaining aging facilities and infrastructure - without raising property taxes. These fees are also more equally distributed than property taxes, and would be paid by ALL utility customers - even those who do not currently pay property taxes. These fees are dedicated to street maintenance and segregated into a separate fund.

City Street Program & Costs:
Street repair needs and costs continue to rise. The city has 36 miles of streets with a majority of them constructed in the 1980’s and 1990’s. With an expected life of 30 years, the city should be repairing about 1.2 miles per year AT A MINIMUM. Repair rate prior to 2018 was 75% of ideal rate of repair. 

Year
Assessed Cost
City Cost
Total Project Cost
Length Improved
2011
$96,000
$95,000
$191,000
3,631 feet = 0.68 miles
2012
$145,000
$180,000
$325,000
5,000 feet = 0.94 miles
2013
$175,800
$224,000
$399,800
6,250 feet = 1.18 miles
2014
$221,500
$322,700
$544,200
5,500 feet = 1.04 miles
2015
$260,000
$335,000
$595,000
3,100 feet = 0.59 miles
2016
$250,000
$230,000
$480,000
4,330 feet = 0.82 miles
2017
$283,000
$352,800
$635,800
5,117 feet = 0.97 miles

What are the Benefits of Franchise Fees?
When comparing franchise fees as a revenue sources to property taxes, some advances include:

  • Cover a wider base than property taxes
  • Diversifies the city’s revenue sources
  • Reliable sources of revenue
  • A flat-rate franchise fee is the same for each property, making it easy to administer
  • Likely change in policy to reduce assessment rate for commercial properties, currently at 100% assessed, versus residential, which is assessed at 50% of repair costs.

Other Like Cities that have Franchise Fees:
Many cities in the State of Minnesota have franchise fees. Some near us include White Bear Lake, Shoreview, Little Canada, Maplewood, and New Brighton.

Fee and Customer Breakdown

Customer Class (Electric)
Fee (per month)
Connexus* Breakdown
Xcel Breakdown
Residential
$2
95%
86%
Small C&I: Non-Demand
$3
5% for all small
12% for all small
Small C&I: Demand
$13
--
--
Large C&I
$60
0%
1%
Government
$0
--
--
Street Lighting
$0
--
--
Irrigation
$0
--
--

*Reminder Connexus only provides electric to Vadnais Heights. Xcel provides both electric and gas within city limits. Please check the state's online map to confirm your service area.

Customer Class (Gas)
Fee (per month)
Xcel Breakdown
Residential
 $1.25
93%
Commercial Firm: Non-Demand
$3.50
7% for all Commercial
Commercial Firm: Demand
$30
--
Small Interruptible
$0
--
Medium & Large Interruptible
$60
--
Firm Transportation
$0
--
Interruptible Transportation
$0
--
Rates accrue about $296,790 annually for our current street funding allotment.
Property Type
Connexus Electric
Xcel Electric
Xcel Gas
Total
Residential
$51,000
$78,840
$75,300
$205,140
Commercial
$9,000
$64,704
$17,946
$91,650
Total
$60,000
$143,544
$93,246
$296,790

Proportionate:
Xcel and Connexus request businesses and residents pay the same proportion for their overall bill. The city obliges this request. Exhibit below details that percent revenue which is an effective comparison for the portion of the overall bill. Xcel and Connexus have different billing models and this explains the difference in percentages in order to charge the same fixed rate for like customers.


Connexus ElectricXcel ElectricXcel Gas
Percentage of Revenue1.6%1.6%2.3%

Before Street Project

Before 2017 street project

After Street Project

After 2017 street project