Utility Franchise Fee

Gas & Electric Franchise Fee

The Burnsville City Council has established franchise fees on utilities (gas and electric) to help offset future property tax/special assessment increases.

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 one of two ways: 

  • A flat rate per utility account OR
  • A percentage of consumption used by each utility account

The City chose the “flat rate” fee, rather than one based on consumption - which would vary each month.

What Does This Mean for Residents? 

Utility companies have the right to pass franchise fees on to their customers.Utility customers have likely seen a line item on their gas and electric bills for a “City fee.” The utility companies collect this fee and remits it to the City.

Residential Franchise Fee

The current franchise fee is $4 per month, per account on residential gas and electric bills. That means, utility customers see a $4 fee on BOTH their gas and electric bill.

Commercial Franchise Fee

Commercial rates vary based on the utility company’s account classification based on usage volume. The commercial fees range from $12-$40 for small to medium accounts and $180 per month for high volume accounts.

Why Franchise Fees?

Utility franchise fees help cities cover increasing costs of providing important services – such as maintaining aging facilities and infrastructure – without raising property taxes. Many cities in Minnesota have them in place.

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 tax.

What Other Cities Collect Utility Franchise Fees?

In 2016, within the Xcel Energy service area, 66 cities collect electric franchise fees and 51 cities collect gas franchise fees. Below is a list of the City of Burnsville’s market cities as it relates to the collection of utility franchise fees.

 CityResidential Electric Franchise FeeCommercial Electric Franchise FeeResidential Gas Franchise FeeCommercial Gas Franchise Fee
Apple Valley 2%2%NoNo
Brooklyn Park $7$7.50-$160$7$7.50-$160
Coon Rapids 4%4%4%4%
Eagan NoNoNoNo
Eden Prairie$2.50$3-$45$2.50$3-$45
Edina $1.45$2.90-$40$1.95$3.40-$40.50
LakevilleNoNoNoNo
Minnetonka$2.50$4.50NoNo
Plymouth$2$3-$40$2$3-$40
St. Louis Park$3.25$6.50-$105$3.25$6.50-$105

Other metropolitan cities collecting utility franchise fees include Brooklyn Center, Chaska, Cottage Grove, Deephaven, Excelsior, Golden Valley, Hopkins, Little Canada, Maplewood, Minneapolis, Mounds View, New Brighton, New Hope, Osseo, Prior Lake, Richfield, Robbinsdale, Rogers, Shoreview, South St. Paul, Spring Lake Park, St. Paul and Stillwater.

What are the Pros and Cons of Franchise Fees?

When comparing franchise fees as a revenue sources to property taxes, some advantages include:  

  • Cover a wider base than property taxes 
  • Will diversify the City’s revenue sources
  • Reliable sources of revenue
  • A flat-rate franchise fee would be the same for each property, making it easy to administer
  • New construction would contribute immediately, which would eliminate the one to two-year lag for the City to receive property taxes for property owners receiving municipal services

Some potential disadvantages include:

  • Everyone must pay since gas and electricity are needed. This is unlike a cable franchise fee where only subscribers choosing to receive the service are subject to paying the fee
  • A flat-rate franchise fee would be the same for all homes, regardless of their value