Clean Energy Franchise Fee FAQ document

About the Clean Energy Franchise Fee:

What Is A Franchise Fee?

Energy utilities in Minnesota have been granted monopoly service territories by the State to serve all customers within a given area. Utilities operate their poles and wires (electric utilities like Xcel Energy) and gas lines (gas utilities like CenterPoint Energy) in the public right of way, which belongs to local governments like the City of Minneapolis. In exchange for the use of this public space, many cities, including the City of Minneapolis, collect a franchise fee from these utilities. Utilities collect these franchise fees from Minneapolis customers as a percentage on the utility bill – you can see this as the line item labelled “City Fees” or “City Franchise fee” on your utility bills.

What Are the Current Minneapolis Franchise Fees?

Minneapolis franchise fees are currently 4.5% for residential customers, 5% for small commercial customers, and 3% for large commercial and industrial customers. While the amount of franchise fees paid varies based on how much energy you use, the average Minneapolis resident currently pays about $5.30/month on combined franchise fees collected from Xcel and CenterPoint. The average residential franchise fee in Minneapolis is lower than the franchise fee rates used by neighboring cities like St. Paul, Bloomington, Brooklyn Park, and Richfield.

Since energy use in businesses varies even more widely, monthly franchise fees for business vary even more – around $50 per month for an average business, $166 per month for a 24/7 gas station, and $952 per month for a large grocery store, to provide just a few examples. Franchise fees collected by Xcel and CenterPoint from Minneapolis energy users and paid to the city yield over $26 million in annual city revenue.

What Are Current Franchise Fees Used For?

All City of Minneapolis franchise fees are currently used as part of the General Fund, which funds a wide range of city activities. Franchise fees are currently the second largest source of General Fund revenue after property taxes. Current franchise fees are a vital part of paying for a wide range of basic city services.

Why Raise the Franchise Fee Rates for Clean Energy?

A wide range of studies, including from the American Council for an Energy Efficient Economy, the Rocky Mountain Institute, and the state of Minnesota has identified a potential to reduce energy use in the range of 35-70% through cost-effective available technology. Given that Minneapolis residents and businesses currently spend around $570 million per year on electricity and natural gas, achieving a 50% savings rate would save Minneapolis residents and businesses $285 million per year, even before we look at opportunities to develop cost-effective local renewable energy. The City has already set ambitious goals to make energy upgrades to over 75% of Minneapolis housing stock by 2025 and cut carbon emissions over 80%, but current activities and utility programs are getting us there at roughly 1/10th the rate needed to achieve these goals. Many energy users lack the financial resources, know-how, or time to manage the complex set of energy saving programs currently available. We haven’t been investing in ways to make it easier.

Dedicating franchise fee revenue towards helping Minneapolis energy users cut their energy costs and switch to clean renewable energy is a smart way to jump-start the process of reaching more of that $285million/ year in potential savings. It’s about investing now in programs, financing tools, and outreach strategies to help all of us save big on our energy costs over time while making the switch to a clean and efficient energy future.

What is the New Proposed Clean Energy Franchise Fee?

The volunteer Energy Vision Advisory Committee (which is open for applications every other year) has recommended, and the City of Minneapolis is currently considering a proposal to increase the franchise fee by 0.5% for each customer class and dedicate that portion of the franchise fee to programs that will help Minneapolis residents and businesses reduce their energy use and switch to clean energy sources. If enacted, the residential franchise fee will increase from 4.5% to 5%, the small commercial franchise fee will increase from 5% to 5.5%, and the large commercial and industrial franchise fee will increase from 3% to 3.5%. Across all customer classes, this franchise fee will generate around $2.89 million per year to invest in energy efficiency and clean energy programs that will help us reduce the $570 million per year we currently spend on energy and shift that spending to clean energy and energy efficiency. This dedicated, ongoing revenue source would allow the city to develop and refine long-term programs at scale, rather than pulling together piecemeal pilot programs from each year’s annual budget.

What Would the Clean Energy Franchise Fee be Used For?

A clean energy franchise fee would fund a wide range of solutions and programs to help Minneapolis residents and businesses access energy efficiency, adopt clean energy, and grow a local clean energy industry, all with a focus on racial and economic equity in clean energy access and job creation. Some key solutions include:

• Robust, community-based, multi-lingual community engagement and coaching programs to help residents and businesses understand and access existing and new programs to help them cut energy costs and switch to clean energy.
• Financing mechanisms that do not require credit, upfront money, or personal debt and allow residents and businesses, including renters with landlord approval, to pay for energy upgrades over time based on the energy savings they create. This would allow all Minneapolis energy users to make energy improvements with no upfront cost and monthly payments that are less than the energy savings.
• Deepening incentives and subsidies of energy assessments and direct energy upgrades, including business cost share programs, to make clean energy equipment more affordable.
• Multi-family energy efficiency programs and stronger tie in with Regulatory Services activities to ensure renters and landlords improve building quality and lower net housing costs for renters.
• Development and implementation of sustainable building policies and benchmarking programs to help multi-family building managers.
• Job training programs and technical assistance for emerging businesses to grow the local industry of clean energy service providers.

What are the costs and benefits for Minneapolis Energy users?

Raising the franchise fee to fund these programs will create a minor increase in costs for all customers in Minneapolis, but customers can easily offset these increases in costs and generate a net savings by participating in energy efficiency and clean energy solutions supported by the franchise fee. Again, cost impacts will vary by customer based on energy use, but the average impact of the proposed franchise fee increase will be:

• $0.57 per month for the average Minneapolis residential customer
• $7.16 per month for the average Minneapolis small commercial customer
• $195.19 per month for the average industrial/ large commercial customer

While potential benefits vary based on type of customer and the number of energy improvements that have already been made, most customers will be able to participate in programs that can cut their energy cost by 10%-40%, a much greater savings that the additional cost of the increased franchise fee.