Franchise Fees

Overview

At the May 23, 2022 City Council meeting, Ordinances 2022-07, 2022-08, 2022-09 and 2022-10 were adopted. These ordinances give the City of Otsego the authority to implement gas and electric franchise fees onto the Northern States Power Company, Elk River Municipal Utilities, CenterPoint Energy, and the Wright-Hennepin Cooperative. Listed below is some general information related to franchise fees and how they will be implemented within the City.

About Franchise Fees

Franchise Fees are another way in which a local government can pay for specific programs or projects within its jurisdiction. Under Minnesota Statute § 216B.36, cities have the authority to establish franchise agreements with utility companies that serve their community, which can include charging franchise fees. Once franchise fees are established, utility companies are required to collect the franchise fee by adding it onto their customer's utility bills, which will eventually be transferred to the City. The revenue generated from these fees pays for the maintenance of the city's streets (seal coats, mill and overlays, full depth reclamations, and reconstruction).

Please note: Establishment of a franchise fee is not new revenue. but rather an alternative to the City's revenue sources which came from general taxes and special assessments used for street maintenance.

What Franchise Fees Can Be Used for

The City has designated the franchise fees to fund the Pavement Management Program, which is designed to help with street maintenance including seal coats, mill and overlays, full depth reclamations, and reconstruction(renewals). Funding the Pavement Management Program using franchise fees allows for the City to complete most of these improvements without assessments except for full reconstruction. However, whereas the City previously assessed 50% of the cost of a street reconstruction project to the abutting property owners, assessments were capped in 2021 at a limit of $1,000 per residential lot (to be adjusted annually for inflation).

Learn About the Why

The dollar amount needed to be collected through taxes and assessments was expected to increase significantly over the coming years as infrastructure constructed in the last 25 years aged. Increasing the property tax levy and special assessments to cover the increased needs of street repairs was considered but not found to be the most viable option. Property taxes also exempted non-profits, schools, and other entities that utilize the street infrastructure. The property tax option would have changed yearly based on annual changes in the values of homes and business properties. Having a dedicated fee ensures local control of predictable revenue and that repairs stay on schedule in accordance with the Pavement Management Plan.

When the Franchise Fees Will Be Implemented

The franchise fees will begin in the October 2022 billing period. The City of Otsego will the receive the franchise revenues on a quarterly basis.

Franchise Fee Ordinance Timeline

  • February 8, 2021 - Council Workshop to discuss Pavement Management Funding options
  • February 22, 2021 - Council Workshop to discuss Pavement Management Funding options
  • October 25, 2021 - Formal Written Notice given to Electric and Gas companies on intent to implement Franchise Fees within the City of Otsego
  • October 30, 2021 - Franchise Ordinance Published in Star News
  • May 23, 2022 - Franchise Fee Ordinances approved
  • May 28, 2022 - Franchise Adoption Ordinance Publication in Star News
  • October 2022 - Fee applied to accounts

Monthly Fees

The amount of you will pay per month in franchise fees depends on the company and your property classification.

Residential Properties will pay $4 per month starting on their October 2022 bill.

  1. Northern States Power Company, Elk River Municipal Utilities, and Wright-Hennepin Cooperative (electric)
    • Residential: $4
    • Small Commercial and Industrial - Non Demand: $5
    • Small Commercial and Industrial - Demand $40
    • Large Commercial and Industrial: $95
  2. CenterPoint Energy (gas)
    • Residential: $4
    • Firm A: $5
    • Firm B: $20
    • Firm C: $60
    • Small Volume, Dual Fuel A (SVDF A): $80
    • Small Volume, Duel Fuel B (SVDF B): $80
    • Large Volume, Duel Fuel (LVDF): $100

How Much Otsego Is Expected to Receive in Revenue

According to 2021 estimates, the City of Otsego is expected to receive $685,632 from residential properties and $148,272 from commercial properties, for an annual total of $833,904. This number can vary depending on the number of customers being billed.

Pavement Management Program

Costs for 2023

  • Maintenance Projects: $1.084 Million
  • Renewal Projects: $1.187 Million
  • Total: $2.271 Million

Funding Sources for 2023

  • Property Taxes: $1.100 Million
  • Franchise Fees: $0.797 Million
  • State Aid: $0.293 Million
  • Special Assessments: $0.038 Million
  • Fund Reserves: $0.043 Million
  • Total: $2.271 Million