Arden Hills to discuss utility franchise fees

Should Arden Hills add an Xcel Energy  “franchise fee” -- which would be tacked onto residents’ gas and electric bills -- to boost funding for street, park and trail improvements?

The Arden Hills City Council has been studying the pros and cons of that idea and has scheduled public hearings next month to further discuss the issue with residents.

Public hearings will be held at City Hall Monday, Feb. 10 and Monday, Feb. 24 starting at 7 p.m.  Council members plan to make a decision on whether or not to enact the fees after hearing from city residents, but no deadline for council action has been set. If the city chooses to approve the fees, all electricity and gas users in the city would be charged a flat monthly fee.

The franchise fee agreement with Xcel being considered would add $4.75 per month to city residents’ gas and electric bills -- a $3 flat rate for electricity and $1.75 for natural gas.

City Administrator Patrick Klaers said the fees would generate around $439,000 in annual revenue, which the city would use to fund city parks and trails projects, as well as maintaining streets. Residential customers would pay 38 percent of the annual total; businesses and other non-residential customers would account for the rest. The fee charged to those properties would vary depending on the size and type of service received.

“This is all preliminary; no decisions have been made. It’s simply a revenue option being explored and the city wants public input,” Klaers said.

Cities in Minnesota have had the authority to enact franchise fees on gas and electric utilities for 20 years. Arden Hills had not looked into the possibility of implementing the fees until about a year ago.

Filling funding gaps

Klaers said the city council has recently sharpened its focus on finances and long range planning. Property tax revenue is coming up short of funding some projects that have been given priority as part of the city’s Capital Improvement Plan, such as expanding city trails, improving parks and maintaining roads.

Arden Hills Mayor David Grant said some dependable sources of revenue have dried up in recent years. Historically the city would collect park dedication fees when there was new development, but since the city is nearly fully built out, those fees are now fairly insignificant. 

And, unlike some neighboring cities, Arden Hills does not receive local government aid. The city also has a large number of non-profits, schools, and colleges, nursing facilities and churches that are tax-exempt, Grant noted.  For all of those reasons, the city council is looking for a new, reliable revenue source.

A more equitable revenue source?

There are currently 74 municipalities in Minnesota collecting franchise fees on gas and electric services, including neighboring Mounds View, New Brighton and Shoreview.

The Shoreview City Council adopted ordinances to implement electric and gas service franchise fees last summer, and the city expects to raise over $800,000 in annual revenue. When the council adopted the motion to implement the franchise fees, Shoreview Finance Director Jeanne Haapala said the city would deposit the money collected through the fees in a community investment fund, which would be used to help fund building improvements, park upgrades, and renovations, trail extensions, work on the Commons Master Plan and Community Center improvements.

The city of Mounds View has had a franchise fee agreement on electric and natural gas services since 1993. Half of the franchise fees collected there go toward fixing city streets and the other half go into the city’s general fund. Mounds View Finance Director Mark Beer said without the franchise fees, the city would have to increase the tax levy by around $240,000 annually for the city’s general fund, or about $100 a year per household to match the revenue brought in through the fees. In contrast, Beer said the average homeowner in the city would pay $62 in Xcel franchise fees this year.

That’s because the franchise fee includes all properties using gas or electricity in the city, including those who are tax-exempt. Increasing city property taxes would only target residential and commercial properties.

Klaers said Arden Hills residents would also pay more in property taxes if the city chose to raise the same amount that way vs. enacting franchise fees, because so many properties are tax-exempt.

More information about the franchise fee proposal is on the city of Arden Hills’ website and will be presented at the public hearings next month.

Joshua Nielsen can be reached at or 651-748-7824.


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