City reviews Xcel franchise renewal, staff favors near‑5% equivalent flat monthly fees; council raises affordability concerns
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Summary
Staff briefed the council on a draft renewal of the Xcel Energy franchise agreement and proposed converting the current 3% gross‑earnings franchise into a flat monthly fee by customer class; staff favored a structure near a 5% equivalent.
Reid Hutton, staff member, told the council the city’s franchise ordinance with Xcel Energy (Northern States Power Company) expires in mid‑November and staff and the city attorney are finalizing a redraft for Xcel review.
Hutton explained the current ordinance charges a 3% franchise fee calculated as a percentage of the company’s gross earnings. He said the original ordinance allowed the council, after February 2015, to increase the fee to 4% but the council never acted. Hutton described a state‑level shift and Xcel practice toward converting percentage‑based franchise fees to a flat monthly service‑fee equivalent by customer class to create more predictable revenue for cities.
Using 2024 usage data, Hutton presented two scenarios and the flat monthly equivalents that would approximate a 4.5% or a 5% gross‑earnings outcome. Under the roughly 5% scenario staff shared illustrative monthly fees for active classes: residential about $2.75 per month, commercial firm non‑demand $13 per month, commercial firm demand $200 per month, and small interruptible class $75 per month. Staff noted those commercial/demand classes contain a small number of customers (less than 15) and Xcel treats some class‑level data as proprietary.
Hutton said the flat‑fee model would produce steadier, more projectable revenue (staff estimated roughly $143,047 annually under the near‑5% scenario and about $128,742 under the 4.5% scenario). He recommended the council consider a rate approach near the statutory limit (5%) to stabilize long‑term revenue, and he said Xcel had agreed to pay the fee quarterly under the new agreement rather than annually.
Council members raised concerns about affordability for residents and steep impacts on a small number of high‑use commercial customers. One council member said they would “vote no on this as it is,” citing concerns about raising utility charges on residents. Hutton said staff will send redline comments to Xcel for their review and expects revised materials to return to council in late spring (May/June). No ordinance vote was taken at the work session.