Rochester staff outline plan to test public support for a natural gas franchise fee

Tyler Niemeyer, presenting staff’s concept for a natural gas franchise fee, told the Rochester City Council on Nov. 24 that the city’s franchise agreement with Minnesota Energy Resources includes a provision allowing the city to collect a fee but the city has not yet exercised that option. Niemeyer said the fee would be collected on customer bills by the utility and remitted to the city to provide a stable, predictable funding source for the council’s sustainability priorities.

“Franchise fees allow a city to collect a small steady fee from utilities,” Niemeyer said as he summarized the concept. Kayla Betzold, the city’s sustainability coordinator, said staff and the consultant WSB propose an engagement program to inform residents, gather preferences on fee structure and level, and report back to the council. Betzold said proposed outreach tools include a dedicated website with plain-language one‑pagers, an interactive bill-impact calculator, virtual and in‑person listening sessions, targeted stakeholder briefings, and social media outreach.

Staff described a conceptual allocation split in the materials provided to council: roughly 50% of fee revenue would fund community-facing programs such as weatherization cost shares, energy‑efficiency rebates or e-bike rebates, while 50% would fund municipal or organizational efforts such as fleet electrification or citywide infrastructure. Niemeyer said WSB will help design engagement and document the origins of feedback.

Council members asked for additional detail before any final decision. Staff told the council they are modeling a range of six preliminary scenarios that, depending on structure and rate, could raise from just under $600,000 to just under $3,000,000 annually. Staff also reported roughly 47,500 total gas meters in the city, with just under 45,000 on the residential side; multifamily buildings commonly have a single meter, which affects distribution under a flat‑per‑meter fee.

Several council members raised equity concerns. Council Member Fredericks called the proposal “essentially a regressive tax,” saying it would disproportionately affect lower‑income households who spend a larger share of income on energy. Council Member Wall and others noted that renters may ultimately pay higher rents if landlords pass on increased utility costs. Staff responded that those distributional impacts are a key part of the engagement and that different fee structures (usage‑based versus per‑meter flat fees) produce different equity outcomes.

Administrator Zelms cautioned that the discussion in the study session should not be construed as a formal approval of the fee. “You are not approving a natural gas franchise fee by allowing the community engagement to move forward,” Zelms told the council; the engagement itself, staff said, would be used to inform any later recommendation. Council members asked staff to return with more background data alongside the engagement — including housing‑stock details, targeted equity analysis, and proposed performance metrics — before any final action.

Next procedural steps: staff and WSB will prepare materials in December, hold engagement events from January through March 2026, summarize feedback with documented sources, and return to council with a recommendation in April 2026. No vote or ordinance was adopted at the Nov. 24 study session.