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MEMORANDUM TO: Dave Perrault, City Administrator FROM: Stacie Kvilvang and Dan Tienter, Ehlers DATE: August 21, 2023 SUBJECT: Preliminary Franchise Fee Analysis for Electric and Gas Utilities Recently, the City Council and staff expressed an interest in exploring a Franchise Fee (the “Fee”) to support capital projects and similar needs for the City of Arden Hills (the “City”). Based on recent City Council discussions and additional direction from City staff, Ehlers developed three preliminary Fee structures (Attachment A) designed to meet predetermined, annual, revenue targets: 1) $350,000; 2) $400,000; and 3) $450,000. Generally, these revenue targets support projected capital expenditures and allow the City to maintain appropriate fund balances. Pursuant to Minnesota Statutes, Section 216B.36, a municipality may require a public utility to obtain a license, permit or franchise to operate on public property. Under this statutory authority, the City may also require public utilities to operate under certain regulations or terms, including the payment of a Fee. Most often, municipalities craft these arrangements as contracts, which the City Council then adopts as an ordinance. Generally, these franchises apply to electric and gas utility providers. The Fee itself may take different forms, most notably as 1) a percentage of revenues, 2) an amount per production unit (e.g., therm, kilowatt hour), or, most commonly, 3) a flat monthly account fee. Often municipalities prefer the flat fee as both the most transparent option for the account holder and the most predictable revenue source for City. Generally, the Fee applies to all public utility users, including tax-ex empt properti es, and the City may use the revenues for any public purpose. The public utility will pass the Fee along to ratepayers directly, usually labeled on their bill as “City Fee.” Each scenario relies on a series of assumptions to support their respective revenue targets, most notably: x Uses a flat monthly account Fee based on ratepayer class; x Structures Fee amounts for about 3% to 5% more than the revenue target as coverage; x Maintains same or similar Fees based on ratepayer class between the two utility types; x Excludes any Fees for street lighting and municipal pumping; and x Provides for Fees in amount similar to other metropolitan municipalities (Attachment B). Additionally, the preliminary analysis relies upon ratepayer counts from 2014. If the City Council decides to continue the discussion, Ehlers and City staff will contact the utility provider for current ratepayer counts, update the analysis, including any direction from the City Council, and present revised estimates at a future City Council meeting or work session. Attachment A