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PUBLIC HEARING -10A 'It EN HILLS MEMORANDUM DATE: October 28, 2024 Honorable Mayor and City Councilmembers TO: Jessica Jagoe, Interim City Administrator FROM: Joua Yang, Finance Director SUBJECT: Adoption of Ordinances for Implementation of Electric Franchise Fees and Renewal of Existing Electric and Gas Franchise Agreements Budgeted Amount: Actual Amount: Funding Source: N/A N/A N/A Council Should Consider The City Council is asked to conduct a Public Hearing on the proposed Electric Franchise Fee ordinance to implement an electric franchise fee dedicated to the new fire station. This review will include ordinances for renewal of the City's 20-year franchise agreements with Xcel Energy for permission to construct, operate, repair and maintain their gas and electric distribution systems for the purpose of furnishing energy for public and private use within the City of Arden Hills. The City Council will be asked to make a formal decision regarding the implementation of franchise fees and renewal of franchise agreements under Agenda Item I IA. Background The Minnesota Public Utilities Commission regulates public utilities and has authorized cities to impose a franchise fee on energy providers for utilization of public rights -of -way through a utility franchise agreement. When a franchise fee is levied on a private utility, it is passed on directly to customers and itemized on customer bills. These fees are invoiced and collected from all property classes, including residential and commercial property, public agencies, and non-profit businesses. Franchise fees are an equitable way to raise funds for important infrastructure needs. A franchise fee can only be implemented through a franchise agreement with the local energy provider (Xcel Energy). There are over 370 franchise agreements for electric and/or gas services that have been established throughout Minnesota, and the City of Arden Hills has a long history of partnering with Xcel Energy with both gas and electric franchise agreements in place for many years. Included as Attachment G is a listing of a few other Minnesota cities with franchise fees (2022- 2023 rate schedules from the Public Utilities Commission, PUC). The City is anticipating future gaps in funding for infrastructure needs. These gaps are largely due to increased costs for the new Lake Johanna Fire Department (LJFD) station project, trail projects, and an equipment needs schedule. The City has relied on additional funding sources in the past, like building permit revenues; however, building permit revenues are difficult to predict and have not met the City's operational needs and obligations. Page 1 of 4