Utility franchise fee increase passed

Revenue will go toward citywide energy programs

Franchise fee proposalThe Minneapolis City Council on Dec. 6 passed a 0.5 percent increase in its electric and gas utility franchise fees as part of the 2018 city budget.

The city plans on using the revenue, about $2.2 million in 2018, for energy efficiency and climate-related programs and initiatives. About $1 million of the projected revenue has not yet been allocated.

The increase comes as the city continues working on the targets it laid out as part of its long-term Climate Action Plan. The plan calls for the city to reduce its greenhouse gas emissions 80 percent by 2050, using 2006 levels as a baseline.

“It is not hyperbole to suggest that our changing climate represents the single greatest threat to our city and our planet,” Mayor Betsy Hodges said in her September budget address. “… It is up to cities like ours to lead both the fight against climate change and the work to adapt to it.”

Minneapolis has met some goals laid out in the Climate Action Plan, including reducing greenhouse gas emissions 15 percent by 2015, based on 2006 levels. But city staff says more funding is needed to hit other targets, such as helping 75 percent of Minneapolis homeowners participate in efficiency-retrofit programs by 2025.

A city advisory board studied potential funding mechanisms for climate and energy work earlier this year. It identified 10 potential funding sources, ranging from grants to commercial sponsorships, before settling on the energy utility franchise fee increase.

“Looking at other funding mechanisms, there wasn’t anything that we thought could get to the scale we thought was needed,” said, Matt Kazinka, co-chair of the advisory board, known as the Energy Vision Advisory Committee. He added that the board expected a future with fewer federal grants and possible fewer state grants.

“(The franchise fee increase) seemed like a good fit, because it was directly related to utilities,” he said.

Utility companies pay the City of Minneapolis a fee to use the public right of way. Currently, the fee is 4.5 percent of utilities’ gross revenues for Minneapolis residential customers, 5 percent for commercial customers and 3 percent for the largest commercial users. Franchise fee collections total about $26 million a year.

The Energy Vision Advisory Committee estimates that a 0.5 percent fee increase would cost residential users an additional 57 cents a month, commercial customers an additional $7.16 a month and large commercial users $195.16 a month.

Clarity on programs

In September, Hodges proposed using the additional revenue raised in 2018 to launch a residential energy-benchmarking program and for a cost-share program that helps businesses investment in cleaner and more efficient technologies.

Her budget provided further detail on the uses for the revenue, estimated at $2.2 million in 2018. About $74,000 would go to multi-family building benchmarking; $190,000 would go toward sustainability office programming; $272,000 would go to the Green Business Cost Share program; $300,000 would go toward the sustainability office’s current staff; and $375,000 would go to the city’s Renewable*Connect contract.

Renewable*Connect is an Xcel Energy program that allows customers to tap into renewable energy sources, such as wind and solar, without purchasing equipment. The City Council this fall approved plans for a second contract in the program, pending state Public Utilities Commission approval.

The city plans on utilizing the Clean Energy Partnership’s recommendations in deciding where the remaining approximately $1 million of revenue will go. The partnership is comprised of officials from the city, Xcel Energy and CenterPoint Energy.

The Energy Vision Advisory Committee has recommended nine uses for the revenue, from subsidizing Home Energy Squad visits to fully funding the Green Business Cost Share program, which helps businesses make investments in cleaner and more efficient technologies.

“We see a lot of opportunity to scale that approach up,” Patrick Hanlon, the city’s director of environmental programs, said at the City Council Health, Environment and Community Engagement Committee meeting on Nov. 27.

The Gandhi Mahal Restaurant in the Longfellow neighborhood utilized the program this year to help replace a hood system in its kitchen. Claire Baglien, the restaurant’s sustainability coordinator, said the new system would save the restaurant about $1,900 a year and approximately 5,600 kilowatt-hours annually.

The new hood system at The Gandhi Mahal Restaurant.
The new hood system at The Gandhi Mahal Restaurant.

Overall, the program has helped 76 businesses reduce over 15 million pounds of carbon dioxide, which is the equivalent of taking 1,468 cars off the road annually, Hanlon said.

Public comments

Dozens of residents testified in support of the increasing during City Council and City Council committee meetings over the past couple weeks. But some asked that the additional revenue go toward programs that advance the city’s energy equity goals, rather than toward existing initiatives.

Multiple residents on Dec. 6 specifically asked that the additional not go toward Renewable*Connect. Energy Vision Advisory Committee member John Farrell noted how wind is already a cheap source of electricity, adding that he doesn’t think the city should be buying that electricity at a premium.

“We don’t think that that should come at the expense of people and communities having access to clean energy,” committee member Timothy DenHerder-Thomas said.

DenHerder-Thomas said he’s not against the city participating in Renewable*Connect in the short term. But he’d like to see the city look to switch to renewable energy in a way that’s more cost effective and that creates a greater benefit.

Ward 2 City Council Member Cam Gordon said he wasn’t expecting Renewable*Connect to be incorporated into the franchise fee increase. He put forth a staff direction on Dec. 6 for city staff to present options for reducing the use of general fund dollars for the program. Franchise fee revenue goes into the general fund.