Utility fee used for road upkeep likely to rise

In an effort to make sure its streets are maintained well into the future, the City of Eden Prairie is proposing to increase the franchise fees collected from Xcel Energy and other electric and gas utilities – fees that get passed along to utility customers.

The residential franchise fee tentatively approved Tuesday, Jan. 3, by the Eden Prairie City Council would increase from $4 per month to $6.50 per month. It would apply to Eden Prairie customers of Xcel Energy and CenterPoint Energy, and the small number of EP customers that Minnesota Valley Electric Cooperative serves. The franchise fee for commercial and industrial customers would also increase.

The franchise fee has been charged since 2012 as a way to finance the maintenance of city streets rather than relying on the city’s general fund or large special assessments levied against benefiting properties.

“It avoids a lot of litigation, large assessments to property owners that can be very shocking when you see that you have a $20,000 assessment on a street reconstruction project, [assessing]creates some very divisible public hearings, and quite frankly franchise fees are just more efficient. They’re equitable and predictable, and for a long-term funding source they’re very manageable.” said Public Works Director Robert Ellis.

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The franchise fee produces about $3.2 million per year for pavement management. This amount is supplemented by about $500,000 per year in state aid and $500,000 per year from the city’s general fund. Pavement management ranges from crack repair and seal coating that can more than double a street’s life, to street reconstruction, according to city staff.

“This is really the horsepower behind our pavement management program,” Ellis said about the utility fee, adding that about 110 Minnesota cities have franchise fees.

However, city staff projects that the current franchise-fee revenue used to maintain about 580 “lane miles” of city streets will be insufficient to meet pavement-management goals by 2031.

Every three years, the city assigns each road in Eden Prairie a “pavement condition index” number, from zero to 100, or from “failed” to “excellent.” One goal is to have a city-wide average score between 70 and 100 (a range from “very good” to “excellent”) – today it’s at 86, according to Ellis. A second goal is to have less than 10% of roads in the zero to 40 range (“failed,” “very poor,” or “poor”). Currently, only 2% of roads are in this 0-to-40 category.

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By 2031, according to city projections, the city-wide index average will fall from 86 to below 70 unless the franchise fee is increased.

The city looked at various increases and determined that $6.50 would be a reasonable charge, putting the 2031 high index average at 76 and putting 12% of roads in the lower categories. Ellis said he thinks the city can “overachieve” with the help of new technologies and get that latter metric to 10% or less.

His proposal was given first-reading approval on a 5-0 vote Tuesday. The city council still needs to give final approval to the change. Once that happens, according to city staff, the utilities will likely implement the change in the first or second quarter of 2023, after they’ve adjusted their billing systems.

The charge typically appears on one’s monthly utility bill as the “city franchise fee” or “city fees.” Utilities collect the fee from individual customers and pay it to the city. Utilities receive no revenue from the fee.