"What About St. Paul?" The New Franchise Agreement Arrives!

What About St. Paul?!

On September 3rd, Saint Paul Mayor Kaohly Her’s office announced  a proposed new franchise agreement with Xcel Energy. That is the outcome of a closed-room negotiation between City Staff and Xcel that has been going on for over a year and across two Mayoral administrations. The City also negotiated a Memorandum of Understanding (MOU) with Xcel which covers more expansive topics that fall outside of the rather simple operational terms (rate, authority, frequency, duration, etc.) of the franchise agreement such as serving underserved communities, continuing engagement on decarbonizing energy, and sharing data that will help the city with its Carbon Action and Resilience Plan. This story was also covered in the Pioneer Press. 

You can read the full franchise agreement here and MOU here. Both the agreement and MOU have been put through a startlingly quick public process with a first reading and staff presentation on September 9th, a public hearing on September 16th and a final hearing and vote by City Council on September 23 where all related ordinances were approved unanimously. The process for negotiations - even more so than Minneapolis - has been largely behind-the-scenes and not public, with a rush at the end to a final council vote so that the new fee structures and rebate programs could go into effect by January 1st, 2027. And while that is not ideal for gathering public input, raising awareness or putting public pressure on utilities, it seems that on first analysis the resulting Franchise Agreement is a net improvement in leverage for St. Paul. As always, these wins are only as good as what the City itself (and communities) do with those wins. 

So, congratulations and good progress, St. Paul!  Read on for more detail and takeaways…

A little reminder and backstory - skip this if you want to get right to the takeaways!

The franchise agreements govern the "right of way" permissions that utilities have to put their privately-owned "stuff" (e.g. poles, wires, pipes) into public "space" (e.g. streets, airspace, and ground). 

The franchise fee that comes with those agreements are the money that utilities pay to the City in order to use that public space. In Minneapolis it is a percentage of the total bill (e.g. a simple fee rate might be 5% of an energy user's bill). St. Paul’s electric and gas franchise fees however, were not historically a percentage of Xcel’s charges.

St. Paul had different fees for different categories of customers (13 categories for gas and 20 for electric as noted below). Each customer category had its own a dollar amount for just having a meter, an additional dollar amount per unit of energy billed, and for commercial electric customers additional dollar amount for electric demand. Increased dollar amounts for all of these were specified for every two years of the life of the franchise agreements. Xcel’s rate books list the franchise fees for all government entities. Almost every other entity has franchise fees that fit on one line in a table. But St. Paul’s took up a dozen or so pages.

Notably, this is not a tax. It is typically seen as a fee charged to utilities for the use and costs/inconveniences/staff time incurred by that use of space. Utilities then pass that fee on to energy users as a cost of business. However, if the City collects those fees and reinvests them into lowering energy use city-wide in housing, businesses etc. then the net experience of those fees can break even or even be a net reduction in someone's bill. That's a key ingredient to widespread climate action...

Why this is near and dear to us

Community Power originated as the Minneapolis Energy Options Campaign of 2013. It was timed to give leverage to Minneapolis for its 2014 franchise negotiations with Xcel (and gas utility Centerpoint). As those old agreements came close to expiring, the Energy Options effort brought forth the option of forming a municipal green utility in order to push Xcel and CenterPoint to either be a helpful utility-partner to the City of Minneapolis meet its new and ambitious Climate Action Plan goals, or to get out of the way so the City could do it itself.  In doing so, the campaign transformed what had been a rather mundane and operational franchise agreement between the City and two corporate energy utilities into something of a "climate document," coming with more eyes, awareness, and good pressure on it.  

As we were in the thick of the Minneapolis Energy Options campaign, one question inevitably arose: “What about St. Paul?” It turned out that St. Paul had signed a 20-year franchise agreement with Xcel Energy back in 2006 (which provides both gas and electricity in St. Paul). What once seemed so impossibly far into the future back in 2013 has now arrived…

The St. Paul - Xcel Franchise Agreement (2026)

The bulk of the new Franchise Agreement is here in Ord. 26-41. However, this single term "Franchise Agreement" is technically a package of four respective proposed ordinances: 

• Ord 26-40 Amending Appendix B of the Legislative Code relating to Northern States Power, D/B/A Xcel Energy, Gas Franchise.

• Ord 26-41 Amending Appendix C of the Legislative Code relating to Northern States Power, D/B/A Xcel Energy, Electric Franchise.

• Ord 26-43 Amending the Legislative Code by adding a new Appendix B-2 relating to Northern States Power, D/B/A Xcel Energy, Gas Franchise Fee.

• Ord 26-44 Amending the Legislative Code by adding a new Appendix C-2 relating to Northern States Power, D/B/A Xcel Energy, Electric Franchise Fee.

On September 9th, St. Paul City staff presented this package of the negotiated Franchise Agreement to the St. Paul City Council. You can check out the staff presentation slideshow here and follow along with the recorded council discussion here starting at the beginning until the 11:11:36 mark, including some interesting comments towards the end of the clip.  

On September 16th, the public hearing was held at City Hall and the recording posted online

Initial Analysis: 

There are a number of improvements in this new Franchise Agreement over the previous agreement from 20 years ago (and before that). 

Here are some highlights: 

Shortened term: Cuts the original 20-year term in half to now be a 10-year term with one 5-year renewal option. This gives the City more flexibility in responding to rapidly evolving constituent needs, technology, market conditions, and programmatic changes. 

• Explicit City authority to adjust franchise fees: Rehomes the process (and at least implied authority) of setting the franchise fee rates into separate ordinances that are governed by St. Paul City Council (not Xcel or the franchise agreement). 

• Enabling City to adjust fees annually: Allows the City to adjust fees as often as every 12 months without amending franchise agreements (but no more often than once every 12 months). The ability for franchise fees to be updated annually answers a main request of advocates to allow the city to have more flexibility.

• A Path Forward on Social Cost of Carbon to be charted: While there is no provision in the franchise agreement for the proposed fees to account for "the social cost of carbon" (aka the impact of greenhouse gas emissions) from the electric and gas energy sources, there is a pathway to accomplish that in separate ordinances.

• Residential Customers to paying proportionately less: The City of St. Paul reworked the franchise fees so that the "Residential" customer class (as it's called in the utility world) are no longer paying a higher percentage of their bills in franchise fees than Commercial and Industrial energy users. In the old structure, Residential customers were functionally subsidizing the much more intensive, high-volume energy use (and associated grid build out) than the usage of Residential. By making the fees higher percentages for Commercial and Industrial than for Residential, St. Paul aligns more with Minneapolis and other jurisdictions' fee structure. 

• Partial fee waiver for (some) energy burdened households: Gives income-eligible, state-approved residential customers enrolled in the state-run "Energy Assistance Program (EAP)" a 50% discount off their franchise fees. Establishing this 50% franchise fee credit for (some) energy-burdened customers is a first-of-its-kind mechanism to address the increasingly expensive utility prices that residents in particular are being asked to bear. Notably this is not a 50% discount on the whole bill - just the part the City controls. Also important, not everyone who is actually low-income is deemed "income-eligible" even by the state, so it is still a far cry from a perfect mechanism to catch everyone who is energy burdened. 

• A higher percentage applied to the Franchise Fee for Gas than Electric: Assigns higher percentages for Xcel gas bills than for electric bills. Because electricity is slowly being decarbonized by adding renewables, Xcel's fossil (natural) gas utility in St. Paul now has a larger greenhouse gas emission intensity than its electric side. Per equivalent unit of energy however, the dollar amount of the fee is lower for gas than electric (because the cost of gas is so much less than electricity for equivalent amounts of energy).

• Changing or Eliminating $ Caps from Previous Agreements: The previous electric and gas franchise agreements had several caps on the dollar amounts the City received from franchise or "permitting" fees in specific cases. These caps functionally sheltered Xcel against the true cost of doing business and stood to limit revenue collected by the City to mitigate local impacts. In both of the new electric and gas agreements, the annual "rights of way" permit fees paid by Xcel to the City of St. Paul will be increased from a cap of $25,000 to a flat fee of $100,000. This is instead of Xcel pulling individual permits each time they dig or repair infrastructure. The $100,000 Xcel will pay annually in lieu of city permit fees does cover the city’s permitting expenses related to Xcel's electric and gas projects. The $250,000 cap on gas franchise fees paid by Xcel’s High Bridge fossil gas power plant. While reportedly, that cap was more than the actual fees, anyway. This is an improvement as it allows for inflation and for the City of St. Paul space to decide to collect fees in proportion to the actual cost. 

• Simplifies the Franchise Fee Structure in the following ways:

  • Fewer customer categories (electric: 6 instead of 20; gas: 7 instead of 12).

  • For each customer category, the fee is calculated as a percentage of Xcel’s gross revenue for the category (instead of flat dollar amounts changing at two-year intervals).

  • The dollar amounts from percentage-based fees will likely increase with time.

More questions remain, and we'll likely share more analysis and reflections as the months go on. But for now, it appears that this is an important and long-awaited set of wins for the residents of St. Paul. If you agree, give your Council and Mayor's office a call or send them a note of thanks. There's a lot of heavy stuff in this time and we could all use a reason to celebrate, take stock of how far we've come, and offer each other (and yes our staff and electeds, too) words of encouragement. Questions or comments about the applications of this topic? Reach out to Unidos St. Paul.