ITEM 1 Franchise FeesMEMORANDUM Ak
FRom: DAVID KENDALL AND SHANA CONKLIN CAMPBELL KNLTT50N
DATE: FEBRUARY 5, 2020
RE: ABILITY TO CHARGE FRANCHISE FEES WHEN
MULTIPLE ELECTRIC UTILITIES EXIST
This Memorandum addresses whether the City of Otsego is lawfully permitted to impose an
electric utility franchise fee when it was Xcel, Wright -Hennepin Cooperative, and Elk River
Municipal electric utilities all providing power to various pants of Otsego.
Authorization to Impose Franchise Fees
Minnesota law permits a municipality to impose a franchise fee on public utilities. Minn. Stat. §
21613.36. A public utility is defined by Minn. Stat. § 21613.02, subd. 1, 4. The definition of a
public utility specifically excludes a municipality or a cooperative electric association. Minn.
Stat. § 21613.02, subd. 4. Minn. Stat. § 21613.36 provides the authority for imposing the franchise
fee, and it provides that, "Notwithstanding the definition of `public utility' in section 21613.02,
subdivision 4, a municipality may require payment of a fee under this section by a cooperative
electric association organized under chapter 308A that furnishes utility services within a
municipality." Minnesota law does provide that a municipality is authorized to seek a franchise
fee from public utility companies, such an Xcel, and from cooperative electric associations.
In a recent decision, the Minnesota Court of Appeals recently held that Minn. Stat. § 216B.36
does not provide a municipality with the authority to lawfully impose a franchise fee upon a
municipal public utility, given that a municipal public utility is specifically excluded from the
definition of a public utility under Minn. Stat. § 21613.02, subd. 4. City ofBaxter v. City of
Brainerd, 932 N.W.2d 477 (Minn. Ct. App. 2019). Therefore, unless there is a statutory change
permitting the City of Otsego to do so, there is no lawful authority to impose a franchise fee
upon Elk River Municipal.
Given that the City of Otsego currently has three electric utility providers operating within its
boundaries, the question becomes whether imposing a franchise fee upon two of them, but not
the municipal electric utility, becomes a competitive disadvantage. Often, franchise fee
agreements contain language in which the City agrees not to place the company at a competitive
disadvantage by implementing the franchise fee. Cities frequently agree to treat each public
utility company in a substantially similar manner to avoid placing a particular entity at a
competitive disadvantage. If the City of Otsego wished to implement a franchise fee, we would
need to carefully craft the language in the franchise ordinance to reflect that limitations of the
City's lawful authority.
In this particular circumstance, the City of Otsego lacks the statutory authority to impose a
franchise fee upon Elk River Municipal based on the parameters set by Minnesota state law. "It
is well settled that municipalities possess no inherent powers and are purely creatures of the
legislature." City of Cohasset v. Minn. Power, 776 N.W.2d 776, 783-784, (Minn. Ct. App.
2010). (citing Minn. Const. art. XII, § 3). Here, the City has no lawful authority to impose a
franchise fee upon Elk River Municipal. See Minn. Stat. 21613.36. Yet, there is no statutory
restriction indicating that the City is prohibited from imposing a franchise fee upon other entities
in its jurisdiction. Ultimately, the Minnesota Public Utilities Commission (PUC) will review the
franchise fee ordinance and determine whether to uphold the implementation of the franchise fee.
As the law currently stands, the City does have the lawful authority to impose an electric utility
franchise fee even though it has multiple electric utility companies, including a municipal utility
companies, operating within its boundaries.