Minneapolis leaders proposing electric and gas fee hikes to combat climate change

Minneapolis leaders want to increase fees on residential and business electric and natural gas bills to help pay for the city's plan to reduce its contribution to climate change.

The envisioned fee hikes would generate between $8 million and $10 million annually to pay for weatherizing homes, installing solar panels and other programs — resulting in a tripling of the city's current spending on those items, Mayor Jacob Frey and a host of officials announced Wednesday.

Details of the proposal, including exactly how much the fees would rise for utilities customers, are still being worked out, Frey said. But he estimated the additional cost would be $8 to $12 annually per household, on average.

The plan would hike the city's franchise fee, found on every gas and electric bill as a percentage of the bill. The City Council and the mayor have sole power over those fees; no action by the Public Utilities Commission or other body is required to raise them.

The announcement comes as the City Council on Thursday is expected to adopt the city's Climate Equity Plan, an update of Minneapolis' 10-year-old Climate Action Plan. The new climate plan includes a series of goals over the next 10 years to achieve the larger ambition of the entire city being carbon neutral by 2050.

The gas and electricity fee hike proposal announced Wednesday, dubbed the Climate Legacy Initiative, is at the core of how to pay for the ambitious climate plan.

The proposed fee hikes, an expansion of the franchise-fee-for-climate-action funding stream that went into effect in Minneapolis in 2018, appears to have broad support on the City Council. The legislative process will likely take months and include at least one public hearing after specifics are released.

If all goes according to plan, the fee hikes will take effect Jan. 1.

Frey and several council members were joined at Wednesday's news conference by environmental advocates and labor leaders, gathered in the shadow of a solar array at Edison High School in northeast Minneapolis.

"Today, our city is putting people over profits," said Tee McClenty, executive director of MN350, a group fighting climate change with an emphasis on environmental justice and equity.

The city's climate plan calls for the insulation of 30,000 homes and apartments by 2030, with an emphasis on buildings in lower-income and traditionally disadvantaged parts of the city designated as "green zones." That work would be funded by the fee hikes.

The climate plan also aims to have renewable electricity supply the entire city by 2030; money from the fee hikes would pay for that work as well. Federal and state programs would also be used for both endeavors.

The array of incentives and subsidies available in relevant programs in Minneapolis would be available to anyone, officials said. But they added that priority will be given to those least likely to be able to afford improvements themselves.

Council Member Aisha Chughtai said she is committed "to making sure that the Climate Legacy Initiative will prioritize its resources to fund climate solutions that benefit our Black, Indigenous and communities of color, our low-income communities and our renter communities, so that equity is truly at the center of our city's climate action."

Franchise fees

Cities across the United States use franchise fees to extract revenue from utilities that have monopolies, including dozens of communities in Minnesota. But Minneapolis appears to be in the vanguard of cities using them specifically to respond to climate change — though that's not all the city uses them for.

The logic is obvious: By taking a percentage of an energy bill, customers who use more energy — and thus likely to contribute more to climate change — pay more. But the Climate Legacy Initiative money would go directly into programs that help lower energy use of fossil fuel reliance.

Franchise fee rates today in Minneapolis are identical for electricity and natural gas, and work like this:

How those rates could change isn't clear. But based on previous hikes and the money that was generated, a 1.5% hike across the board could result in the $8 million to $10 million envisioned.

However, city leaders Wednesday suggested that an even across-the-board hike might not be in order. Currently, the largest users pay the lowest rates, an idea that's seen by many as antithetical to the goal of tying the funding stream to the city's carbon footprint.

City leaders said they want to avoid making the hikes regressive. Several suggested the fee hikes for natural gas could increase more than electricity, since the relatively low-cost fuel is increasingly more carbon-intensive.