Natural Gas Franchise Fee

The City of Rochester is exploring whether to create a natural gas franchise fee (natural gas fee) under Minnesota Statute (216B.36). A natural gas fee is a small charge to compensate the City for the use of public rights-of-way. The fee is then added to natural gas bills and used to support local programs and services. Cities have the right to set a natural gas fee, the amount, structure and purpose. No decisions have been made yet. Community input will guide whether a natural gas fee moves forward, what type of fee model is preferred and how any revenue should be used.

This effort is part of the City's ongoing work to encourage responsible environmental stewardship and to reinvest locally in programs that help residents and businesses access improvements, resources and cost-saving opportunities for their homes and businesses.

What is a Franchise Fee?

A natural gas franchise fee is a charge for use of its rights-of-way (such as roads, sidewalks and boulevards) to deliver gas service to homes and businesses. Under Minnesota law, cities may collect this type of fee as part of a franchise agreement with the utility provider. Should this move forward in Rochester, Minnesota Energy Resources (MERC) would add the natural gas fee as a separate, labeled line on monthly customer bills and remit the revenue to the City. This proposal applies only to a natural gas fee.

Many Minnesota communities use natural gas franchise fees to help fund local services and community programs ranging from home energy efficiency programs to helping reduce the overall general tax levy.

Why is Rochester Considering a Natural Gas Franchise Fee?

Natural gas franchise fees offer a fairer distribution of costs because it includes those who do not pay property taxes. This system helps the City manage its budget more efficiently while keeping property taxes more stable. A natural gas fee could provide a stable, local funding source to support programs that help residents, renters, businesses and community organizations:

• Improve comfort, healthy homes and indoor air quality
• Access tools, rebates and upgrades that reduce monthly bills
• Support neighborhood revitalization and initiatives that build a stronger, more connected community

What Kinds of Fee Structures are Being Considered?

The City is exploring two possible fee models. Community input will help determine which model is more preferable.

Option 1: Flat Monthly Fee

A flat monthly fee would be the same dollar amount each month, regardless of how much gas is used.

What this means in practice:

• You would see one consistent fee on your bill every month
• The fee would not change based on weather, season or usage
• A household that uses a little gas and one that uses a lot would pay the same fee

Why some people like this option:

• Simple and easy to understand
• Predictable month to month
• Makes it clear exactly what the fee is

Option 2: Per-Therm Fee (Usage-Based Fee)

A per-therm fee would be based on how much natural gas you use. A "therm" is the standard unit utilities use to measure natural gas consumption.

What this means in practice:

• The fee would increase or decrease with usage
• People who use more natural gas would pay more, and people who use less would pay less
• The fee could be higher in winter and lower in summer, reflecting typical gas use patterns

Why some people like this option:

• Connects the fee directly to usage
• Higher users contribute more
• Encourages energy efficiency and conservation

No model has been selected. We want to hear from you about which approach, if any, feels fair, clear and workable for our community.

Example Monthly Bill Impacts (For Illustration Only)

The examples below are not proposed rates. They are simplified, hypothetical scenarios meant to show how different fee structures could affect a monthly natural gas bill, depending on usage and season.

Assumptions for these examples:

• Flat monthly fee (residential): $2.00 per month
• Per-therm fee: $0.03 per therm

Residential Example - Lower Gas Use

(Smaller home or apartment)

• Monthly usage: 20 therms

Residential Example - Higher Gas Use

(Larger home or colder month)

• Monthly usage: 80 therms

Small Business Example

(Small restaurant, café, childcare center or neighborhood retail space)

• Monthly usage: 500 therms

*Flat fee shown for illustration only. If adopted, business fees could differ by customer class.

How Might the Revenue be Used?

If a natural gas franchise fee is adopted, Rochester is considering a 50/50 split:

50% back to residents and businesses

Examples may include funding assistance for:

• Building energy improvements, weatherization and ventilation upgrades for homes, rental properties and businesses
• Rebates or cost-share programs for appliances, equipment, etc.
• Partnerships with nonprofits, neighborhood groups and local organizations for greenhouse gas emission reduction and energy efficiency efforts.

50% for municipal initiatives

This portion would help the City invest in upgrades that lower long-term costs currently paid for by residents and businesses in taxes in fees and improve public services.

Examples include:

• Energy-efficient improvements in City buildings that reduce monthly operating expenses.
• Replacing less efficient and high operational cost equipment with more cost-effective, reliable options.
• Improvements that enhance comfort, air quality, and reliability in community spaces.

These are only concepts for discussion. Your input will help shape the priorities.

What will Community Members be Asked?

From January through March 2026, the City will host workshops, listening sessions and online engagement opportunities. We will ask for feedback on four key questions:

1. Should Rochester adopt a natural gas franchise fee?
2. If yes, which fee model makes the most sense - a flat monthly fee or a per-therm fee?
3. How should the revenue be used to best support community needs?
4. Does the proposed 50/50 split between community programs and municipal initiatives feel appropriate?

Your feedback will directly shape any recommendations brought to City Council in spring 2026.

How Would the Fee Appear on my Bill?

If adopted, the fee would show up as a separate line on your natural gas bill.
The exact amount would depend on the fee model selected and the rate approved by City Council.

The City will provide example bill impacts for different household and business types during public engagement so residents can clearly understand potential costs.

How Can I Get Involved?

Upcoming Workshops (Mid January - Early March 2026)

• Virtual and in-person options
• Residential, renter, landlord, and business sessions
• Real-time Q&A, examples, and discussion

Submit feedback online

Click the link to share your thoughts through our community feedback form.

Invite us to your meeting

Community groups, businesses, and organizations can request a presentation from City staff.

Questions?

For more information, please contact:
Kayla Betzold, Sustainability Coordinator, [email protected]