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Utility franchise fees will remain at 12.7 per cent in 2020

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Masha Scheele

FortisAlberta franchise fee rates will remain at 12.7 per cent, council decided at the Sept. 17 regular council meeting.

The annual franchise fee is part of the Electric Distribution Franchise Agreement, and is charged to FortisAlberta for being allowed to access municipal lands to construct, maintain, and operate distribution systems. 

The fee is collected by FortisAlbeta as a local municipal access fee on electric billings of all customers that receive electric service in the municipal service area. 

After some discussion by council to change or limit franchise fees, and how it affects residents, they called for a report detailing available options and impacts of the franchise fees before the end of the second quarter in 2020.

“I think it’s appropriate to have that discussion in 2020 so that it can be used to make budget decisions for 2021. I think this is a deeper discussion than can be thrown together in a couple of weeks, and debated and discussed and come up with a decision that would be relevant to utility company needs and when they need their information,” said Coun. Albert Ostashek.

CAO Martin Taylor added that there was some urgency in deciding on a franchise fee rate for the upcoming year as utility companies would need this information before they face the Alberta utilities board.

Coun. Trevor Haas agreed with staying at the status quo rate and returning to this discussion in 2020.

Haas added that he would like to discuss taking away the franchise fees and adding it to the regular municipal taxes collected each year.

“One of the things I do actually like about the franchise fee system is that the franchise fee is based on the distribution charges on your electric bill. Distribution charges are made up of two components, the flat portion and consumption portion. Because there’s a consumption portion used to calculate what fees are charged to the end user, it becomes somewhat of a user-pay system,” said Ostashek.

This means that big consumers of electricity carry more of the franchise fee charge than the smaller electricity consumers.

If this was switched to a straight municipal taxation, the small consumers would likely subsidize the big industrial users who are currently paying more of the fee, added Ostashek.

At the standing committee meeting on Sept. 10, Coun. Dewly Nelson brought up the fact that GST is charged on the franchise fees, which means residents pay more than they would if it was charged as a regular municipal tax without that added GST. 

An increase of two per cent to the Fortis Franchise distribution tariffs was approved in 2018, increasing the revenue stream by approximately $248,000. 

In 2019, a franchise fee of 12.7 per cent was paid to the municipality, which will remain in 2020.

“I won’t support a 12.7 per cent increase, I didn’t support it last year. I like the 10.7,” said Mayor Marcel Michaels.

The fee is calculated as a percentage of FortisAlberta’s actual revenue in that year, based on the Distribution Tariff rates charged for Electric Distribution Service within the Municipal Service Area. 

The franchise fee or local access fee is the charge paid by the utility to the municipality for the exclusive right to provide service in the municipality, which is passed on by the utility company to its customers.

Over 85 per cent of communities administer a franchise fee, and the average fee of those communities is 10.1 per cent, according to administration. The council agenda stated franchise fee revenues are used to bolster reserves and is not used as part of regular operating expenditures.