Council ponders lowering utility franchise fee

Posted on October 23, 2019 by Taber Times

By Trevor Busch
Taber Times
tbusch@tabertimes.com

After almost two decades charging franchise fees to local utility consumers at the maximum percentage allowed by law, the Town of Taber is studying the financial implications of reducing the fee as a potential tax break for citizens.

The Alberta Utilities Commission (AUC) has established maximum percentages for franchise fees at 20 per cent, and historically the town has maintained its rate at that maximum. In 2013, council established a capital reserve fund where 7.5 per cent of franchise fee revenue is directed into a fund to support energy conservation projects.

“That half a million dollars sitting there in the energy conservation fund that we keep adding to, perhaps it’s time as council to reduce that, drop that fee down to 15 per cent, and put 2.5 per cent into that program (Energy Conservation Capital Reserve),” said Coun. Joe Strojwas at town council’s Oct. 15 meeting.

Finance director John Orwa corrected Strojwas, pointing out that a significant percentage of the fund’s total has been allocated to construction of the new fire hall.

“Part of it has already been earmarked for fire. As you recall, when you were funding the fire area, part of it — over $400,000 — was earmarked for the fire building.”

“But we keep building that fund up, is still my point,” replied Strojwas. “I think it would be time for council to revisit that, perhaps drop that down to 15 per cent and put away 2.5 per cent every year.”

The premise behind franchise fees is the town is granting two private corporations the sole right to deliver electricity and gas in Taber, using town-controlled roads and right of ways. Atco and Fortis make profits as a result, while the town incurs costs.

Both fees provide a significant amount of revenue to the town, with estimated 2020 franchise fee revenues for Fortis Alberta representing $1,199,916, and Atco at $686,020 (for a combined total of $1,885,936). The Fortis estimate assumes the company will receive approval from the AUC for increases to distribution and transmission rates.

Based on current estimates, the energy reserve transfer will be approximately $141,445 in 2020. According to Orwa, the charge appears as a “local access” fee on a utility consumer’s bill.

“I must confess I did not discuss this with Councillor Strojwas before, and had exactly the same thought as I was reading this on the agenda this weekend,” said Coun. Garth Bekkering. “The Energy Conservation Capital Reserve, I think we’re in danger of using it for other purposes, and I think we should reduce our franchise fees to 15 per cent, and the other one to 2.5 per cent.”

There is a process the town must follow to change the rate, so council needs to decide what the percentage rates will be in 2020 and commence that process if a reduction is desired.

“I think we could probably accommodate it in 2020, but if council is heading this direction administration would recommend that at the next council meeting we bring back some information on the implication to 2020,” said CAO Cory Armfelt. “If you’re considering not passing the recommended motion in favour of another motion, please give us the opportunity to bring you back the information about how that would impact 2020.”

Administration was asking council to maintain the franchise fees at 20 per cent as continued support for energy conservation projects through the reserve transfer. Maintaining the franchise fee percentages and directing 7.5 per cent of the revenue to a capital reserve helps fund energy conservation initiatives for the town.

Taber is one of a handful of Alberta communities currently charging the maximum-allowable rate of 20 per cent as a franchise fee through Fortis. Out of a list of 164 Alberta communities in 2019, only 14 charged a rate of franchise fee of 20 per cent. A majority of communities included on the list only charge franchise fee rates of between zero and 10 per cent.

Across the province, franchise fees have increasingly been criticized as a “hidden tax” by utility consumers, which raises revenue for municipalities through riders on a resident’s utility bills and not through their property taxes.

Strojwas would put forward a motion for administration to analyze the financial implications to the town of reducing franchise fees to 15 per cent, with the results to be brought back to council’s next meeting. Seeking to broaden the perspective of administration’s analysis, Coun. Louie Tams suggested a friendly amendment to study the financial implications of reducing franchise fees to a range of 12-16 per cent, and the reserve transfer to a range of 2.5 – 1.5 per cent, which was accepted by Strojwas.

But not everyone on council was content with the idea of allowing local utility consumers to keep a few more hard-earned dollars in their wallets.

“I think with all of the innovations coming forward with solar, heating and power, having an energy conservation fund would be worthwhile to stick with it,” said Coun. Jack Brewin. “I have to support the motion as recommended (by administration), that we keep as it is, because it’s working, and if we cut the money here we have to take money from somewhere else. In my mind this works the way it is.”

Strojwas’ motion passed by a 6-1 vote, with Brewin in opposition.

Reducing the town’s rate of franchise fees has been an ongoing goal for a council faction in recent years, but this loose alliance has been unable to marshal enough votes to change the status quo. In late 2018, Strojwas attempted to alter a Brewin motion maintaining franchise fees at 20 per cent with a friendly amendment to reduce fees to 15 per cent, which was refused. In the ensuing 4-3 split vote, the 20 per cent maximum was maintained for 2019, but Councillors Carly Firth, Joe Strojwas and Mayor Andrew Prokop opposed the motion.

In September 2017, a motion identical to Strojwas’ intended amendment was defeated by previous council in a 3-3 deadlock vote, with the follow up retaining the 2018 franchise fee rates at 20 per cent passed by a 4-2 split vote.

Despite doubling their rate to four per cent for 2019, the Town of Vauxhall recently tacked on a further two per cent for 2020 to bring the town’s franchise fee rates to six per cent. Nearby municipalities currently have Fortis franchise fees of 11 per cent (Coaldale), five per cent (Barnwell), 8.5 per cent (Bow Island) and 15 per cent (Fort McLeod).

The town’s original contract with Fortis Alberta signed in 2001 had a zero per cent rate of franchise fee. In 2002 council of the day voted to increase the franchise fee rate to five per cent, but by far the largest increase came in in 2003 when council raised the franchise fee rate to the maximum 20 per cent, where it has remained for more than 16 years.

If a percentage reduction were to be approved by town council in future, this could force the town to offset any loss in current revenue through reduced town expenditures or increased property taxes.