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Franchise fees stay at 20 per cent

Posted on October 1, 2014 by Taber Times

By Trevor Busch
Taber Times

Residents will continue to pay the maximum allowable rate of 20 per cent through town-set franchise fees in 2015 following a decision by town council.

At their Sept. 22 meeting, council voted unanimously to retain the 2015 franchise fee rates for Fortis Alberta and ATCO Gas at 20 per cent respectively, and also directed administration to set aside 7.5 per cent of franchise fee revenue in the Energy Conservation Capital Reserve. Coun.(s) Andrew Prokop and Laura Ross-Giroux were absent from the meeting.

The Alberta Utilities Commission (AUC) has established maximum percentages for franchise fees at 20 per cent, and historically the town has maintained its fees at that maximum.

“The franchise fees have been set at 20 per cent for both utility companies for a very long period of time,” said director of corporate services Dale Culler. “Regardless of where we compare with other municipalities, we have set an amount at 20 per cent for a number of years, and if we change the amount, then the revenue will have to be made up somewhere in the budget-making process.”

The premise behind franchise fees is the town is giving 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 franchise fee revenues for 2015 for Fortis representing $1,038,300, and ATCO at $429,491.

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 137 communities in 2014, only Blackfalds, Bon Accord, Breton, Calmar, High River, Morinville, Provost, Stony Plain, Thorsby and Vulcan charged a rate of franchise fee of 20 per cent.

“I see there’s 137 municipalities on this list here, and there’s only eight that are at the maximum,” said Coun. Randy Sparks, who voted against maintaining franchise fees at 20 per cent in both 2012 and 2013. “Ninety per cent of these are under 10 per cent. I understand this is a way to generate revenue, but since the first day I was on council, to me it’s just another hidden tax. Although the town does create revenue from it, I’m not in favour.”

A majority of communities included on the list only charge franchise fee rates of between zero and 10 per cent. The estimated franchise fee revenue for 2014 from Fortis Alberta Inc. is $861,219, and from ATCO Gas $421,742.

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. Based on the current estimates from Fortis and ATCO, the estimated reserve transfer would be $110,084 in 2015.

“Administration is looking during this budget process at identifying a couple of energy conservation initiatives,” said Culler. “One of our managers has already drafted a project that we will be considering during budget deliberations. So there is definitely a need to continue to support that capital reserve at the very least. I think it was a great idea that Greg (CAO Birch) suggested last year, and it will definitely help us look at many types of improvements that we could potentially be initiators on.”

Coun. Rick Popadynetz indicated allocating a portion of the franchise fee funds into an energy conservation reserve for the town was a major reason why he could offer his support for maintaining franchise fees at the maximum 20 per cent.

“I can support this, because I know how hard it is to find funding for energy conscious projects. It’s very hard to find that type of funding, and yet the province and the federal government continue to push things like this down our throat. I can support it, simply because I see that 7.5 per cent going to initiatives.”

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

“The 20 per cent issue that Councillor Sparks has raised has been contentious,” said CAO Greg Birch. “Why are we at the maximum, can we lower it? In two previous years, the councellors have said we could lower it, but really it’s kind of like robbing Peter to pay Paul. If you lower that, and you want to keep your budget the same — you raise a lot of money this way — you’ll have to collect it through tax revenue. One way or another, people are going to pay for this, so you’re just arguing how. You raise about $1.4 million of your budget this way. So if you knock it down, that’s fine — just recognize what you’re doing.”

Coun. Sparks assured Birch he was aware of the financial implications for the town involved with potentially reducing franchise fee rates in future.

“Even though I don’t agree with this wholeheartedly, I understand how important it is to the running of the town. I understand the budget implications. I can live with how this is here if there is something put aside for energy conservation in future.”

Referencing a recent meeting hosted at the Heritage Inn in which local business owners expressed frustration over the percentage of their utility bills related to actual usage, Coun. Sparks called for provincial government intervention on the issue.

“The businesses there stated that only 25 per cent of their bill was actual usage. If we want to conserve, we need to petition our MLAs and petition the government to help get those line riders and everything off the bills — that’s where the true saving is. Franchise fees just cover the usage, not the entire bill. If 66.3 per cent of your bill is line charges and things like that, our MLA should be contacted on a daily basis and told to get off their butt and get things done with this, because that’s not right. That’s the biggest conservation their is, is by hitting that bill there. The numbers we heard from these businesses at that meeting, the millions they spend on energy every year, and only 25 per cent of that bill is usage? That’s not right.”

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

According to Culler, in an interview following the meeting, the original contract with Fortis signed in 2001 with rates effective for 2002 had a zero per cent rate of franchise fee. In 2002 with rates effective for 2003, council of the day voted to increase the franchise fee rate to five per cent. In 2003, with rates effective for 2004, council of the day raised the franchise fee rate to the maximum allowable 20 per cent, where it has remained for a decade.

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