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Franchise fees locked in at 20 per cent

Posted on October 7, 2015 by Taber Times

By Trevor Busch
Taber Times

As the community grapples with the impacts of an economic downturn, the Town of Taber will be maintaining its own stranglehold on the pocketbooks of utility consumers in 2016.

At their Sept. 28 meeting, town council voted 6-1 to retain the 2016 franchise fee rates for FortisAlberta and ATCO Gas at 20 per cent, and directed administration to inform the two utility companies of its decision, while allocating 7.5 per cent of franchise fee revenue into the Energy Conservation Capital Reserve. Coun. Randy Sparks opposed the motion without comment.

“This is my recommendation, that we stay at the current 20 per cent that we have been charging in the past, stay on path with what we’ve been doing, and continuing to do that,” said finance director Devon Wannop. “If we were to reduce the rates, that obviously means lost revenue that we’re not going to get anymore, so we’d have to figure out a way to replace that, including increased property taxes.”

The Town of Taber has franchise agreements with FortisAlberta for electricity, and ATCO Gas for natural gas. The Alberta Utilities Commission (AUC) has established maximum percentages for both franchise fees at 20 per cent, and historically the town has maintained its percentage rates at that maximum.

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 franchise fee revenues for 2016 for FortisAlberta representing $1,194,550 and ATCO at $631,607. The FortisAlberta estimate for 2016 assumes an AUC approval for proposed increases to distribution and transmission rates.

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 current estimates, the reserve transfer for 2016 will be approximately $136,960.

“Seeing the price of oil, and looking to the future, and seeing that we’re in a deficit for the last two quarters, and the same projected outlines for finances in the future — it doesn’t look good,” said Coun. Rick Popadynetz. “To be able to put money away now, when we have a little bit, is probably a smart thing. Previous council probably should have done this years ago. Unfortunately they haven’t, but we need to save, and learn how to use our energy more conservatively, and have a capital reserve.”

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. A majority of communities included on the list only charge franchise fee rates of between zero and 10 per cent.

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.

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.

“I feel guilty about it — people lack money,” said Mayor Henk DeVlieger. “But it’s going to be used to save money. I’m looking forward to us implementing projects to become energy efficient, because that’s where it’s supposed to go. It’s a two-edged sword. That’s how I look at it. I’m in favour of keeping it the way it is.”

According to the town’s former director of corporate services, Dale Culler, the original contract with FortisAlberta 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 more than a decade.

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