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Split vote on franchise fees for town

Posted on October 31, 2018 by Taber Times

By Trevor Busch
Taber Times

Attempts to reduce the town’s franchise fee rate as a tax break for citizens has been shot down by town council following a 4-3 split vote.

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

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 2019 for Fortis Alberta representing $1,177,823 and Atco at $562,258. Based on current estimates, the reserve transfer for 2019 will be approximately $130,506.

“I feel that 20 per cent is too high. I think it’s time that we reduce that,” said Coun. Joe Strojwas at town council’s Oct. 9 regular meeting. “The money was intended for specific things, and I don’t believe it’s ever been adhered to. I was under the assumption this was going to go into a green fund and we were going to utilize that for some green projects.”

Finance director John Orwa indicated roughly $500,000 is currently in the town’s Energy Conservation Capital Reserve, with some of that money earmarked for various projects.

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 162 Alberta communities in 2018, only 13 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.

After Coun. Jack Brewin put forward a motion to maintain the town’s rate of franchise fee at 20 per cent, Strojwas called for an amendment dropping that rate to 15 per cent while transferring only 2.5 per cent to the town’s Energy Conservation Capital Reserve.

Brewin refused the amendment, highlighting potential lost revenue for the town.

“If we drop that rate, guaranteed Atco or Fortis will be adding what we drop onto their bills. If you want to drop that charge, where are you getting that extra money from? It’s money the town uses. If you want to cut that, let’s cut it. But do we want to raise taxes?”

Orwa warned that a franchise fee rate of 20 per cent had already been factored into the town’s 2019 budget, and any reduction would mandate a search for other revenues to offset the loss. Strojwas viewed his own proposal as relatively cost-neutral for the town.

“Just for clarification here, the money coming into the town, if we drop it down to 15 per cent it would still stay the same, because I’m asking that we drop our green fund from 7.5 per cent to 2.5 per cent. If any of you take a look at your utility bill, you will see the fee. It says right on there what the Town of Taber gets, directly on there, how much of that money. That money will be a savings for the taxpayers of the town — a direct savings — and then you can reduce the amount that we put into our green fund, from 7.5 per cent down to 2.5 per cent — so it will not affect the general revenue money that comes in, other than the green fund.”

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.

“What we’re talking about is giving away $300,000,” said Coun. Louie Tams. “I happen to agree with Councillor Brewin on this. We have the ability to do this — it’s franchise fees, it’s not big money — the savings that we’re going to save by not putting it on power and gas bills we’re going to just take it in taxes, but one way or another we’re taking the money. Either that or we have to drop $300,000 from our budget.”

Following discussion, council voted 4-3 to retain the 2019 franchise fee rates for Fortis Alberta and Atco Gas at 20 per cent respectively, directed administration to inform the two utility companies of its decision, and also directed administration to direct 7.5 per cent of the franchise fee revenue into the Energy Conservation Capital Reserve. 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, while the follow up retaining the 2018 franchise fees rates at 20 per cent was passed by a 4-2 split vote.

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 allowable 20 per cent, where it has remained for almost two decades.

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.

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