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Town council lowering franchise fees

Posted on November 6, 2019 by Taber Times

By Trevor Busch
Taber Times

After 16 years of being charged maximum franchise fee rates of 20 per cent by the Town of Taber, town council is finally providing local utility consumers with some tax relief after voting a two per cent drop across the board.

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.

Following discussion at their Oct. 15 meeting, council had instructed administration to study the financial implications of a reduction in franchise fees from a range of 12 to 16 per cent, as well as a corresponding reduction in the energy conservation reserve transfer of between 1.5 and 2.5 per cent. Based on the current estimates provided by Fortis and Atco the estimated reserve transfer would be $141,445 in 2020.

Finance director John Orwa would explain some of the potential financial implications of a reduction in franchise fee rates, while warning that any reduction could impact the present budget and must be considered by town council.

“I fully understand all of this here, and I think the provincial government told all of us to tighten our belts,” said Coun. Joe Strojwas at council’s Oct. 28 meeting, going on to note his own franchise fee bills total roughly $35-$40 monthly. “A portion of that, of course, is going into the energy conservation fund, the green fund. But I still think it’s time we took a strong look at this, and reduce those, and the reduction to come out of the energy green fund rather than the operating fund, which the bulk of it goes into.”

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 Gas and Fortis Alberta make profits as a result, while the town incurs costs.

“We can take a look at it and say we’re going to spend a million dollars on whatever green initiative we have, but show the residents their return on investment by investing that money in green energy,” continued Strojwas. “We’ve made changes — putting in energy-efficient lights — but we don’t show the savings that’s coming back to the residents. And I have a problem with that. I think it’s time that we became a little more fiscally responsible in showing where those tax dollars are going that we’re collecting from our residents, and showing them that we are saving money, and I think this is one way we can do that by reducing franchise fees and putting a little less into the green fund.”

Strongly opposed to any fee reduction for citizens, Coun. Jack Brewin criticized renters in the community for not directly contributing to property taxes.

“If we drop this fee — which I don’t agree with, I think it should stay where it is — where are you going to get that money that we’ve just given up? One thing I like about franchise fees is that everyone pays. The renters pay, that’s their only contribution to the town’s taxes. I think it’s justifiable to keep it the way it is.”

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 under the present 20 per cent franchise fee calculation). The Fortis estimate assumes the company will receive approval from the AUC for increases to distribution and transmission rates. According to Orwa, the charge appears as a “local access” fee on a utility consumer’s bill.

“I understand what you’re saying, but I’m saying it’s time we tightened our belts a little bit and became a little more aware of what we’re doing with our resident’s dollars,” argued Strojwas. “The money — the reduction — should come out of the money going into the green fund rather than the portion of money that goes into the operations of the budget.”

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.

“Had we voted on this at the last meeting, I would have proposed that we drop everything by five per cent, from the high end to everything,” said Coun. Louie Tams. “Today, I will not say that, because that’s just way too much of a drop in revenue for the town to absorb. I still do believe we need to drop our franchise fees, but I think we’ll have to do it over a number of years.”

Taber was one of a handful of Alberta communities 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 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.

Reducing the town’s rate of franchise fees has been an ongoing goal for a council faction in recent years, but this loose alliance had been unable to marshal enough votes to change the status quo until now.

“We still use that money that goes into the green fund, Councillor Strojwas, for a lot of projects,” said Brewin. “And with the way that solar power and wind farms are changing, I think we would be foolish not to invest into energy conservation. If you take this money away, we’re going to have to take it back from somewhere else. We’ve been arguing about this for the past six years, and it’s been the same argument every time.”

Strojwas would put forward a motion to reduce franchise fees by two per cent across the board to 18 per cent, with a corresponding reduction in the energy conservation reserve transfer to five per cent from 7.5 per cent.

Making a quick calculation, Orwa suggested a two pert cent reduction would reduce franchise revenues for the town by roughly $37,718.

“So we’re going to lose whatever two per cent is,” said Brewin, who wasn’t inclined to give up easily over the issue. “I asked Councillor Strojwas where do we make that money up at. Are we cutting budget? What service are you willing to give up, or how much are you willing to raise taxes to get that amount back that you just gave up?”

“I’m saying — and I’ll repeat again — that the green fund would be shorted by that amount,” replied Strojwas. “You don’t have to increase taxes, you’re shorting your green fund so there would be less money going forward for green projects. So there would be no additional tax increase.”

“But you’re still taking money from your green fund that you no longer will have,” said Brewin.

“We don’t have any projects committed for that green fund,” said Strojwas. “This council decides by recommendation from administration where to spend that money.”

The motion would pass by a 5-1 vote, with Brewin in opposition. Coun. Garth Bekkering was absent.

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 2003 when council raised the franchise fee rate to the maximum 20 per cent, where it remained for more than 16 years.

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