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Franchise fee changes on tap

A council committee has endorsed changes to natural gas franchise fees, despite concern from some members who say it could give users less control over how much they pay. "I always think of the word 'stealth tax' when this comes up," Coun.

A council committee has endorsed changes to natural gas franchise fees, despite concern from some members who say it could give users less control over how much they pay.

"I always think of the word 'stealth tax' when this comes up," Coun. James Burrows said during council's finance committee discussion Monday. "It's hard to argue to make this change."

The committee endorsed changing the formula for franchise fees, which are paid to municipalities as compensation for using utility rights of way on municipal land. Utility companies recoup the costs by charging customers more.

Instead of charging customers 5.3 per cent on their total bill, they will pay 18.8 per cent on the delivery charge only. The change amounts to $78 a year for an average household, similar to what they were in 2008 before natural gas prices plummeted.

Corporate services general manager Dean Screpnek stressed the new 18.8 per cent rate was designed to restore revenues to previous levels and make them easier to predict because they're less reliant on market volatility.

"I want to make absolutely crystal clear that we're not looking to increase the rate," he said. "Although we're talking percentages, there are very, very different ways of calculating them."

St. Albert signed its natural gas franchise fee agreement with Atco Gas in 2005, giving the company exclusive distribution rights in the city. Screpnek said natural gas bill costs are based on a ratio of 70 per cent commodity and 30 per cent delivery, meaning fee revenues are highly susceptible to market volatility.

Senior business analyst Joel DeBlock said the city collected $1.49 million in revenues in 2008, a number that dropped to $1.13 million in 2009 due to falling prices. Without changes to the formula he predicted the city's revenues this year would be similar to 2009.

DeBlock told the committee that administration targeted a new rate that would restore revenues to 2008 levels. The 18.8 per cent rate puts St. Albert in the middle of the pack with Camrose (15 per cent), Stony Plain (17 per cent), Grande Prairie (25 per cent), and Edmonton and Red Deer (both at 32 per cent).

Fair to users

Mayor Nolan Crouse expressed concern that the new calculation could hurt many residents and businesses that are large natural gas users. He also said the new rate could cause issues for schools, churches and non-profits, which though exempt from paying property taxes would be required to pay the franchise fees.

"This is about the city having good, solid predictability in its revenue stream," Screpnek said. "If natural gas goes back to those high levels, the residents would [pay more with the old formula] than what we are recommending here."

Coun. Gareth Jones said he didn't believe gas would go back to the highs seen in 2007, 2005 and 2000, pointing out that the market shows no signs of going for another spike any time soon.

"Everybody in Alberta should reap the benefits of the cheap gas," he said. "Every dollar that increases, our residents have to cover it."

Goose the price

Former mayor Richard Plain, who got rid of several franchise fees during his term between 2001 and 2004, said he tried to change the fee method to the delivery model during his term. However, he warned council to ensure they are doing the change for the right reasons.

"Change the base of this fee, but don't turn around and use that vehicle and goose the price," he said. "[That] would be a nasty piece of work."

The changes won't take effect until they are approved in regular council session.