On Monday, St. Albert's council members will wade into the topic of electrical franchise fees during a meeting of the governance, priorities and finance committee.
But residents worried about their utility bills going up need not fear – municipalities cannot change their franchise fees willy-nilly, and Monday's meeting is just the beginning of the conversation.
Councillors will be taking a look at a report from city staff on the possibility of bringing in an electrical franchise fee, but since it is a committee meeting, any recommendations councillors have would need to come to a regular council meeting before any decisions can be made.
What is a franchise fee, anyway?
The term "franchise fee" refers to an amount municipalities charge utility companies for the exclusive right to service the community. It also means the utility company in question can use municipal rights-of-way for their infrastructure.Generally, franchise fees are passed on to residents in their monthly utility bills, which usually have a separate line item for franchise fee costs.
There are plenty different types of franchise fees, depending on what municipality you are in. Most communities charge franchise fees for electricity or gas, although Edmonton has water and wastewater franchise fees as well.
Thanks to the Alberta Utilities Commission (AUC), franchise fees are capped at 20 per cent for electrical and 35 per cent for gas. Any fee beyond that would require AUC approval.
So why would a municipality choose to adopt a franchise fee?
It can be a source of revenue, and in theory could reduce property taxes: thanks to Alberta's Municipal Government Act, municipalities could charge franchise fees instead of property taxes, although many opt to charge both.
Franchise fees also apply to bodies that are traditionally exempt from paying property taxes, such as schools and churches, as they still generally pay a utility bill.
Why is this important?
St. Albert Mayor Cathy Heron was not available for an interview in time for this article, but told the Gazette during an editorial board meeting in November that an electrical franchise fee for St. Albert could start at five to six per cent and eventually work its way up to 18 per cent, generating roughly $5 million each year.“It generates some revenue either to offset taxes or that we could build with," Heron said at the time.
Former mayor Richard Plain, who dealt with the issue of franchise fees in the early 2000s, said it's important to consider the consequences of bringing in such fees before municipalities make the decision to do so. Issues range from the possibility of hurting St. Albert's commercial competitiveness to making essential services less affordable.
"These tend to be quite regressive in terms of income," Plain said.
"Those who have the least are going to, no matter what else, feel it the worst."
As for the business sector, Plain said one of the competitive advantages St. Albert has had over Edmonton is that it has not charged the amount of franchise fees Edmonton does.
"Part of our competitive strategy – fundamental to it – was that we would not go into the franchise fee side and push the costs up on our existing businesses," he said.
What is St. Albert's history with franchise fees?
Franchise fees are not new to St. Albert, although the city does not currently charge an electrical franchise fee.ATCO Gas currently charges St. Albertans an 18.8-per-cent franchise fee on behalf of the city.
St. Albert's council members have dealt with the gas franchise fee at least twice in the past seven years: in 2010, they changed the way the city calculates that fee; and in 2013, they decided not to pursue an increase to gas and electrical franchise fees.
On March 11, 2013, during a meeting of the standing committee on finance, council members were told that a five-per-cent electrical fee would generate more than $1 million in revenue, equivalent to around 1.44 per cent in property tax.
But St. Albert's history with franchise fees goes back even further. Plain recalls the pushback from residents in 2001 when the council of the time proposed bringing in more franchise fees and cutting property taxes.
Aside from affordable living and commercial impacts, Plain said many people didn't like the idea of imposing a tax on churches, schools, hospitals and other bodies exempt from property tax.
"Some people ... take a pretty dim view of that, because if you take money away from the budgets for schools that means there's so much of the money now that is not available for the kids, payment of the teachers, other good things that schools do," Plain said.
"They're crowding out other programs in education in order to transfer money to the municipalities."
What do franchise fees look like elsewhere in Alberta?
Most municipalities in Alberta have either an electrical or gas franchise fee. Narrowed down to cities, nearly all have both.Some manage their own utilties: Medicine Hat has its own electric and gas utilities, while Lethbridge has its own electrical utility. Similarly, Edmonton's electrical utility is run through EPCOR, which it owns.
Others rely on utility companies – the most common being FortisAlberta for electricity and Atco Gas for gas – to manage their utilities, charging those companies various franchise fees for access to city lands.
The only city in Alberta without either electrical or gas franchise fees is Fort Saskatchewan, while Red Deer and St. Albert charge gas franchise fees but not electrical.
Among Alberta's other cities, the highest electrical franchise fee can be found in Spruce Grove at 20 per cent. Runners-up include Airdrie at 13 per cent and Wetaskiwin at 12 per cent.
For gas, the highest franchise fee is 35 per cent in Red Deer and Wetaskiwin, followed closely by Edmonton at 32.9 per cent and Airdrie at 29.6 per cent.
While not a city, closer to home Morinville has a 20 per cent electrical franchise fee as well as a 19 per cent gas franchise fee.
What are the regulations?
So just how does a municipality go about getting franchise fees changed, anyway?St. Albert already technically has an electrical franchise agreement with FortisAlberta but the rate is currently set at zero per cent.
In order to get that changed, they have to file the change under a process laid out by the AUC and publicly advertise the change at least 45 days before the change takes effect.
St. Albert's council would also need to amend a bylaw giving FortisAlberta exclusive access to the city's electrical distribution for 10 years, which came into effect on Jan. 1, 2016, to include a franchise fee.
