WESTLOCK - Town of Westlock councillors have unanimously agreed to a two per cent increase to the franchise fees the municipality charges natural gas and electricity companies, a decision that will net the town an additional $152,522 in revenue in 2022, while most homeowners will pay roughly $41 more annually for their utilities.
At their Nov. 8 meeting, councillors voted 7-0 to raise the electric franchise fee to FortisAlberta from 12.75 per cent to 14.75 per cent and the natural gas franchise fee to Apex Utility from 25 per cent to 27 per cent — combined the franchise fees will generate $1,483,632 for the town in 2022. The last time the electricity franchise fee rose was in 2019 when it increased to 12.75 per cent, a .75 per cent jump (the first since 2013 when it rose from seven per cent), while the gas fee had been at 25 per cent since 2013. Town council rejected a one per cent increase last fall citing the impact of COVID-19 on the finances of residents and businesses.
“I know we’ve tried to avoid this over the years as much as we can, fees or taxes,” said mayor Ralph Leriger.
Under the Municipal Government Act, municipalities can charge utility companies a franchise fee, calculated as a percentage of the company’s actual total revenue, for providing service within their boundaries — the gas fee is capped provincially at 35 per cent, while electricity is limited to 20 per cent. With the increase the town is predicting it will make $692,843 via the electricity franchise fee in 2022 and $790,789 via the gas fee.
In her request for decision to council CAO Simone Wiley said a franchise fee is like a rent the utility companies pay for being allowed to access town lands to construct, maintain and operate distribution systems. Utility companies are given the exclusive right to provide their service within town boundaries and it is very common for municipalities to have franchise agreements and to generate revenue from this type of fee — Apex Utilities and FortisAlberta are the sole providers of natural gas and electricity within the Town of Westlock.
“Property taxes of course make up a significant portion of our revenue, but franchise fees are also a major source of revenue for municipalities — 84 per cent of the $15 million 2021 actual revenue is made up of a combination of taxes, franchise fees and user fees,” Wiley told council.
“Franchise fee revenue comes from a customer base which includes schools, churches and provincial government (buildings) which of course as we know are exempt from paying municipal tax. By using that franchise fee to generate income from exempt community members the burden of paying for town services is more equitable for all residents.”
Impact to residents
As the franchise fee is passed on to consumers, the RFD notes residents who use an average of 10 gigajoules of natural gas per month will pay an additional $18.55 per year. For electricity, residents who use an average of 640 kilowatts-per-hour monthly will buck up an additional $22.20 per year. Wiley said providing an estimate for a commercial property would be tough as each has unique energy needs, although she said last year that a one per cent increase would have meant a $6,120 increase to the town’s power bill and $2,020 jump to its natural gas bill.
“Utility customers do have some control over how much energy they consume and can reduce their costs by installing energy efficient appliances and home improvements,” Wiley noted.
Administration also pointed out that it would take a 2.13 per cent tax increase to generate the same amount of revenue they’ll achieve via the bump to franchise fees.
“The increase in franchise fees produces greater revenue to the Town of Westlock at a lesser expense to residents in comparison to the same revenue generated through taxation,” said Coun. Murtaza Jamaly. “And that 2.13 per cent impact to the average citizen is greater than the franchise fee impact.”
“And the reason is because it’s being spread across the whole municipality,” added Coun. Curtis Snell.
Comparison to other munis
The 2020 electricity franchise fees in neighbouring municipalities are all over the map.
Athabasca and Barrhead are listed at 12 per cent, while the Village of Clyde comes in at 15 per cent. Fort Saskatchewan is at zero, Whitecourt is 3.32 per cent, while St. Albert is 10 per cent and Spruce Grove, Stony Plain and Morinville are all at 20 per cent.
“What’s interesting is when you look at the list of other municipalities we fall somewhere in the middle. A good number of places are at 20 per cent. Look at Morinville, just up the road at 20 per cent. There’s a lot of municipalities at 20 per cent and you have to wonder, does this impact their ability to attract industry, or maybe it is the smart thing to do? Clearly it’s better bang for our buck as it spreads it out over more people and generates more revenue,” said Jamaly.
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