Council lowers franchise fee for 2022

·6 min read

A decrease in the FortisAlberta Franchise Fee Rider for 2022 from 12.7 per cent to 11.73 per cent effective Jan. 1, 2022, was approved by council at the regular council meeting on Nov. 2.

As a result, customers of the electricity provider will notice an impact to their bill and the Town will receive less revenue. For every 0.1 per cent decrease to the franchise fee, based on the calculator provided by FortisAlberta, a reduction of $11,348 annual revenue for the Town is estimated. This means that reducing the rider to 11.73 per cent would result in a $0 increase in overall anticipated revenue from 2021 to 2022.

The annual franchise fee that is part of the Electric Distribution Franchise Agreement, is charged to FortisAlberta for allowing them access to municipal lands to construct, maintain, and operate distribution systems. That fee is recovered by FortisAlberta from their customers, by way of a rider percentage, charged on electric billings in the municipal service area.

Interim CAO, Laura Howarth, noted that the exact impact on customers is unknown since it is a charge by FortisAlberta passed on to the customer. Carla Fox, Hinton’s director of corporate services, noted the change would roughly be between $15 and $20 per household per year based on a quick rough calculation.

Administration reported that no feedback was received by the community in response to a required advertisement notifying them of the intent to decrease the fee.

Coun. Ryan Maguhn initially supported the franchise rider as a councilor but after having conversations with residents he feels there are transparency issues with the rider. He noted that it is a form of double taxation since the customers pay a bill to a utility company who charges a franchise rider fee with GST added on top.

“You’re essentially being taxed twice on that funding and I don’t feel that’s a transparent way of trying to recoup money for the municipality,” Maguhn said.

Although the franchise fee can’t disappear overnight, Maguhn felt the long term goal should be to decrease that number.

Coun. Brian Laberge agreed with Maguhn and added that if there’s not enough money, then taxation should be raised. Whitecourt is at 3.32 per cent, Edson is at 4.75 per cent, and those are the communities Hinton competes with, Laberge said.

“It’s not very visible, it’s poorly understood by the taxpayer, I don’t think it’s transparent, it doesn’t receive the degree of scrutiny that a property tax increase would receive, it still annoys people, and it doesn’t seem accurate to call it a tax,” said Coun. Stuart Taylor. He voiced his support for lowering and eventually eliminating the fee.

Coun. Trevor Haas felt the community would support a taxation increase knowing that money would go directly to the community if that money is needed but they are not comfortable with this fee. The GST on the fee means some of the money is going to the federal government as well, he said.

While Coun. Albert Ostashek felt that the philosophy behind the franchise fee deserves a more robust discussion; he did state that converting the franchise fees to property taxation would unfairly shift the burden of how that revenue is created from a current user-pay system based on consumption of electricity to individual residential taxpayers. He noted the current funds raised through the fee come disproportionally from large industrial and commercial users.

Taylor pointed out that fees may not currently be raised on a user-pay system, to which Ostashek responded that how the franchise fees are currently collected was irrelevant to the discussion about council setting a rate for the following year.

Taylor said the energy consumption charges were relevant, as energy rich businesses would pay more depending on how the fee is charged. Later in the meeting he added that in the agreement with FortisAlberta the percentage charges are related to distribution, not energy consumption.

Laberge commented that the transmission fees are 17 per cent of charges, the distribution fees make up 33 per cent of charges and the franchise fee is a percentage of that.

Taylor then proposed maintaining the current franchise rider fee until April 1 at which it would be reduced to 11.13 per cent. He said this would reduce the Town’s reliance on the fee and move taxation to a place where it should be discussed.

Maguhn argued that fluctuating the rate part way into the year lacks transparency. Michaels agreed with less dependency on the franchise fee rider but his preference was to set one yearly rate.

“I do strongly echo Ostashek’s point that a holistic conversation to understand that if we’re going to transfer this revenue through taxation the user portion of it, if that is the case, once we have that detailed information is something to iron out and understand,” Michaels said. He said if a user-pay system is the case he would likely lean towards that, albeit improvements can be made.

Haas voiced his appreciation for attempting to lower dependency on the fee as well but felt that more understanding of how the fee is collected is needed.

Earlier in the meeting, Coun. JoAnn Race pushed to maintain the Fee Rider at 12.7 per cent as it would impact residents at roughly $1.25 per month and an additional $110,443 would be collected. That money, she said, could make up for the money lost from the changes to the tax penalty bylaw, could fund the $60,000 proposed to go into the community grant, go into the operating fund, or assist with taxes.

“We are still so new and there’s so many unknowns coming at us. We haven’t seen our budgets yet and I don’t feel we are a wealthy municipality and we have to make wise decisions today and by going to 11.73 we are basically forfeiting $110,000 that I don’t think we can afford to lose,” Race said early in the meeting.

Every September FortisAlberta provides municipalities with a revenue calculator that allows for the estimation of anticipated revenues provided by the local access fee rider, which was received by Administration on Sept. 27, 2021.

In response, the Municipality may change the local access fee percentage annually by providing written notice to FortisAlberta by Nov. 1 to ensure the fee is approved and implemented by Jan. 1. On Oct. 26, the Town of Hinton received an extension from FortisAlberta from Nov. 1 to Nov. 11.

The 2021 access fee rider was approved by Council and set at 12.7 per cent. The maximum fee is capped at 20 per cent.

Masha Scheele, Local Journalism Initiative Reporter, The Hinton Voice

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