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Sylvan Lake town council divided on increasing franchise fees

During the Monday, Oct. 24, regular town council meeting, councillors were asked to vote on an increase to the ATCO Gas and Fortis franchise fees, but not all councillors agreed the increase was a good move.
Sylvan Lake town council discussed increasing ATCO Gas and Fortis franchise fees during Monday’s council meeting. (File photo)

During the Monday, Oct. 24, regular town council meeting, councillors were asked to vote on an increase to the ATCO Gas and Fortis franchise fees, but not all councillors agreed the increase was a good move.

According to the council agenda information, franchise fees are charged by the municipality to the utility company, granting the company exclusive right and access to distribute their commodity within the municipal boundary. The utility companies raise their revenue to pay these fees, as well as linear property taxes, by charging utility customers in the municipality. The municipal franchise fee (access fee) shows as a separate charge on the bills received by the utility customer.

The franchise fee is a percentage of the distribution fee that the utility company charges. Prior to the council meeting, Sylvan Lake’s franchise fee for ATCO Gas was 27 per cent and the franchise fee for Fortis was 15 per cent.

The franchise fee with ATCO Gas was originally set in 2004 at 20 per cent and council improved a few increases in the intervening years – in 2016, the fee was raised to 23 per cent, and it was raised again in 2017 to 27 per cent. The Natural Gas Franchise Agreement gives the town the option to adjust the franchise fee percentage annually, up to a maximum of 35 per cent. During Monday’s council meeting, it was recommended by the town’s corporate services department to increase the franchise fee to 32 per cent.

The Fortis franchise agreement came into effect in 2005 and was originally set at 10 per cent. This fee was increased to 12 per cent in 2016 and then to 15 per cent in 2019, where it has remained. During Monday’s council meeting, it was recommended by corporate services that council increase the Fortis franchise fee to 18 per cent. Under the Electric Distribution System Franchise Agreement, the municipality can adjust the rate annually, up to a maximum of 20 per cent.

At the suggested rate of 32 per cent for the ATCO Gas franchise fee, the town’s projected revenue in 2023 would be $1,488,714. And by increasing the rate to 15 per cent for Fortis, the town’s projected revenue from the franchise fee in 2023 would be $1,735,200. The increases would add about $500,000 total to the town’s revenue for the year.

Most municipalities within Alberta charge a franchise fee and corporate services assured council that both 32 per cent and 15 per cent, respectively, fall within the average of what other municipalities charge.

According to Darren Moore, director of corporate services for the town and who presented the information to council during the meeting, the average residential customer in Sylvan Lake would see their gas bill go up by $2.75 a month and their electricity bill go up $2.49 a month.

At the beginning of each council session, there’s an open mic portion of the meeting where residents can come in and put issues or concerns before council. During Monday’s meeting, a local resident came to put in his two cents about the proposed increases and suggested it was a backdoor way for the town to collect more taxes and that council should not approve the increases.

While both increases were ultimately approved by council, the vote was not unanimous. In favour of the increases were Mayor Megan Hanson, councillor Tim Mearns, councillor Graham Parsons and councillor Teresa Rilling. Against were councillor Jas Payne, councillor Kjeryn Dakin and councillor Ian Oostindie. Council discussed the idea of increasing the fees for about 45 minutes.

“We are in a climate where the inflation rate is astronomically high, compared to what’s happened in my lifetime as a taxpayer,” said Payne during the discussion. “I don’t see how we can continue to maintain the level of service that has been maintained, to do the things the community does on a regular basis, without there being an opportunity for a revenue stream or without there being revenue to make it happen. So it kind of seems to me that if we don’t do this, we’re taking from Peter to pay Paul. We’re going to have to increase our rate somewhere else, to find ourselves in a situation where we’re able to maintain the service levels that we have.”

“I don’t lean towards raising the fee because it’s a fee based on a fixed delivery charge,” said Oostindie. “That delivery charge is not truly fixed; it will change over time. If the fixed delivery charge goes up, that’s going to be more. The 27 per cent already will take into account inflation over time. That’s what I’m saying. It will move with inflation.”

Dakin commented that she has never been in favour of franchise fees and would like to see the town stop charging them altogether, and instead the residential tax rate should simply reflect taxes and both franchise fees in one lump sum.

“I think that we should be taxing people – as much as we are transparent, I understand that, but most people will see it as being sneaky,” she said. “I would like to get rid of this, down to zero.”

Some councillors made the analogy that rather than three hands in the pockets of residents, that being two sets of franchise fees and municipal taxes, it should just be one hand so Sylvan Lakers know exactly where their money is going. However, other councillors suggested that in order to get rid of franchise fees, taxes would have to go up to a rate that taxpayers would never agree to. And while all councillors seemed to agree that staying at the current rate would be preferable, some argued that services shouldn’t suffer instead.

“The way we generate revenue, some of the systems are longstanding and a proven practice across Alberta, and so it’s a system that works,” Moore said in an interview after the council meeting. “If you wanted to have all your revenue come from taxes, tax rates would be much higher. When people are looking for a place to move to, taxes are one thing that people look at.”

While the franchise fee increases were given the go-ahead by the majority, council members agreed to look at other options during their budget discussions.

“We’re certainly going to do some research and put some information together for council to consider about going away from franchise fees and putting that revenue into the property tax,” said Moore. “We’ll give council some options in the new year, so they can review both sides of the issue and see where they want to go from there.”