BONNYVILLE – There is no doubt that the cost of energy has been on the minds of Albertans.
Concerns over affordability is top of mind for Canadians as they see the cost of their natural gas and electricity rise, exponentially in some cases.
There are several factors to point to when it comes to rising utility costs.
A significant change happening in Alberta’s energy landscape, which has been affecting electricity and natural gas prices, comes from a provincial commitment made almost a decade ago.
In 2015, the government announced the elimination of emissions from coal power generation to occur by 2030.
Alberta is on track to phase out coal power by the end of 2023, resulting in natural gas being the province’s main fuel source for electricity generation. This has led to a greater demand for natural gas and higher costs overall.
The increase of the Federal Carbon Tax is having an impact as well. The federal government is collecting $3.327 per Gigajoule (GJ) delivered to Albertans. From April 2022 to the end of March, the Carbon Tax previously sat at $2.629/GJ.
However, the largest charge that consumers see on their energy bills is the cost of transmission and distribution. These costs both have a fixed and variable component, are based on usage, and are presently the largest portion of your bill, states Alberta’s Utilities Consumer Advocate (UCA).
“In the winter, these charges can be approximately 65 per cent of the total cost of the bill. These rates are calculated by the distributor and are the same regardless of the plan you are on or the retailer you are with,” outlines UCA.
Distribution charges vary according to location and are typically higher for customers in rural Alberta than for those in urban areas because of the low population density and longer distances between customer sites.
However, many Alberta municipalities are advocating for the government to eliminate the disparity in electricity pricing for transmission and distribution charges across the province by adopting a model like British Columbia or Saskatchewan.
And still, there is another charge tacked on to utility bills that homeowners and businesses must pay – a franchise fee.
Municipal Franchise Fee
A franchise free is included on utility bills where a municipality grants exclusive rights to a utility distribution company to provide services within the limits of that municipality.
The municipality then charges the distribution company a franchise fee for the exclusive right to serve utilities. The distribution company is then able to recover these costs directly from its customers.
On Sept. 12 and Oct. 10, Town of Bonnyville council reviewed its franchise fees with ATCO and Apex Utilities Inc.
On both occasions Town council made the decision to hold the line when it came to the franchise fees charged to its energy suppliers.
“This one is obviously a sensitive one for everyone right now with the current rates of utilities going up,” said Coun. Neil Langridge on Oct. 10. “So, I strongly agree with the recommendation that council advice Apex we do not wish to amend the annual franchise fee.”
Council approved maintaining Apex’s franchise fee at 20 per cent. Municipalities can charge up to 35 per cent for natural gas franchise fees, according to the Alberta Utilities Commission (AUC).
The Town’s electric franchise fee will stay at 6.8 per cent for ATCO’s exclusive services. This is 13 per cent under the cap set by AUC.
City of Cold Lake council approved changes to its franchise fees with ATCO Electric and ATCO Gas on Oct. 10. These fees are recovered by ATCO from its customers.
City council approved a motion to increase its electric franchise fee from 5.75 per cent to 7.25 per cent. Council similarly approved a franchise fee increase for gas from 13 per cent to 15.5 per cent.
If these changes are approved by the AUC, the increase to the franchise fees will take effect starting Jan. 1, 2024 for Cold Lake customers.
“We understand budgets are tight, so we kept the increase minimal,” said City of Cold Lake Mayor Craig Copeland, following council’s decision.
The proposed increase of 1.5 per cent for ATCO electrical services will provide the City with a revenue of about $230,000. For the average residential home, this will be an increase of an estimated $1.85 per month, according to the municipality.
The last increase to the City’s electrical franchise fees was in 2022 to recoup the costs of upgrading to LED streetlights.
Since 2005, there have been no increases to the City’s gas franchise fee. The proposed increase of 2.5 per cent for ATCO natural gas services will provide the City with a revenue of approximately $100,000. This could cost an average home an estimated $1.22 per month.
Why municipalities sign exclusive agreements
“There is a huge investment requirement to put in the infrastructure – pipes, poles and wires – necessary to provide electricity and gas in a municipality,” wrote Town of Bonnyville administration, in a statement to Lakeland This Week.
“Companies such as Apex and ATCO have made the investment, in some cases many, many years ago into that infrastructure. So, in exchange for that investment in the infrastructure, they require an exclusive ‘franchise’ – in this case the right to sell/distribute gas and electricity within the corporate limits of the Town.”
In the Town of Bonnyville, the revenue from the franchise fees collected by energy distributors goes directly into the municipality’s general revenue. This helps keep municipal taxes down.
The current franchise fee charged to all customers in the Town represents over $1.45 million. This equates to over 18 per cent if it was added to taxes, according to Town administration.
With energy distributors taking responsibility for infrastructure and maintenance in areas where they have exclusivity agreements, it is clear why many municipalities favour franchise agreements.
“There has been a lot of debate over the benefits, but we recognize that the municipality doesn’t have to pay for construction and maintenance of the natural gas and electricity infrastructure. When this infrastructure needs to be upgraded or replaced, it is the responsibility of the franchise utility to do so, not the Town,” states administration.
“Some would argue that the franchise fee is the most fair way of collecting revenue as all properties, including those exempt from paying tax, are required to pay it if they are using gas or electricity.”
