What is a franchise fee?
A franchise fee is like a rent the utility companies pay for being allowed to access City lands to construct, maintain and operate distribution systems. The utility companies are given the exclusive right to provide their service with city boundaries. It is very common for municipalities to have franchise agreements and to generate revenue from this type of fee. ATCO Gas and Fortis Alberta and the sole providers of natural gas and electricity within the City of Airdrie.
Franchise fees are reviewed annually by Council. In order for a municipality to increase franchise fees, a bylaw must be approved by Council. Fee increases are then effective once approved by the Alberta Utilities Commission.
Why do municipalities charge franchise fees?
Municipalities are responsible for providing the services that citizens want. An important consideration in generating funds to provide the services if ‘who pays for what.’ While property taxes make up the most significant portions of revenue, franchise fees are also a major source of revenue for municipalities.
Franchise fee revenue comes from a customer base which includes renters, schools, churches, and Federal and Provincial governments, which are exempt by law from paying municipal tax. By using a franchise fee to generate income from exempt community members, the burden of paying for City services is more equitable to all residents. These types of customers benefit from the service provided by utility companies and it is appropriate to garner a portion of revenue from them.
Is there a cap to the franchise fees?
The Alberta Utilities Commission (AUC) restricts the percentage that can be charged for a franchise fee to 20% of the revenue earned by delivering electricity. The current franchise fee paid by Fortis Alberta to the City of Airdrie is 20%.
The AUC restricts the percentage that can be charged for a franchise fee to 35% of the revenue earned by delivering natural gas. The current franchise fee paid by ATCO Gas to the City of Airdrie is 29.6%.