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Gas franchise fees increase to offset lower cost of delivery

The gas franchise fee in St. Albert has been raised by 1.5 per cent. On Monday, council approved an increase to the fee to offset the reduction of the cost of gas delivery rates across the province through the Alberta Utilities Commission.
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The gas franchise fee in St. Albert has been raised by 1.5 per cent.

On Monday, council approved an increase to the fee to offset the reduction of the cost of gas delivery rates across the province through the Alberta Utilities Commission. The group voted 5-2 in favour of the increase, with councillors Ken MacKay and Sheena Hughes voting against it.

Gas franchise fee rates are collected as a percentage of the delivery revenue by ATCO, and the decrease in the gas rate would leave the city with a budget shortfall.

“Every municipality in Alberta is facing the same shortfall, I’m assuming,” Mayor Cathy Heron said.

Diane McMordie, director of finance for the city, said the city recently became aware of the decrease and is proposing the increase so the city is still collecting the same revenue from the gas franchise fee.

“The change means that, dependent on usage, customers would pay the same net amount in franchise fees,” McMordie said.

Right now the franchise fee sits at 18.8 per cent and will jump to 20.3 per cent with the change.

"Changing it to 20.3 still keeps us competitive," Heron said. "By increasing it to 20.3 we really are avoiding the tax increase."

The city had planned to collect $2.91 million from the gas franchise fee in 2018, but with the drop in rates it would leave the city with approximately $2.55 million and a shortfall of $360,000.

For the proposed 2019 budget the franchise fee was increased to $3.04 million, which accounts for growth and the assumption that the delivery rate would stay the same. Now, with the new changes in gas delivery costs, the budget shortfall for 2019 is projected to be around $218,000.

Without the increase for 2019, the city would have had the option to increase property taxes by 0.21 per cent to offset the revenue hit, which administration recommended against so as to not shift the shortfall to the tax base.

“This is about keeping our franchise fee revenue whole, so we are not shifting the burden back on the taxpayers. Because then you run into the same issue when you’ve got tax-exempt-type properties,” McMordie said.

Based on last year’s numbers, the average residential customer who consumed around 120 gigajoules of natural gas per year paid around $93, and the fee jump would increase the amount they pay by $7 to $101 per year.

Owners of non-residential buildings, who fall in the mid-range, consuming around 8,000 gigajoules of natural gas per year, currently pay around $2,321, and the increase would range from $185 to $2,506 per year.

Across Alberta municipalities are grappling with how to make up for the revenue shortfall caused by the reduction in gas delivery rates.

Edmonton’s $14-million deficit is in large part due to the decrease in revenue from gas franchise fees. The city expects gas franchise fees to create a $9.1-million shortfall in the budget because of the provincial changes implemented in April.

Earlier this month Whitecourt's council discussed raising its fee from 20.59 per cent to 22.5 per cent in 2019 to offset the cost.

The province mandates that gas franchise fees can go up to 35 per cent, and municipalities across Alberta set their own fees to help cover the cost of service delivery.

In Red Deer, residents are charged the maximum under provincial law, with a fee of 35 per cent. Airdrie has a franchise fee of 29.6 per cent.

The change will come into effect on Jan. 1, 2019.


Jennifer Henderson, Local Journalism Initiative reporter

About the Author: Jennifer Henderson, Local Journalism Initiative reporter

Jennifer Henderson is the Local Journalism Initiative reporter for Great West Newspapers based in St. Albert, Alta.
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