Paying for Utilities – Franchise Fee Reform

Paying for Utilities – Franchise Fee Reform

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In addition to property taxes, franchise fees – also known as local access fees, municipal consent fees, or municipal access fees – are a significant source of revenue for municipalities, accounting for 8 per cent of The City of Calgary’s revenues in 2012. These fees are collected by utilities operators and remitted to the municipality to grant operators future access to municipal rights of way. They also act as payment in lieu of property taxes, which are difficult to calculate for an operator’s entire network.

Franchise fees are typically collected based on three models: the cost of delivery only, the amount of utility consumed at the current market price, or a combined calculation of delivery cost and consumption. Unlike most jurisdictions in Alberta, The City of Calgary collects franchise fees based on the total cost. 

This method has its advantages: by calculating fees based on the total cost, The City generates greater amounts of revenue when commodity prices are high. However, it also creates budgetary disparities when economic conditions are more modest. This creates a reliance on a volatile source of revenue that could generate negative outcomes when forecasting budgets for subsequent fiscal years.

Calculating franchise fees based solely on the cost of delivery is a more stable method of collecting utility revenues. This is due to the fact that it eliminates the unpredictability of market volatility on utility prices. Despite generating less revenue for municipalities during more prosperous times, collecting fees on distribution only allows The City to better predict the expected revenues from franchise fees on a year-to-year basis and allows for more accurate budget forecasts in subsequent years.

Additionally, while paying for waste water, electricity, and heat are part of every family’s monthly budget, the additional cost of franchise fees month-to-month based on market demand is not. In many cases citizens don’t know what these fees are and why they are being charged. A shift towards distribution-only franchise fees gives Calgarians more predictability when it comes to their monthly utilities, providing families with more financial security and helping businesses stay competitive.

Due to the volatility of the current utility structure, the Calgary Chamber recommends The City of Calgary:

  • Set franchise fees for utilities based on cost of delivery only.
  • Communicate clearly to the public what franchise fees are and how they are calculated in Calgary.

Download our full Great Calgary 2013 policy book

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