TAMRMS#: B06
11.1
REQUEST FOR DECISION
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Bylaw 22/2024 Natural Gas Franchise Distribution Agreement (2nd and 3rd Readings)
Presented by: Monica Chan, Senior Business Analyst, Financial and Strategic Services
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RECOMMENDED MOTION(S)
recommendation
1. That Bylaw 22/2024 be read a second time.
2. That Bylaw 22/2024 be read a third time.
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SUMMARY
On November 13, 2024, the Alberta Utilities Commission (AUC) provided approval for the renewal of the City’s natural gas franchise agreement with ATCO. The agreement consists of a 25 per cent franchise fee with a term of 10 years, commencing January 1, 2025, and expiring December 31, 2034.
The new natural gas franchise agreement ensures that the City is aligned with provincial legislation.
Once Bylaw 22/2024 is passed, Administration will proceed to signing the natural gas franchise agreement, which is anticipated to occur immediately after Council’s approval.
ALIGNMENT TO COUNCIL DIRECTION OR MANDATORY STATUTORY PROVISION
On October 1, 2024, Council passed the following motion:
BL-24-030
That Bylaw 22/2024, being a bylaw to authorize the Chief Administrative Officer to execute an agreement with ATCO Gas and Pipelines Ltd. to deliver natural gas to customers within the City of St. Albert, be read a first time.
That section 5 of Schedule A of Bylaw 22/2024 be amended to increase the franchise fee from 20.3% to 25%.
That notice be provided to ATCO Gas and Pipelines Ltd. no later than October 1, 2024, of the City’s intent to increase the franchise fee effective January 1, 2025.
That administration executes and completes all required documentation and advertising requirements to enable consideration of approval of the franchise fee increase by the Alberta Utilities Commission.
BACKGROUND AND DISCUSSION
The proposed franchise agreement grants ATCO an exclusive right to distribute natural gas within the community. This agreement allows ATCO to construct, operate, and maintain the natural gas distribution system, as it is an essential service that properly serves the public interest.
In October, subsequent to Council’s 1st reading of Bylaw 22/2024, Administration submitted preliminary documents to ATCO for filing to the AUC. The submission to the AUC included the required application and a copy of the bylaw.
The AUC filing included responses for one objection and one expression of concern from two residents, both regarding the cost of their utility bills. There were minor changes to the standard natural gas franchise agreement template that was approved by the Commission in 2015. The revisions to the franchise agreement did not alter the intent and application of the agreement.
The alignment of the new agreement with the standard form template is important given the recent changes that were made to the Municipal Government Act and the Gas Utilities Act by the Utilities Affordability Statutes Amendment Act, 2024 (formerly Bill 19). The Utilities Affordability Statutes Amendment Act, 2024 was proclaimed on June 20, 2024, and the changes are intended to provide for more scrutiny of franchise agreements between municipalities and utilities. The changes as a result of the Utilities Affordability Statutes Amendment Act, 2024 include the following:
- New section 45.01 of the MGA which prohibits franchise agreements from providing for the payment of fees that are determined in whole or in part using a price per gigajoule of fuel that varies according to market prices; and
- New section 49(5) of the GUA which states that a franchise granted by a municipality to an owner of a gas utility that has not been approved after the coming into force of Bill 19 (June 20, 2024) will terminate on March 17, 2025.
The new natural gas franchise agreement between the City of St. Albert and ATCO adheres to the Municipal Government Act (MGA), Alberta Utilities Regulations as well as satisfies requirements of the Gas Utilities Act (GUA).
On November 13, 2024, the AUC provided approval of the City’s natural gas franchise agreement with ATCO and Rate Rider A schedule, as attached in the Decision (Disposition) 29590-D01-2024. The proposed franchise fee was approved as the fee is below the 35 per cent maximum level set by the Commission in the Decision 20069-D01-2015 and is being applied equally to all customers. The Rate Rider A schedule provides for a list of the municipalities in Alberta with their respective franchise fee rates.
With the franchise fee of 25 per cent, the newly enacted natural gas franchise agreement ensures that the City continues to receive a stable source of revenue.
STAKEHOLDER COMMUNICATIONS OR ENGAGEMENT
To meet the advertising requirements of section 606 of the Municipal Government Act, the notice of application to the AUC for approval to renew the natural gas franchise agreement was advertised for two consecutive weeks (St. Albert Gazette on October 10, 2024, and October 17, 2024.)
Upon final approval of the new Bylaw 22/2024 by Council, the bylaw and agreement will be made available to the public. The City of St. Albert will post the bylaw on the City’s external website.
IMPACTS OF RECOMMENDATION(S)
Financial:
The 2025 proposed budget included the 25% natural gas franchise fee revenue, which is budgeted at $4,070,000.
Compliance & Legal:
The MGA provides municipalities with the right to grant a right to a person to provide a utility service in all or part of the municipality and to use the municipality’s property for the construction, operation, and extension of a public utility in the municipality for not more than 20 years (MGA, section 45).
Before the agreement is made, amended, or renewed, the agreement must be advertised and approved by the AUC.
The franchise fee cannot be determined in whole or in part using a price per kilowatt hour or per gigajoule that varies according to market prices. The City of St. Albert is not in contravention of this requirement because our franchise fees are not set using this methodology.
The existing Bylaw 45/2010 will be repealed upon the passing of new Bylaw 22/2024.
Program or Service:
None at this time.
Organizational:
None at this time.
Risks
None at this time.
ALIGNMENT TO PRIORITIES IN COUNCIL’S STRATEGIC PLAN
The natural gas franchise fee is an alternative, stable, and growing source of revenue.
This aligns with the financial sustainability strategic priority contained in the 2022-25 Council Strategic Plan.
Initiative aligned with Strategic Plan:
Not Applicable
ALIGNMENT TO SERVICE DELIVERY
None at this time.
IMPACTS OF ALTERNATIVES CONSIDERED
ALTERNATIVE 1: Do nothing.
Financial:
Given the new changes made to the MGA and the GUA, if the new agreement is not approved by Council and the AUC, it will be terminated on March 17, 2025. The City would not receive any franchise fee revenue after the termination of the current agreement.
Compliance & Legal:
Since this is a new agreement that has not yet been approved since the proclamation of Bill 19, if the new agreement is not approved by the AUC, the current agreement will be terminated on March 17, 2025.
If not repealed or amended, the existing bylaw 45/2010 will be inconsistent with provincial legislation.
Program or Service:
None at this time.
Organizational:
None at this time.
Risks
None at this time.
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Report Date: December 3, 2024
Author(s): Monica Chan
Department: Financial and Strategic Services
Department Director: Anne Victoor
Managing Director: Diane McMordie
Chief Administrative Officer: Bill Fletcher