TAMRMS#: B06
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Electrical Franchise Fee
Notice given by: Councillor Hughes
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BUDGET POSTPONED MOTION:
recommendation
That the electrical franchise fee rate increase be postponed until 2022.
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Administration’s Understanding of the Intent of the Motion:
That the planned 2.5% increase to the electrical franchise fee scheduled for January 1, 2021 be delayed until January 1, 2022 and that the 2021 net operating revenue of $768,000 be removed from "other revenues" and added to the tax requirement.
Operational or Organizational Impacts if Motion is Approved:
None
Financial Implications of Motions:
Please refer to the background section for complete financial implications.
Stakeholder Consultations:
As per the requirements to change a franchise fee, advertisements were placed in the St. Albert Gazette on October 7th & 14th, 2020 to advise residents of the proposed change and to allow a 45 day objection period. This period has now passed and the City has fulfilled all of it's obligations. Fortis Alberta has submitted our application to the Alberta Utilities Commission for approval which has been received
Background:
On June 25, 2020, Council passed a motion to introduce an electric franchise fee of 10% which was to be phased in over the years 2019-2021. The final planned increase of 2.5% is scheduled for January 1, 2021.
The City is required to designate land right of ways for the infrastructure of an electric distribution system. These lands are consequently not able to generate tax revenue for the City. Under a user pay philosophy, all properties that benefit from an electric distribution system should contribute to the costs and/or lost revenues that this service creates.
The main premise of the introduction of a franchise fee was to generate additional revenue to eliminate the tax subsidization that had been occurring. While virtually all entities use electricity, not all entities pay property taxes. The additional revenue generated from the fee is applied directly against the tax base thereby reducing property taxes. The average use customer would have seen no net impact to their total cost. The additional amount they paid on their electricity bill would have been offset by a decrease in their property taxes.
The impact of not following through with this final increase in 2021, would be to increase the level of tax subsidization once again. Any incremental revenues not collected through a franchise fee will have to be made up through municipal taxes. The 2.5% increase planned for 2021 is estimated to generate a net additional $768,000 ($850,000 revenue less $82,000 expense for City facilities) in non-tax revenues. If this amount is not collected, the municipal tax requirement will increase by an equivalent amount which would equate to a 0.7% tax increase.
In a year where we may be aiming for a 0% tax increase, this lost revenue would need to be absorbed through reductions in other areas of the organization which could necessitate service level adjustments. This means that taxpayers may face higher property taxes or lower levels of service so that non-taxpayers can benefit from lower overall costs.
Fortis Alberta has confirmed that since AUC approval has already occurred, this proposed delay to the rate change can not be made effective January 1. The next available effective date to make a change to the Franchise fee will be April 1, 2021.
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Report Date: December 1, 2020
Author: Diane McMordie, Director, Finance and Assessment/CFO
Department: Finance and Assessment
Deputy Chief Administrative Officer: Kerry Hilts
Chief Administrative Officer: Kevin Scoble
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