Calgary city councillors will be asked to consider a new model for utility franchise fees and Local Access Fees (LAF), one that trades potential city returns for consumer predictability.
Councillors will review a Quantity-Only methodology for calculating the LAF from electricity and franchise fees for natural gas consumption during a Strategic Meeting of Calgary city council on Monday.
The Local Access Fee, calculated and then collected instead of property taxes on the electricity distribution network and rights of way, has hit Calgary consumers hard over the past year, as it’s tied to the Regulated Rate Option (RRO) for power. That value spiked to more than 31 cents per kilowatt hour in August 2023, causing that portion of consumers’ bills to soar. (In March 2024, the RRO is roughly 13 cents per kilowatt hour.)
It also buoyed city finances, with Local Access Fees and franchise fees collected being more than double what was budgeted for 2023 ($376.7 million collected, versus $175.3 million budgeted).
City councillors pushed for a review of the formula for calculating LAF. A decision was put off in December until after the province had reviewed the RRO. Though the province has questioned the RRO value, a review hasn’t been completed.
The recommended alternative from administration is to design and implement a Quantity-Only model, which is based on kilowatt hours consumed. The City of Edmonton uses a similar formula and sets its rate annually, with inflation and population growth factors applied.
“The primary advantage of a Quantity Only methodology is stability and predictability for both the corporation and ratepayers,” reads a city admin report (FULL DOCUMENT AT THE END OF THE STORY.)
“The weakness is that it is unresponsive to industry and market developments and is the most administratively burdensome option.”
The stability for consumers is a key factor moving forward, said Ward 12 Coun. Evan Spencer, who said this solution has been a long time coming. Spencer said that differing views in administration held up progress on the file.
“What we’re talking about here is greater clarity and transparency about how much the city is collecting on this. The variability just adds uncertainty,” Spencer said.
“When you add uncertainty in governance, it adds to lack of trust, and when you have lack of trust, everything suffers.”
Trade-offs between the two
Spencer acknowledged that Calgarians have also benefitted in the past, with lower-than-average electricity bills, because of the RRO-based formula. Also, there are city capital priorities that have been funded because of the windfall from LAF collection.
“There would have been folks embedded in administration that saw this as an opportunity to add financial stability to the organization and kitty up the infrastructure reserves and place the city on a better financial footing,” he said.
Ultimately, this comes down to consumer predictability on their bills, he said. Even though the RRO spike appears like an anomaly when examined over the past decade or more, Spencer doesn’t think this new formula is a knee-jerk reaction.
“I think it’s the appropriate reaction and probably a late reaction to the reputational and the very real concerns, because we did overdraft Calgarians in the middle of an affordability crisis,” he said.
Ward 10 Coun. Andre Chabot said there’s more to this than just stability for consumers, whom he said would see a small break overall. Both electricity and natural gas fees would be recalculated, and he felt that what could be saved on electricity would be felt with higher natural gas fees. Further, because it’s based on quantity, non-residential customers might pay an inordinate share. He said larger users may appeal this when it goes to the Alberta Utilities Commission.
“The idea that somehow the RRO is going to go up like it has in the past is, first of all, not likely. If anything, it’s going to continue to go down,” Chabot said.
“The thing about us being able to project conservatively is that we always leave a bit of a buffer in our plans that will allow us some additional funding for our capital projects.”
Chabot said too much predictability in funding means the fees will likely just get swallowed up in the City’s operating budget.
“I’m a firm believer in under promise and over deliver,” Chabot said.
“So, we under project and then it leaves always a positive variance – whether it’s a large positive variance or a small positive variance, at least, the objective is to always have at least some variance that will go into the reserve for future capital, which we’ve seen gets used for capital programs, which is highly scrutinized by council.
“So, I don’t see the downside with the system.”
Chabot said that because the city needs to adjust the rate applied to usage every year, it will become a highly politicized decision based on the desired revenue the city wants for programs and services.
Any changes to the fee collection would require approval from the Alberta Utilities Commission and would require new contracts with Enmax and ATCO. The City estimated the new system, if approved, would take effect January 1, 2027.
