Varcoe: Power feud sees province drop hammer on Calgary's high electricity levy

Last year, Calgarians paid an average of $240 in local access fees, 220 per cent more than in Edmonton, the province said

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Barry Heck didn’t take a victory lap after the province stepped in this week to tackle Calgary’s high franchise fees that are added on to consumer power bills.

But the chief executive of WinSport was pleased the provincial government introduced legislation to change the way the city can calculate its franchise fees for electricity users, a levy that cost the non-profit Calgary organization about $400,000 last year.

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“I’m going to wait to celebrate until I see the details of what comes out, but that was a very good result,” Heck said in an interview.

“It’s a bit unfortunate it took the province to intervene to get the city moving on this.”

Last summer, Heck spoke out about the levy, saying Calgary’s local access fees — as they’re also known — were getting out of hand because they’re partly tied to the volatile price of electricity in the regulated rate option (RRO).

This default power rate is for residential customers, small business owners and farm operators who haven’t signed a fixed-price contract with a retailer, and it can change each month.

When the RRO price spiked to 31.9 cents per kilowatt-hour (kWh) in August, up from 16 cents in May, city revenues tied to it surged.

On Monday, Premier Danielle Smith and Utilities Minister Nathan Neudorf announced new legislation to set the rules for how municipalities calculate these local access fees. (The charge is paid by a utility to a municipality in lieu of property taxes and other fees.)

The premier and minister pulled no punches during a news conference about where the change was aimed at — Calgary City Hall — and how they felt about it.

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As power costs soared last year, Calgary collected $303 million in local access fees, $186 million more than budgeted, Neudorf pointed out.

“Calgarians should not be on the hook to . . . pad a slush fund for their city hall through unpredictable hidden taxes,” he told reporters.

“We met with the City of Calgary last fall to make that clear and we warned them that if they didn’t take action within a reasonable time frame, we would be forced to intervene. Instead, we saw the Calgary city council kick that can down the road . . . to make these changes in 2027.”

Well, there’s not much ambiguity there.

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Across Alberta, more than 200 municipalities charge companies a fee to use civic property to provide electricity to consumers. These costs are passed on to customers.

Edmonton has based its franchise fees for natural gas and electricity on a consumption-based calculation; Calgary has tethered part of it to the RRO rate, which affects local consumers, even those who have contracts with electricity retailers.

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Last year, Calgarians paid an average of $240 in local access fees, 220 per cent more than in Edmonton, the province said.

Legislative changes will mean such fees can no longer be based on variable costs for gas or power. The Alberta Utilities Commission (AUC) will have oversight on setting these fees.

The changes are expected to occur early next year, ahead of the January 2027 timeline that Calgary city council set last month when it rolled out its own plans to shift to a consumption-based calculation.

Coun. Andre Chabot, who has long defended the city’s franchise fee structure, said the province is trying to shift the blame.

He said the root cause of the issue last year was the high RRO price, “which is completely within the control of the provincial government,” although it’s approved each month by the AUC.

Other elements in monthly power bills, including transmission and distribution charges, are bigger expenses hitting consumers in the pocketbook, he added.

“It’s almost like we are made to look like the bad guy so they can save face,” Chabot said Wednesday.

Andre Chabot
Calgary Ward 10 Councillor Andre Chabot. Brent Calver/Postmedia

Chabot and other councillors rejected the notion the city was slow walking the changes.

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“It’s not a question that we want to drag this out for the sake of getting more money,” said Coun. Terry Wong.

Mayor Jyoti Gondek and several councillors said Wednesday they were told by city administration it would take several years for the AUC to approve changes to franchise fees.

“They’re looking to expedite approvals from the Alberta Utilities Commission. That’s news to me,” Gondek told reporters.

However, an AUC official told Postmedia’s Matt Scace that previous city applications to change franchise fees have been processed within three months.

In a statement on Wednesday, Neudorf called it “disingenuous and misleading” to blame the AUC for delaying changes.

As for the claim that Calgary used the money as a slush fund, Chabot noted the revenue has gone toward city capital projects and into other key areas.

“The idea that this is a slush fund, well then every municipality in Alberta then has a slush fund, because we all use it as part of our revenue stream,” he said.

Nathan Neudorf
Affordability and Utilities Minister Nathan Neudorf speaks as Parliamentary Secretary for Affordability and Utilities Chantelle De Jonge, left, and Premier Danielle Smith listen as he introduces legislation to lower fees for utility bills and help to keep people more informed about their options on Monday, April 22, 2024, in Edmonton. Photo by Greg Southam /Postmedia

Business groups, which have voiced concerns about rising utility costs, welcomed the province taking action.

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“A franchise fee is just a consumer tax,” said Jason Leslie, chief operating officer of the Alberta Chambers of Commerce.

“It’s a big burden for business.”

Leslie also wants the province to address issues around transparency for all franchise fees, requiring uniform reporting by all municipalities on such revenues.

Others noted changes to Calgary’s franchise fees should have been made last year when it was obvious electricity prices were escalating. Wholesale electricity prices in Alberta have dropped this year.

Heck pointed out WinSport paid about $1.5 million between 2018 and the first seven months of 2023 in local franchise fees for gas and power. The same levy in Edmonton would have been about $870,000.

“You can see why we are delighted the government is stepping in and not allowing Calgary to do this anymore,” he said.

“We’re all trying to make this work.”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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