Council to debate `quantity only' model for local access fees

Calgary city council will consider a recommendation to change how the municipality collects local access fees (LAF) on Monday, but the suggested formula wouldn't be implemented for nearly three years, if approved.

A staff report that councillors will receive at their strategic meeting on March 18 suggests they approve a “quantity only” model for collecting LAFS. The report touts the greater stability and predictability the new formula would provide over the status quo, which ties a portion of Calgary's fee to the provincial regulated rate option (RRO).

“Transitioning to a quantity only model would provide greater stability in LAF revenue for the city and more predictability of charges for consumers,” stated the report.

WHAT ARE

LOCAL ACCESS FEES?

Local access fees are paid in lieu of property taxes by electricity providers to the city as compensation for access to municipal rightsof-way and electricity distribution infrastructure. The fees are then passed on to ratepayers, included as a portion of their monthly power bills.

Differing from other Alberta municipalities, Calgary currently links its LAF — also referred to as a franchise fee — to the RRO.

Due to the fluctuating nature of the RRO, Calgary's franchise fee has experienced volatile price swings since 2021. Last August, the regulated rate reached a record 31.9 cents per kilowatt-hour (kwh), surpassing 30 cents/kwh for the first time since the rate was introduced in the early 2000s.

As a result, the city collected nearly $200 million more from the LAF in 2023 than it budgeted for, according to the city's report.

After skyrocketing electricity prices last fall, council approved a fast-tracked review of how Calgary calculates its franchise fee.

But council voted in December to postpone a decision until the provincial government completed its own review of the RRO this spring. That review is still underway.

WHAT IS A

QUANTITY ONLY MODEL?

Under the quantity only model, council would be able to set an annual LAF rate to target a specific revenue amount based on forecasted figures for electricity and/ or natural gas consumption.

Changing LAF methodologies (recommended for both electricity and natural gas) would affect city planning and budgeting, according to the report. Doing so would require changes to the city's franchise fee agreements with both Enmax and ATCO, as well as approval from the Alberta Utilities Commission.

However, the report doesn't recommend implementing the new method until 2027, to align with the city's next four-year budget cycle.

Sheldon Fulton, a Calgary-based independent energy consultant, said an LAF model based on volume consumption is an obvious improvement from the status quo.

However, he has two criticisms of the city's report — the recommendation to postpone the change until 2027 and the omission of what the annual LAF rate would be.

“If the factor is based on assessment value and what would otherwise be the mill rate that would apply to Enmax ... then I'm fine with that,” he said. “That's exactly what the City of Edmonton does.

“My risk or worry is (city staff) are just going to pick a number that creates them revenue. They say they're going to try to pick a number that keeps it close to the budget, but who knows what the budget is going to be? If it's $175 million, that's OK. If it's $375 million, that's not OK.”

COUNCILLORS DISAGREE ON FORMULAS

Ward 12 Coun. Evan Spencer said the model staff is recommending would provide better stability for Calgarians — particularly for large asset holders, who could see thousands of dollars in savings annually under a consumption-only model.

“Long-term, stability is what's best when we're talking about governance,” he said. “The city has revenue constraints, but a volatile tool like the RRO should not be how we look to backfill revenue shortfalls for the City of Calgary.”

However, support is not unanimous on council. Ward 10 Coun. Andre Chabot has long argued in support of the current formula, and said the proposed model would take away the city's ability to use surpluses generated from the LAF to help fund capital projects.

He also pointed out the RRO has stabilized considerably since the dramatic price swings it experienced in 2022 and 2023, and is forecasted to continue dropping this year, bringing Calgary's electricity costs in line with Edmonton's.

“The idea that we're somehow doing this (change) for affordability is not accurate,” Chabot said.

“Our model may be the model that other municipalities in the future will look to emulate because it depoliticizes the process.”