April 15th, 2024

Province turning attention toward utility access fees

By COLLIN GALLANT on March 20, 2024.

Utility access fees are front and centre in Alberta with the City of Calgary collecting millions more than expected last year, but Medicine Hat's rate is set differently and costs ratepayers less.--NEWS FILE PHOTO


The province could soon weigh in on local utility access fees – a lingering sore spot for critics who banded together during a price spike last summer – but potentially limit changes to how they are set in the City of Calgary.

That municipality sets the specific fee as a percentage of energy prices, which soared in 2023, leading to criticism of profiteering when $200 million more than expected was collected.

Medicine Hat’s is set against the more stable distribution rates, set once each year, and cost much less per account than in Calgary, say officials.

Media reports in Calgary say that as that city’s council determines how to handle the controversy, Premier Danielle Smith will act on April 16 if the city doesn’t, but did not cite a source.

On Tuesday however, Smith’s office promoted the article and released a statement that read: “With electricity rates starting to decline, our government’s next move is to tackle local access fees on your utility bills.”

Local access fees, called municipal consent and access fee in Medicine Hat and ‘franchise fee’ elsewhere, appears on bills to recover the property tax costs of the utility company.

In Medicine Hat, the municipality owns the distribution lines, but five years ago added the fee, costing about $50 per year to homeowners, to broaden the tax assessment base and wrestle with a budget deficit.

Last fall, the Medicine Hat Utility Ratepayers Association formed following protests over high power prices but expanded to include criticism of the MCAF system, which they critique as a form of double-dipping by charging rate payers to pay property taxes levied against itself.

In letters to council it asked that the fee be reviewed and justified, or scrapped altogether since profits at the power plant far exceed money collected by MCAF.

“The provincial government should look at (MCAF) throughout the whole province,” said Sou Boss, the head of the association on Tuesday, “I feel that the city is not looking at options to eliminate it, because they see it as money coming in to the city.

“We’ll keep the pressure on.”

City officials said last fall cancelling the utility fee would require a seven per cent tax increase to make up for foregone revenue.

It was implemented in 2019 to help shrink a budget deficit and was designed to increase over three years to collect $3 million in 2022, a number that rose to $5 million in total in 2024.

Though the fee is charged by the utility, the revenue winds up in municipal coffers as it charges the utility interest for accessing municipally-owned utility right of ways.

This week, officials also told the News that the rate-setting formula in Medicine Hat avoids fluctuations like those seen in Calgary because they are tied to distribution rates, set annually based on cost and regulated profit margin, not commodity rates, which change due to market conditions.

“Energy rates move around from month to month, and can be very volatile,” said Travis Tuchscherer, the director of energy marketing and business analysis for the City of Medicine Hat. “Distribution can move around based on usage from month to month, but they are a lot less volatile.”

The city operates the power generation and power distribution systems as separate entities for accounting purposes. Officials say that provides a clearer picture of business operational performance rather than combining results.

Currently, a third-party review is studying the operational philosophy of the energy production business. It was ordered last fall and is expected in the fourth quarter of 2024.

In Calgary, Enmax set its local access fee based in relation to the forecasted price of power and gas delivered to the customer. That is based in early year forecasts, but in 2023 power prices doubled previous records.

Calgary power customers are charged about 11 per cent of the default regulated rate option for the month, but that rate doubled late July compared to long-term averages, leading to complaints of profiteering.

Reports state they collected $200 million more than expected,

In Medicine Hat however, customers are assessed the fee in relation to a set portion of distribution charges, estimated to collect a set amount.

The city utility department estimates that MCAF for both gas and power delivery cost an average household about $131 in total in 2023. That is less than half the estimated charges applied to customers in Lethbridge ($295), Red Deer ($288), Calgary ($312) or Edmonton ($291).

Those locales are chosen in city comparison because distribution lines are owned either by the municipality or a related company,

Broken down to only power, Hat households paid $50 in MCAF for the year in 2013, compared to $217 for an average Calgary customer, said Tuchscherer.

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