Overview
The Utilities Affordability Statutes Amendment Act, 2024(formerly Bill 19) (the "Act") was proclaimed on June 20, 2024, ushering in changes to a number of pieces of legislation, including the Municipal Government Act (the "MGA"), the Electric Utilities Act (the "EUA") and the Gas Utilities Act (the "GUA"). The stated purpose of the Act is to "help make utility costs more affordable and predictable across the province by ending the use of variable rates when setting local access fees for electricity and natural gas service distribution."
In short, the amendments provide for more scrutiny of franchise agreements between municipalities and utilities, with the Alberta Utilities Commission (the "AUC") providing oversight over how fees are calculated and applied by all municipalities. Specifically, the changes prohibit the use of variable market rates when setting local access fees and creates a standard framework for how those fees are calculated by municipalities and regional service commissions across the province. For context, local access fees are fees charged by the municipality on the utility distributor. Those fees are ultimately passed onto customers by the utility distributor.
Legislative changes as a result of the Utilities Affordability Statutes Amendment Act include the following:
- New section 45.01 of the MGA now prohibits franchise agreements from providing for the payment of fees that are determined in whole or in part using a price per kilowatt hour or per gigajoule that varies according to market prices.
- Section 139 of the EUA now requires AUC approval of electric distribution franchise agreements between a municipality and a corporation controlled by the municipality or subsidiary of the municipality and provides that, without AUC approval, existing franchise agreements between municipalities and subsidiaries will terminate on March 17, 2025.
- Section 49(5) of the GUA now states that a franchise granted by a municipality to an owner of a gas utility that has not been approved after June 20, 2024, will terminate on March 17, 2025.
Impacts to the Franchise Approval Process
On July 10, 2024, the AUC issued Bulletin 2024-12, whe ein it explains how it intends to handle franchise agreements and franchise fee approvals now that the Act has been proclaimed. The Bulletin provides the following:
- If a municipality has an unchanged, existing natural gas franchise agreement that has previously been approved by the AUC, an expedited process is available. In order to take advantage of the expedited process, existing agreements would need to be submitted by January 10, 2025. For ease, the AUC has developed a checklist for use in relation to this expedited process and notice is still required in accordance with AUC Rule 029.
Note that neither natural gas franchise agreements that are being changed nor completely new agreements can use this process. Changes to agreements are considered broadly and include any alteration to expiry dates or the previously acknowledged franchise fee. Additionally, municipalities cannot use this process for agreements that are in effect for more than 20 years and/or any agreement that continues pursuant to section 47(1) of the MGA (allows for the continuation of agreements that are not renewed by the parties).
- If a municipality has an electric or natural gas franchise agreement based on an AUC-approved template with a specific utility provider, a streamlined process is available. The specific utility providers are Apex Utilities Inc., ATCO Electric Ltd., ATCO Gas and Pipelines Ltd. and FortisAlberta Inc. The streamlined process is set out in AUC Rule 029 and AUC Bulletin 2021-13. If franchise agreements are eligible for the streamlined process, they must be filed with the AUC no later than January 10, 2025.
- If an agreement does not fit into either of the two prior categories (for example, franchise agreements not based on AUC approved templates), there may be a need for additional time and process for the AUC. In those cases, the AUC has set a filing deadline of December 4, 2024 in order to ensure those franchise agreements can be reviewed and approved by the March 17, 2025 deadline noted above.
Next Steps for Municipalities Navigating the Utilities Affordability Statutes Amendment Act, 2024 (formerly Bill 19)
At this point, municipalities should review their current franchise agreements and determine what needs to be done as a result of the Act. When doing so, municipalities should be cognizant of the upcoming deadlines and consider the way in which they have calculated fees. First and foremost, the municipality should consider whether their fee structure offends section 45.01 of the MGA. As noted, that section prohibits franchise agreements from calculating local access fees in a manner that is based on the market price for energy or fuel.
Additionally, municipalities should be cognizant of the fact that the AUC has approved standard franchise fee templates and considers that most franchise agreements should follow those, as well as the methodologies for calculating franchise fees and maximum franchise fee levels set out therein (20% for electric – as a percentage of actual revenue from the distribution tariff and 35% for natural gas – as a percentage of the actual revenue from the delivery tariff, excluding the cost of natural gas). If the franchise agreement differs from the standard template, the onus rests on the applicant to demonstrate that the fee calculation complies with the legislation and will result in just and reasonable rates.
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