Varcoe: Energy ache for Calgary customers brings franchise payment bonanza for metropolis coffers

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WinSport CEO Barry Heck is aware of the group faces massive utility payments annually to function Canada Olympic Park.

That’s one motive the non-profit group group takes steps to lock in its energy costs and supply some price range certainty.

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This 12 months, all of its utility bills are anticipated to achieve about $3.5 million.

However because the default fee for electrical energy customers in Alberta costs into report territory this month, a key a part of energy payments for WinSport — and all Calgary customers — goes up, even those that aren’t on the regulated fee possibility (RRO).

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The month-to-month franchise charges town costs all electrical energy customers — charges paid by a utility to a municipality in lieu of property taxes and different charges — is partially tied to the RRO fee.

And it’s been climbing.

For Heck, it means unbudgeted will increase for WinSport, regardless that it’s not on the default fee.

“That portion of our payment or utility value is simply going by means of the roof and it’s inconceivable for us to manage,” he stated in an interview this week.

“Over $400,000 of that (a part of the invoice) goes to be simply this one element of the fee pile. So, it’s only one extra problem that WinSport has to attempt to price range round.”

The RRO, the default energy fee for residential, farm and small enterprise customers who haven’t signed a fixed-price contract with a aggressive retailer, fluctuates every month.

It has soared to 31.86 cents per kilowatt-hour (kWh) within the metropolis for August. That’s an all-time excessive, up from 27.57 cents charged final month.

These charges have spiralled up over the previous two years, together with wholesale Alberta Energy Pool costs.

Final 12 months, the RRO gyrated from 9.97 cents per kWh in Might to 22.1 cents in December.

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Franchise fees for electricity

Whereas the vast majority of Calgarians have signed contracts with aggressive retailers, they’re affected by the month-to-month franchise charges charged by town.

(Provincial laws permits municipalities to levy a payment in lieu of property taxes and right-of-way entry charges on utilities. In Calgary, the franchise payment has two parts, the price of distribution infrastructure to ship the vitality to clients and the worth of energy used — primarily based upon the RRO value.)

When the default fee goes up, so does the municipal payment, which is collected by Enmax and handed alongside to metropolis corridor.

Consultants say it’s resulting in a bonanza of income for metropolis coffers, however rising prices for Calgarians.

“Fairly merely, Calgary’s native entry charges for residential, industrial and huge industrial customers are much more pricey than another municipality within the province,” Thomas Glenwright, senior director at consultancy Vitality Associates Worldwide, stated Wednesday.

“From 2018 to current, the native entry payment costs for a median house owner have elevated by greater than two-and-a-half instances.”

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Power lines in Calgary
As energy costs and the RRO headed larger final 12 months, the overall collected jumped to $225.8 million, practically $98 million over price range estimates. Photograph by AL CHAREST /Postmedia

Based mostly on the RRO for the primary eight months of 2023 and estimates for the remainder of the 12 months, he calculates the typical value for a house owner will probably be $261 this 12 months, in contrast with $140 in Lethbridge, $79 in Edmonton and $78 in Pink Deer.

For a big industrial consumer, the annual invoice would exceed $100,000 in Calgary, in contrast with $34,000 in Edmonton and Lethbridge, and $24,000 in Pink Deer.

WinSport paid $160,000 in 2020 for franchise charges, a determine that shot as much as $333,000 final 12 months.

Within the first six months of this 12 months, it paid just below $200,000 and Heck anticipates the quantity will attain $400,000 by 12 months’s finish.

“We’ve started working with town and give you a distinct technique,” he stated.

The franchise charges are producing loads of extra cash for town.

In keeping with metropolis knowledge, native entry charges for electrical energy got here in barely above their very own price range estimates in 2020, producing an additional $4.4 million.

In 2021, the precise income acquired from these electrical energy franchise charges elevated to $165.3 million, or $32 million above price range.

Nevertheless, as energy costs and the RRO headed larger final 12 months, the overall collected jumped to $225.8 million, practically $98 million over price range estimates.

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Vitality advisor Sheldon Fulton, who has studied the difficulty, believes town will see one other windfall this 12 months.

He famous Calgary acquired $91 million in such funds from Enmax within the first quarter, and estimates town is on observe to gather greater than $315 million this 12 months.

“At some juncture, what must occur is somebody at metropolis council must take discover of this — and so does the province,” stated Fulton.

“Until they alter the RRO fee, or except the Metropolis of Calgary modifications its system for amassing its native entry payment, this one is just not going away. We’re going to proceed to see extra collections of funds, method past what they’re budgeting.”

Nevertheless, Oyin Shyllon, Calgary’s supervisor of company economics, stated town budgets conservatively for its anticipated franchise charges.

The town doesn’t set the RRO — that’s regulated by the Alberta Utilities Fee — and criticism that Calgary’s charges are too excessive is unfair, he stated, declaring that Edmonton collects extra in pure gasoline franchise charges.

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(Final 12 months, Calgary acquired about $6.7-million much less in gasoline charges than Edmonton, town’s knowledge signifies.)

“While you have a look at the utility franchise payment regime, it’s a must to have a look at it throughout all utilities, it’s a must to have a look at electrical energy, pure gasoline and water-related utilities,” Shyllon stated.

“Proper now, we’re in focus as a result of electrical energy costs are excessive.”

Any unbudgeted cash collected from native entry charges goes to assist pay for different metropolis providers and capital objects, famous Coun. Andre Chabot.

“Plenty of our franchise income goes immediately into our whole income stream. And we usually under-project, and so if we accumulate extra, then we don’t have to extend taxes as a lot,” stated Chabot.

“Something that’s over and above what we projected goes right into a reserve . . . for capital tasks.”

Calgary Ward 10 Councillor Andre Chabot
Calgary Ward 10 Councillor Andre Chabot was photographed throughout a council session as metropolis council started price range debates on Nov. 21, 2022. Gavin Younger/Postmedia

The town’s use of the RRO for the franchise charges, nonetheless, possibly be coming to an finish if the province strikes ahead with Premier Danielle Smith’s acknowledged need to exchange the default fee.

It’s unclear the place that would go away town, Mayor Jyoti Gondek stated in an interview.

Gondek famous town’s franchise payment mannequin was reviewed earlier this 12 months by council throughout a closed-door session.

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“On the time, the advice that we got here again with is that we maintain issues established order . . . however because the market is getting extra risky, I think about we’ll be having extra conversations,” she stated.

“Keep tuned. I don’t suppose that is one thing that’s going away . . . It’s positively on our radar.”

Enterprise teams have additionally been involved with the difficulty as energy prices have gone up, proper throughout the province.

A survey of enterprise operators by the Alberta Chambers of Commerce taken in Might and June discovered 78 per cent are involved about the price of electrical energy.

In an analogous survey performed final November, 36 per cent of enterprise operators within the province cited municipal franchise charges as one thing that negatively impacts their progress or competitiveness.

“It’s such a significant, main problem and we’re listening to it on all fronts,” stated Jason Leslie, chief working officer of the Alberta Chambers of Commerce.

In Calgary, Ruhee Ismail-Teja, director of coverage for the Calgary Chamber of Commerce, stated the group linked with the mayor’s workplace final week and relayed its points with the native charges.

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“We’re fairly involved concerning the volatility of franchise charges,” she stated.

“Given the rising value setting, it’s fairly difficult for enterprise to be hit with each the excessive value of energy, after which a further payment.”

With the province the way forward for the RRO, it’s a chance for town to “have a look at what is sensible on a municipal stage” and study how different communities apply the payment, she added.

Edmonton doesn’t base its franchise payment for energy on the RRO fee.

Heck is in search of certainty as WinSport tries to handle its funds. He hopes to sit down down with town and discover a answer to the difficulty.

“We actually should, collectively, work out how we will take care of this,” he stated.

“It’s attending to be very, very massive numbers for us.”

Chris Varcoe is a Calgary Herald columnist.

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