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ATCO Gas and Pipelines Ltd. Franchise Agreement with the Town of Magrath (AUC Decision 24812-D01-2019)

Link to decision summarized

Natural Gas – Franchise Agreement

In this decision, the AUC considered an application by ATCO Gas and Pipelines Ltd. (“ATCO”) requesting approval of a natural gas franchise agreement (“franchise agreement”) renewal with the Town of Magrath (“Magrath”). ATCO also sought approval of a franchise fee rate rider schedule, which reflected the franchise fee percentage set out in the proposed franchise agreement. The AUC approved the proposed franchise agreement and the franchise fee rate rider schedule as filed.

Proposed Franchise Agreement and Franchise Fee Rate Rider Schedule

Under the proposed franchise agreement, Magrath would grant ATCO the exclusive right within the municipal service area to provide a natural gas distribution service and construct, operate and maintain the natural gas distribution system. The proposed franchise agreement would have a term of ten years.

The proposed franchise fee of 15.00 percent was a continuation of the franchise fee from the previous franchise agreement between Magrath and ATCO. ATCO advised this would result in a continuation of an average monthly franchise fee of $6.28 for an average residential customer. Under the franchise agreement, Magrath would have the option to change the franchise fee percentage annually upon written notice to ATCO and Commission approval. The franchise fee would be a payment in lieu of municipal property taxes pursuant to section 360 of the Municipal Government Act (“MGA”).

The proposed franchise agreement included changes to the standard natural gas franchise agreement template, which was approved by the AUC in Decision 20069-D01-2015. Language was added to Clause 5(a) – Franchise Fee indicating that the Parties agree that the Company (ATCO) shall pay a franchise fee in lieu of taxes on the franchise pursuant to section 360 of the MGA. Clause 8 – Municipal Taxes within the standard franchise agreement template was removed from the proposed franchise agreement.

Statutory Framework

Section 45 of the MGA deals with franchise agreements and provides, before such an agreement is made, amended or renewed, it must be approved by the AUC. Similarly, section 49(1) of the Gas Utilities Act provides that no franchise granted to any owner of a gas utility by any municipality within Alberta is valid until approved by the Commission.

In considering whether to approve the franchise agreement, the AUC must determine whether the proposed franchise agreement is necessary and proper for the public convenience, and properly conserves the public interests, as set out in section 49(2) of the Gas Utilities Act. Franchise agreements are reviewed from a more general perspective than a utility’s costs and rates, as a municipality’s council is accountable to its ratepayers for the franchise fees that it implements.

Commission Findings

The AUC noted the proposed franchise fee of 15.00 percent was below the 35 percent fee cap previously approved by the AUC and was a continuation of the franchise fee from the previously approved franchise agreement between these parties. The term of the proposed franchise agreement was within the 20-year maximum specified by the MGA. Magrath had been paid franchise fees in lieu of taxes in previous franchise agreements, and Magrath has this option pursuant to section 360 of the MGA.

The AUC found the right granted to ATCO by Magrath in the proposed franchise agreement to be necessary and proper for the public convenience and to properly conserve the public interests. The AUC therefore approved the proposed franchise agreement as filed pursuant to section 45 of the MGA and section 49 of Gas Utilities Act. In accordance with section 36 of the Gas Utilities Act, the AUC also approved ATCO’s rate rider A amount of 15.00 percent for customers in Magrath.

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