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Evergreen Gas Co-op Ltd. Franchise Agreement with the Town of Drayton Valley (AUC Decision 25219-D01-2020)

Link to Decision Summarized

Franchise Agreement


In this decision, the AUC considered an application filed by Evergreen Gas Co-op Ltd. (“Evergreen”) requesting approval of a natural gas franchise agreement (the “Agreement”) with the Town of Drayton Valley (“Drayton Valley”). The AUC approved the proposed Agreement as filed.

Background

On December 19, 2019, Evergreen filed an application with the AUC requesting approval of the Agreement with Drayton Valley, pursuant to section 45 of the Municipal Government Act (“MGA”) and per the requirements of Rule 029. Evergreen explained that the proposed Agreement was an amended version of a similar franchise agreement between Evergreen and Drayton Valley, approval for which was denied in Decision 24257-D01-2019 on the basis that it would allow for the imposition of discriminatory rates, and that the proposed Agreement was amended to remove the franchise fee determined to be discriminatory.

Proposed franchise agreement

Under the proposed Agreement, Drayton Valley would grant Evergreen the exclusive right within a defined municipal service area to construct, operate and maintain the natural gas distribution system and to provide natural gas distribution service in that area to any customer who agrees to execute a contract with Evergreen and pay for the service.

The proposed franchise Agreement included changes to the agreement submitted to the AUC in Proceeding 24257.

The proposed Agreement stated that there was no franchise fee payable during the initial term of ten years. Accordingly, there was no monthly charge to residential customers in relation to the franchise fee.

In addition, the proposed franchise Agreement included changes to the standard natural gas franchise agreement template approved by the AUC in Decision 20069-D01-2015.

AUC findings

The AUC noted that it’s authority to approve franchise agreements derives from section 45 of the MGA. The AUC and its predecessor (the Alberta Energy and Utilities Board) have stated that the purpose of reviewing franchise agreements is to determine whether “the privilege or franchise is necessary and proper for the public convenience and properly conserves the public interests.”

The AUC and its predecessor have also consistently acknowledged that franchise agreements are typically the result of negotiations between a municipality and a utility or co-operative, and will likely reflect several compromises concerning the interests and positions of both parties. Such agreements are therefore accorded a high degree of deference. However, this deference must be tempered by the AUC’s obligation to ensure that franchise agreements are in the public interest.

The AUC indicated that its review of a proposed franchise agreement was accordingly kept at a relatively high level, and was focused primarily on those provisions that may cause a serious concern with respect to the public interest.

One of the AUC’s key concerns in any franchise agreement is regarding the franchise fee. In this case, the proposed franchise fee of 0.00 percent was below the 35 percent fee cap previously approved by the Commission. As a result, the AUC found the proposed franchise fee was reasonable.

The AUC also considered that each of the proposed changes to the standard natural gas franchise agreement template provided clarity and were reasonable in the circumstances.

The AUC considered that the right granted to Evergreen by Drayton Valley outlined in the proposed Agreement was necessary and proper for the public convenience and properly conserved the public interest. Accordingly, under section 45 of the MGA, the AUC approved the proposed Agreement as filed.

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