Casual Legal: Fairness of franchise fees for utility services

By Moira Lavoie
Reynolds Mirth Richards Farmer LLP
Alberta Municipalities Casual Legal Service Provider

A municipality may grant a utility company the exclusive right to provide utility services in all or part of a municipality for up to 20 years under section 45(1) of the Municipal Government Act (MGA) through a “franchise agreement”.

Under the franchise agreement, the municipality may charge a “franchise fee” to the utility, which is then passed on to customers – typically labeled on the customer’s utility bill as the “Municipal Franchise Fee” or the “Local Access Fee”. The utility company then remits that fee to the municipality in accordance with the terms of the franchise agreement.

Under section 45(3) of the MGA, franchise agreements, and their associated franchise fees, must be approved by the Alberta Utilities Commission (AUC). The overarching consideration for the AUC is whether the franchise is necessary and proper for the public convenience and properly conserves the public interest (for natural gas services, see section 49 of the Gas Utilities Act, for water services, see section 106 of the Public Utilities Act, and for electricity services, see section 139 of the Electric Utilities Act).

The AUC will not approve a franchise agreement that contains a discriminatory franchise fee. Discrimination can arise in two ways:

• When users of the utility are charged different franchise fees, where no reasonable distinction can be found between the various users
• When users of the utility are charged the same franchise fee, where differences between uses would justify differential treatment.

In other words, not all differential franchise fees are necessarily discriminatory. For example, the AUC may be willing to allow different fees to be charged between users on the basis of their usage (for example, high-use industrial users as compared to lower use residential users).

The AUC may not be willing to approve a franchise agreement that imposes different fees on users depending on whether they are “old” or “new” customers. For example, if a municipality has annexed lands and acquired new residents, it may not be open to the municipality to impose a higher franchise fee on those new residents unless there is a reasonable justification for doing so.

Ultimately, if a municipality wishes to impose differential franchise fees between users, it should have a sufficient rationale for doing so, supported by evidence.  

To access Alberta Municipalities Casual Legal Helpline, Alberta Municipalities members can call toll-free to 1-800-661-7673 or send an casuallegal [at] abmunis.ca (email) to the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please call 310-MUNI (6864) or send an riskcontrol [at] abmunis.ca (email) to Alberta Municipalities' Risk Management staff. Any Regular or Associate member of Alberta Municipalities can access the Casual Legal Service.

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.