Casual Legal: Franchise Agreement & Franchise Fee FAQs

By Breanne Schwanak
Reynolds Mirth Richards Farmer LLP
Alberta Municipalities Casual Legal Service Provider 

What is a “franchise agreement”?
Pursuant to section 45(1) of the Municipal Government Act (the “MGA”), council may grant the right to a person to provide a utility service in all or part of the municipality, for not more than 20 years. Such an agreement is generally referred to as a “franchise agreement”.

What specific requirements in the MGA apply to franchise agreements?
Section 45(3) of the MGA states that before a franchise agreement is entered into, amended or renewed, it must be advertised and approved by the Alberta Utilities Commission (the “Commission”). Most applications for approval of a franchise agreement for the distribution of electricity and natural gas are based on a standard template agreement, negotiated between municipalities and utilities, and approved by the Commission.

As per section 47 of the MGA, a franchise agreement that is not renewed remains in effect until terminated by either party, which requires six months’ notice and approval of the Commission. If notice of termination is provided, the municipality has the right to purchase the rights, systems and works of the public utility, with any disagreement as to the terms of the purchase being resolved by the Commission.

What is a “franchise fee”?
A franchise fee is a fee charged by the municipality in exchange for the granting of the right to provide the utility service in the municipality and for the ability to place distribution facilities on municipally-owned lands. The municipality is largely responsible for establishing the level of the franchise fee through the franchise agreement; however, the Commission must ultimately approve the franchise agreement and the franchise fee established.

How are franchise fees calculated, charged and remitted?
For electrical and natural gas distribution companies, franchise fees are typically calculated as a percentage of the total distribution charges on a customer’s bill. They are currently capped at 20% for electricity, and 35% for natural gas. For stability, franchise fees are typically not tied to the price of the commodity (electricity or natural gas).
The distribution company collects the franchise fee from its customers, through a line item on the customer’s bill typically labelled the “Municipal Franchise Fee” or “Local Access Fee”. The distribution company then remits the franchise fee to the municipality in accordance with the terms of the franchise agreement. 

To access Alberta Municipalities Casual Legal Helpline, Alberta Municipalities members can call toll-free to 1-800-661-7673 or send an casuallegal [at] (email) to reach 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] (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.