Franchise fees are what the City charges utility operators (gas, electric power distribution, water, and wastewater services) for the exclusive right to provide utility services within the city as well as for access to City lands to construct, maintain and operate related assets. Franchise fees are established either through bylaws or by agreement with the utilities. The City of Edmonton utilizes the revenue from franchise fees as one source of funding for the delivery of services to citizens.
Franchise fees are intended to compensate the City for direct costs, and for restrictions on planning and development relating to utility rights of way as well as related inherent risks. Through the fees, the utility providers are charged an appropriate amount for the use of the land and the exclusive rights to deliver utility services within the city. Utility providers then charge these costs to their customers – the people, businesses, agencies and others who use electricity, gas, or water. The franchise fees are included in the costs apportioned to all utility customers.
The amount of revenue to be derived from franchise fees is determined in a transparent manner through City Council’s annual budget deliberations. 2013 franchise fees of $127.3 million made up approximately 5.3% of 2013 consolidated City revenues.
Franchise fee revenues and the methodologies for calculation are incorporated into the City’s Utility Fiscal Policies as well as agreements with external utility providers.
There is no single overarching policy governing franchise fees. The basis of calculation varies across municipalities. The City of Edmonton’s bases of calculation have been selected to maximize stability and predictability for the City and for utility customers, as well as to fairly allocate costs and to buffer inflation.
The franchise fee model supports diversity of revenues and aligns with the City’s asset allocation policies as well as with risk management controls in support of the goal of Ensuring Edmonton’s Financial Sustainability.
Franchise fee revenue is not allocated for specific purposes. It contributes to the City’s general revenue and is utilized to fund delivery of services to citizens. Future policy development could consider allocation of franchise fee revenue for specific purposes.