In this article:
- What are franchise fees?
- Why do cities have franchise fees?
- How much do residents pay?
- Why is there GST on franchise fees?
- Urban vs. rural: Who pays more?
- What do Franchise Fees mean for Alberta consumers?
What are Franchise Fees?
Infrastructure like power lines and gas pipes require public land, and when utility companies use municipal property, they are charged with Municipal Franchise Fees (also called local access fees). While those fees are typically presented as operating costs and often go unnoticed by residents because they are a minuscule amount, the revenue is funnelled directly into municipal budgets and general city services. Franchise fees are typically set as a percentage of distribution charges and capped at 35% for natural gas and 20% for electricity.
The same franchise agreement might also include the exclusive right for a utility operator to deliver services to the municipality. The municipality will charge the utility distributor a franchise fee for the right to serve the municipality. Although the Alberta Utilities Commission (AUC) must approve the franchise agreement, it is the municipality that determines the fee through its franchise agreement with the utility distributor. The final stage of this agreement would be for the distribution company to recover those costs from its customers.
Franchise fees are subject to Alberta’s regulatory framework: the AUC reviews the utility-related aspects of these arrangements and ensures that applicable requirements and limits are met.
In our energy bill breakdown guide, we mentioned that “When it comes down to paying energy bills, many consumers just pay the amount listed on their bills without really understanding how they were calculated. Having a good understanding of the charges and fees on your power bill and how your bill is calculated can help protect you from being overcharged.”
The City of Cold Lake has one of the lowest franchise fees of mid-sized municipalities, and for the fourth year in a row, it chose not to increase its electrical and gas franchise fees.
The explanation is simple: increasing those fees would have to be done at the cost of residents’ electric and gas bills. Set at 7.25% with ATCO Electric and 15.5% with ATCO Gas and Pipelines Ltd., the rates have not changed since 2024. However, this decision creates disparity with other municipalities.
As an example, the City of Lloydminster (the Alberta side) has 14.5% (electric) and 28.5% (gas) municipal franchise fees, the City of Grande Prairie has 12% (electric) and 31.6%, and the Town of Bonnyville has 7.5% (electric) and 21%(gas).
Although municipal franchise fees are charged for the use of public land for infrastructure like power lines and gas pipes, the ambiguity of those charges makes many Albertans question what exactly they are paying monthly. The City of Cold Lake is a textbook example of how utility charges vary based on location and the agreement a city or town has made with utility providers.
Why do cities have Franchise Fees?
Franchise fees, barely noticeable on monthly power bills, provide a stream of revenue that helps to reduce the tax load and reach properties such as schools, non-profit organizations, healthcare facilities and others that are otherwise exempt from property taxes.
Overall, franchise fees serve as a way for cities to increase revenue equitably by charging even those organizations that do not pay property taxes. When deciding on franchise fees, a city council would take into consideration such factors as the potential impact on residents and the needs of the community.
In Alberta, where franchise fees exist as a legal arrangement under the Municipal Government Act (MGA), local governments are allowed to generate revenue, distribute the cost of city services, and manage public infrastructure in the most suitable way for their communities.
Municipal franchise fees found on electricity and natural gas bills contribute to the following:
- Use of public land: Utility companies use city-owned land for pipes, power lines, and other infrastructure. Franchise fees help compensate municipalities for this access.
- Exclusive service agreements: Franchise fees are part of agreements where municipalities can grant a utility company the right to provide services within a specific area.
- Revenue from tax-exempt properties: Schools, hospitals, government buildings and other tax-exempt properties may not pay municipal property taxes but still use utility and municipal services.
- Supporting municipal services: Franchise fee revenue helps fund services such as road maintenance, snow removal and emergency services.
How much do residents pay?
How much residents will have to pay depends on their location. For instance,
- Edmonton: $0.01388/kWh
- Calgary: $0.015507/kWh (approx. 1.55 cents/kWh)
Historically, municipalities have used different approaches to calculating franchise fees. Calgary, for example, tied its electricity franchise fee to a variable reference price, meaning the fee could rise as energy prices increased. Edmonton and many other municipalities instead used a fixed rate per kWh, making their franchise fees more predictable.
The Alberta government is now moving toward greater standardization in how these fees are calculated. However, differences in municipal fee structures have meant that customers in some communities, including Calgary and parts of rural Alberta, have faced significantly higher franchise fees than customers receiving comparable utility services elsewhere in the province.
Why is there GST on Franchise Fees?
Franchise fees are included in the taxable amount of utility services, meaning GST also applies to the fee. As a result, customers pay GST on both their underlying utility charges and the franchise fee. For households already facing high electricity delivery and distribution costs, these additional charges can increase the overall cost of electricity.
Urban vs. Rural: Who pays more?
Franchise fee structures vary significantly across Alberta, which can result in different costs for customers depending on where they live. Edmonton has historically used a lower, fixed franchise fee structure, while Calgary’s fees have been higher. Changes to Calgary’s fee structure may narrow the gap, but differences between the two cities remain.
Meanwhile, many smaller municipalities apply franchise fees as a percentage of utility distribution charges. In some cases, these fees can reach the maximum permitted level, adding to the cost of electricity for small-town customers. Some small-town customers pay the maximum allowed: 20% of distribution charges.
In rural municipalities such as counties and municipal districts, residents often do not pay municipal franchise fees, while customers within towns, villages and cities may see the charge on their utility bills.
What does this mean for Alberta consumers?
Franchise fees can vary considerably between municipalities, making them an important but sometimes overlooked component of an electricity bill. Differences in how municipalities structure these fees can also contribute to higher costs for customers in some communities.
Although Alberta’s plans to move toward a more standardized, consumption-based approach is intended to make franchise fee calculations more consistent and predictable, the impact will vary by municipality and by a customer’s electricity consumption. For rural and small-town customers, franchise fees are just one part of a broader cost difference between urban and rural electricity service.
Cold Lake’s decision to retain the same rates for the last few years shows how much a municipality’s choices shape what residents pay every month. However, regardless of location, Albertans anywhere in the province have the same option: find the franchise fee line on their bills, compare it with what neighbouring communities charge, and be attentive when your council reviews its franchise agreements.
Key takeaways:
- Municipal franchise fees are what utilities pay municipalities to use public land for power lines and gas pipes.
- Municipalities set the rate through their franchise agreements, and the Alberta Utilities Commission approves them.
- Franchise fee rates vary widely depending on location.
- Fees are capped at 20% of distribution charges for electricity and 35% for natural gas.
- Although in the past Edmonton and Calgary have used different fee structures, Alberta is moving toward a more standardized, consumption-based approach.
