ATCO GAS and Pipelines Ltd. Franchise Agreement with the Town of Drayton Valley (AUC Decision 24733-D01-2019)

Link to decision summarized

Natural Gas - Franchise Agreement


In this decision, the AUC approved an application (the “Application”) made by ATCO Gas and Pipelines Ltd. (“ATCO”) on July 12, 2019, requesting approval of a natural gas franchise agreement (the ”Franchise Agreement”) renewal with the Town of Drayton Valley (“Drayton Valley”).

Proposed Franchise Agreement and Franchise Fee Rate Rider Schedule

Under the Franchise Agreement, Drayton Valley granted ATCO the exclusive right to provide natural gas distribution services. ATCO was granted the exclusive right to perform necessary construction, operation and maintenance actions on designated land owned, controlled or managed by Drayton Valley.

The Franchise Agreement was to be valid until September 30, 2039. It would take effect the later of October 1, 2019, and the first business day after (i) the Commission has approved and acknowledged the agreement; and (ii) Drayton Valley’s Bylaw No. 2019/08/F, adopting the agreement has received third reading.

The Franchise Agreement changed the standard natural gas franchise agreement template (the “Franchise Agreement Template”). Clause 4(b) - Grant of Franchise grants exclusive rights to ATCO to construct a natural gas system and provide a natural gas distribution system. Language was added to Clause 4(b), stating that the exclusive rights granted to ATCO would not apply to consumers who consume more than 500,000 gigajoules annually. Information was added to Clause 5(a) - Calculation of Franchise Fee, regarding the collection from consumers and payment to Drayton Valley of a franchise fee.

The franchise fee replaced the payment of other taxes by ATCO. Clause 8 - Municipal Taxes was removed from the Franchise Agreement Template. The maximum franchise fee payable by any consumer in the Drayton Valley area was set at $10,000. Drayton Valley could change the franchise fee of 22.00 percent of ATCO’s actual total revenue annually upon written notice to ATCO and Commission approval. The franchise fee derived from the Delivery Tariff in that year for natural gas distribution service within the municipal service area,

Commission Findings

The AUC noted that section 45 of the Municipal Government Act deals with Franchise Agreements and provides, among other things, that a municipal council may, by agreement, grant a right, exclusive or otherwise, to a person to provide utility service in all or part of the municipality. It also provides that the agreement may grant a right to use the municipality’s property for the construction, operation and extension of a public utility in the municipality.

In considering whether to approve a Franchise Agreement, the AUC noted that it must determine whether the proposed agreement is necessary and proper for the public convenience, and properly conserves the public interests, as set out in section 49(2) of the Gas Utilities Act.

In making this determination, the AUC indicated that its review is focused primarily on provisions which may cause concern with respect to the public interest; and, ensuring that rates are just and reasonable, including whether the proposed franchise fee will result in rates that are just and reasonable.

The AUC considered the content of the proposed changes to the Franchise Agreement Template; that these terms were previously approved by the AUC’s predecessor and have been in place since at least 2004; and, that no objections were received to the currently proposed agreement. The AUC found the proposed changes were reasonable. The AUC also noted that, as ATCO has provided natural gas distribution service to Drayton Valley since 1999, both parties desire the renewal of that exclusive franchise on the terms and conditions detailed in the proposed Franchise Agreement. Therefore, the AUC considered that the proposed Franchise Agreement was necessary and proper for the public convenience and properly conserved the public interests.

Pursuant to section 45 of the Municipal Government Act and section 49 of Gas Utilities Act, the AUC approved the proposed Franchise Agreement as filed.