June 5, 2002

Electric Utility Act changes could be costly

Delon Shurtz

Anticipated changes to Alberta's Electric Utility Act don't bode well for the City of Lethbridge or its residents.

Amendments slated for 2003 could see residents paying more for electricity. The changes would also remove much of council's autonomy and make it more difficult to comply with new regulations.

Otto Lenz, electric manager for the city, says Alberta Energy may remove the tax-free status of municipalities. Currently, municipal electric revenues are not taxed, but that's expected to change to create what Alberta Energy calls a level playing field.

That means Lethbridge would have to increase its distribution tariffs or its own tax rates to compensate for revenue lost through the government tax grab.

"Because we don't pay tax, every ratepayer in Lethbridge benefits," Lenz says.

But not next year.

The government is considering the move because of concern by stakeholders that municipally owned electric retailers and generators, who don't pay taxes, have an advantage over investor-owned competitors, who do.

Epcor and Enmax for example, are owned by Edmonton and Calgary and don't pay taxes on electric revenues. But through a process called PILOT, Payment in Lieu of Tax Regulation, they pay into a balancing pool and amount equal to what they would pay in income tax if they were taxable, at least for revenues obtained from their retail affiliates, comparable to for-profit retailers operating in the same area.

If Edmonton and Calgary only provided electricity to their own communities, there might not be cries of disparity. But because they sell electricity elsewhere, that gives then an advantage over investor-owned utilities.

That's understandable, Lenz says. But now Alberta Energy wants all municipalities to be subject to the PILOT regulation, even if they don't provide electricity outside their jurisdiction.

"They're swatting all of us with the same fly swatter," Lenz says. "We don't understand how it makes the playing field more level."

Some stakeholders feel exempting municipal distribution utilities from the PILOT regulation tilts the playing field in a different way. The argue that even though distribution isn't competitive, anyone choosing between municipal and investor-owned distribution services could be biased by the tax-free status.

Lenz is also concerned that approval for distribution tariffs and regulated rate option tariffs, currently a task for city council, will be transferred to the Alberta Energy and Utilities Board under the proposed changes. Under that system, the approval process would be complex, lengthy and costly, Lenz says, and citizens wanting to express concerns would likely have to travel to Calgary and face the board, instead of simply attending a city council meeting.

But that's a small price to pay to ensure fairness, says John Davies of the Industrial Association of Southern Alberta.

Davies says the association doesn't believe the city should be allowed to regulate itself, which constitutes conflict of interest. He says he would welcome the opportunity to travel to Calgary and express concerns to the EUB which does not have anything directly to gain by regulating distribution tariffs.

On the issue of taxation, Davies says the distribution service in Lethbridge is not competitive and should not be taxed.

"There is no reason to do that"

Copyright 2002 The Lethbridge Herald