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Fortis Operating Agreements – New Operating Fees

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Fortis Operating Agreements – New Operating Fees To Regular Council October 6, 2014 MEMO April 2, 2014 TO: MAYOR AND COUNCIL FILE: 5500-03 FROM: C.D. COATES, CAO DATE: SEPTEMBER 30, 2014 SUBJECT: FORTIS OPERATING AGREEMENTS – NEW OPERATING FEES BACKGROUND For the past 4 years, the Association of Vancouver Island Coastal Communities has been engaged in a joint process with FORTIS BC to correct the historic situation whereby municipal taxpayers within AVICC were denied the opportunity to recover the costs of gas distribution lines placed within municipal streets. This inequity occurred over 25 years ago, when the government of the day unilaterally imposed a prohibition under the Vancouver Island Gas Pipeline Act to assist in project construction financing to bring natural gas to Vancouver Island. Municipal taxpayers were not consulted about this decision, but were required to forgo literally tens of millions of dollars in fees and to subsidize gas provision in a manner not required of other taxpayers outside of METRO Vancouver. In 2011, AVICC and its member municipalities, in cooperation with FORTIS, embarked upon a three-phase strategy to reinstate the ability to recoup annual operating fees. The strategy involved: 1. Reaching agreement on a new “Made in AVICC” model operating agreement with Fortis BC. 2. Fortis BC bringing in a new “postage rate” structure for gas rates: resulting in significant reductions for gas customers within AVICC, which has now been approved by the BC Utilities Commission. 3. The Province adopting new legislation removing the legislative prohibition on operating fees within AVICC. After extensive work, two of these conditions precedent have now been achieved. In the case of the legislation, introduction is expected to occur shortly in the Fall sitting of the Legislature – Note: The Agreement includes a clause that makes the agreement null and void should the legislation change not occur). As a result, municipal taxpayers are in a position to have FORTIS start collecting the three percent operating fee structure based on gas volumes utilized in 2015 with the first payment to be received in March 2016. 2… Page 39 Memorandum – Fortis Operating Agreement September 30, 2014 Page Two ______________________________________________________________________ Implementation Timing: In order to benefit from this new revenue stream, individual municipalities served by gas must now agree to enter into a new formal agreement with FORTIS based upon the AVICC crafted model agreement by the end of October 2014. This very aggressive timetable is necessary in order to obtain BCUC approvals and for billing preparations to be made to begin to collect fees by March 2015 for payment a year following. Impacts: Common rates phasing over the next several years will lower gas rates within AVICC in progressive steps beginning Jan 01, 2015. Because of this progressive reduction in the cost of gas, the 3% fee on gas rates will not significantly affect the very significant overall reduction in gas rates projected for residential and business customers in the future. Gas rates will drop in excess of 20% after 4 years for residential customers after including the application of the new 3% fee. At the same time, the three percent fee will have a very significant positive impact for local property taxpayers as it is new unencumbered local government revenue. The attached Fee estimate shows the impact to the affected AVICC communities. For Highlands it is $5,190 per year. Required Action: The AVICC has endorsed a model Operating Agreement in the form attached. This agreement was developed in partnership with FORTIS by a working group of municipal engineering staff working over the past 4 years, and has been fully vetted by Stewart McDannold Stuart with the special assistance of the City of Nanaimo and The District of Saanich. AVICC is formally recommending this agreement to its members at this time. Please refer to the attached memorandum from AVICC as well as a copy of the model agreement. The desire is that each municipality will authorize the signing of its agreement without delay and that, preferably, the BCUC can be presented with the complete suite of AVICC municipal Operating Agreements as a package. This is expected to help to expedite implementation and ensure that no further available revenues are lost to local taxpayers. Options: 1. Endorse the AVICC Agreement as requested. (Signed agreements will be presented to the BCUC as a package for approvals, and collection of fees will commence on March 01, 2015.) 2. Decline to approve the agreement and enter into individual discussions with Fortis towards another form of Agreement exclusive to the Municipality. (This is a decision to decline to receive operating fees - Operating Fees are only available under the AVICC Model Agreement. This also has implications for operating relationships as the model agreement’s provisions are based on the assumption of off-setting fees) 3… Page 40 Memorandum – Fortis Operating Agreement September 30, 2014 Page Three ______________________________________________________________________ Highlands currently has an agreement in place that originated with Centra Gas (assumed by Fortis) with similar terms, however Provincial legislation authorizing a 3% fee was never enacted and as such no revenue was realized under the provisions of that agreement. The current agreement expires in 2024, but approval of the new agreement along with the anticipated provincial legislative changes will enable the 3% revenue stream to commence along with the rate reductions to the consumers. The unification of affected AVICC members is considered to be important to completing the process instead of multiple, different terms amongst the various parties. STAFF RECOMMENDATION It is recommended that Council endorse the AVICC recommended agreement and authorize the Mayor and Corporate Officer to execute the specific agreement between Fortis and the District of Highlands. Respectfully Submitted Christopher D. Coates Chief Administrative Officer Attachs. s:\cao\Fortis Operating Agreements Page 41 MEMORANDUM TO: Mayor and Council or Chair and Board, and CAO FROM: Iris Hesketh-Boles, Executive Coordinator DATE: September 29, 2014 RE: Fortis BC Operating Agreements and Collection of Operating Fees by Municipalities Below are the speaking notes for Nanaimo Regional District Chair Joe Stanhope’s presentation to AVICC members who attended last week’s AVICC Luncheon durinG the UBCM Convention. President Larry Cross wanted to ensure that this news was communicated widely as “Councils in municipalities served by gas will be asked to process and endorse the AVICC recommended model agreement by the end of October, 2014 in order to take advantage of the anticipated legislation, and to authorize the collection of the 3% fee beginning in March 2015.” The noted meeting with the Premier and Ministers on Thursday last week went well. I have some important information to deliver with respect to the Fortis BC Operating Agreements and the collection of operating fees by municipalities. The last several years now we have stood before the AVICC convention and talked about the following: 1. Negotiations with Fortis BC to establish a Made-in-AVICC Operating Agreement between the gas company and many AVICC municipalities. This is complete. 2. Fortis BC’s application to the British Columbia Utilities Commission to apply for a common rate for specified natural gas customers in a given rate class throughout BC. This has occurred, and phased implementation is about to begin in 2015. 3. AVICC has been seeking a change to the Vancouver Island Natural Gas Pipeline Act to permit the collection of operating fees within AVICC. AVICC representatives are meeting with the Premier and the relevant Ministers again tomorrow, and we are pleased to say that introduction of this legislation is imminent. Page 42 Consequently, I am very pleased to be able to say today, that after much hard work by numerous people, we are poised to see the end of this historic inequity after more than 25 years. Shortly we expect municipalities on Vancouver Island and the Sunshine Coast will return to the same footing as those in the interior of BC. This means In the order of $3.5 Million in new revenues to be received collectively / per annum within AVICC to offset costs for municipal taxpayers’ associated with the placement of gas lines in municipal roads. Now, as the final step to reaching our goal, we need political action and your leadership. Time is now of the essence to adopt agreements, if Councils wish to access the available new funding source. Councils in municipalities served by gas will be asked to process and endorse the AVICC recommended model agreement by the end of October, 2014 in order to take advantage of the anticipated legislation, and to authorize the collection of the 3% fee beginning in March 2015. AVICC is preparing a standard report format to assist your staff in bringing this matter before you and the report will be available, along with our partners in FORTIS, to respond to any questions you may have. Representatives are meeting with the CAOs tonight to discuss implementation details for your municipality. We hope we will have the maximum number of agreements in place by November, in order that AVICC can present a unified front to the BCUC. We are almost there. With your help, we can shortly say that we have completed the strategic task we set out to accomplish. I want to say thank you to the City of Nanaimo, in particular, who lead the staff technical working group; to Paul Murray and the District of Saanich who have lead the staff policy group; to Gord Schoberg and Carol Greaves of FORTIS, and to Jerry Berry who have worked with us throughout and whom have helped us “stick handle” this matter through the Province and through FORTIS itself. Finally, I would be remiss if I didn’t thank Premier Clark, Minister Coleman, Minister Bennett and Michelle Stillwell for supporting introduction of the corrective legislation.
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