STAFF REPORT: Fortis Gas Operating Agreement

TOWN OF VIEW ROYAL COUNCIL REPORT

TO: Council DATE: October 2, 2014 FROM: Kim Anema, CAO MEETING DATE: October 21, 2014 FILE NO.:

Fortis Gas Operating Agreement

RECOMMENDATION: That the Town of View Royal enter into the Fortis Gas Operating Agreement substantially in the form attached to the October 2, 2014 CAO report.

PURPOSE OF REPORT: To establish an agreement between the Town of View Royal and Fortis Gas including the collection of operating fees based on gas consumption within the Town of View Royal.

TIME CRITICAL: Yes. There is an effort currently underway to expedite the conclusion of these agreements enabling a group submission to the B.C. Utilities Commission permitting the proposed relationship.

BACKGROUND: The Town of View Royal entered into an operating agreement with Centra Gas British Columbia Inc. in October 1, 1994. That agreement expires September 30, 2015.

Based on the term of our agreement there is no urgency for the Town of View Royal to participate in a new agreement however, Fortis is prepared to establish a new relationship on the basis of the terms concluded in a negotiation between Vancouver Island Municipalities and Fortis Gas.

Municipal operations staff selected a committee to represent all Vancouver Island municipalities, (Nanaimo, Courtenay, Campbell River, Parksville, Lantzville, North Cowichan, Sooke, Oak Bay and Saanich). The Committee determined high priority operational issues for a new agreement.

The Association of Vancouver Island Coastal Communities has been engaged in a joint process with FORTIS BC to establish a new agreement addressing local government issues and establish a mechanism 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.

In 2011, AVICC and its member municipalities, in cooperation with FORTIS, embarked upon a three-phase strategy.

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.

PROJECT INFORMATION: The following has been achieved to date:

• The Province has indicated at the senior staff level that it intends to introduce legislation in the fall session to remove the current prohibition against collecting operating fees from Fortis. (Note: The Agreement includes a clause that makes the agreement null and void should the legislation change not occur).
• The Province indicates it intends to also implement a regulation to exempt five major industrials from the fee (Catalyst and Hydro Co-generation - five individual municipalities).
• The BC Utility Commission has approved a rate harmonization approach by Fortis on a phased basis. This means a significant 25% reduction in natural gas rates over the next three to four years - beginning with a 7% reduction in January 1 2015.
• Fortis has agreed that operating fees can be implemented beginning March 1 2015, should provincial approvals be received and local governments each individually approve the template operating agreement by end of October 2014.
• Our Municipal Engineers group have concluded work with Fortis to establish the template operating agreement to be used by all Island Municipalities including the establishment of operating fees.
• AVICC has endorsed the template operating agreement

The AVICC has endorsed the 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.

Based on the proposed agreement, participating municipalities will be 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.

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.

Common rates phasing over the next several years will lower gas rates within AVICC in progressive steps beginning January 1, 2015. This progressive reduction in the cost of gas will more than offset the 3% fee on gas rates given the 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, and in excess of 30% for most small commercial customers, after including the application of the 3% fee.

The three percent fee will have a very significant positive impact for local property taxpayers. The estimate collectively within AVICC has been estimated at up to $5Million per annum. The View Royal annual estimate of new found revenue is estimated by Fortis to be $68,000.

AVICC is formally recommending this agreement to its members at this time. 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.

BUDGET IMPLICATIONS: An initial revenue stream currently estimated at $68,000

POLICY IMPLICATIONS: This type of agreement does require that the Town of View Royal ensure that intended policies are adequately reflected within our bylaws.

SUSTAINABILITY CONSIDERATIONS: Each time a pavement cut is made to accommodate Fortis Gas the longevity of our roads is impacted. The operating fee is intended to offset the costs to the Town of View Royal.

RECOMMENDATION:

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 may be a decision to decline to receive operating fees – Fortis Maintains that 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.

Recommendation: That the Town of View Royal enter into the Fortis Gas Operating Agreement substantially in the form attached to the October 2, 2014 CAO report.

SUBMITTED BY: K. Anema, Chief Administrative Officer