September 27, 1999

 To:Policy and Finance Committee

From:City Clerk

Subject:Association of Municipalities of Ontario - Gas Franchise Defense Fund

 Recommendation:

The Telecommunications Steering Committee recommended to the Policy and Finance Committee, and Council, that the City of Toronto contribute to the Association of Municipalities of Ontario Gas Franchise Defense Fund at a rate of three cents per capita on a one-time basis; and that the necessary funds be taken from the Corporate Contingency Account.

Background:

The Telecommunications Steering Committee on September 24, 1999, had before it a communication (August 30, 1999) from Mr. Michael Power, President, Association of Municipalities of Ontario, providing an update on AMO's ongoing work in the development of a new model natural gas franchise agreement, and to ask for support; advising that the Board of Directors of AMO recently adopted a resolution calling for the establishment of a "Gas Franchise Defense Fund" and that the Board is asking that all AMO member municipalities voluntarily contribute to this fund, on a one-time basis, as follows:

(a)two cents per capita for lower-tier municipalities;

(b)one cent per capita for upper-tier municipalities; and

(c)three cents per capita for single-tier municipalities.

  City Clerk

Candy Davidovits\cd

Item No. 15(a)

Attachment

c:Chief Administrative Officer

Chief Financial Officer and Treasurer

 --------

(Communication dated August 30, 1999, addressed to

all Heads of Council from Mr. Michael Power, President,

Association of Municipalities of Ontario (AMO))

I am taking this opportunity to update you on AMO's ongoing work in the development of a new model natural gas franchise agreement, and to ask for your support. As you are aware, the model franchise agreement serves as the standard operating agreement between municipalities and gas utilities that sets out the terms and conditions under which gas utilities may distribute natural gas within a municipality.

AMO, with the support of its members, developed the original Model Gas Franchise Agreement in consultation with the gas industry in 1987, which was subsequently sanctioned by the Ontario Energy Board (OEB). As many of the current franchise agreements are coming up for renewal, AMO and the gas industry have been working on changes to the model agreement to bring it up to date and reflect current conditions.

While the AMO/Industry group have made progress in a number of areas of the agreement, there are several major unresolved issues on the municipal side, including permit fees, duration of renewals, and compensation for the use of municipal rights of way. It appears that these issues will not be resolved to our satisfaction without intervention by AMO at the Ontario Energy Board. AMO must therefore be prepared to defend its positions and provide evidence on these issues before the OEB. We expect the process will be complex and costly, and will require extensive research, specialized expertise, and external legal counsel. This is why we are asking for your immediate and urgent help.

What You Can Do:

We need your help to protect your interests. AMO's Board of Directors recently adopted a resolution calling for the establishment of a "Gas Franchise Defense Fund". The Board is asking that all AMO member municipalities voluntarily contribute to this fund, on a one time basis, as follows:

(a)two cents per capita for lower-tier municipalities;

(b)one cent per capita for upper-tier municipalities; and

(c)three cents per capita for single-tier municipalities.

The Gas Franchise Defense Fund (see attached Backgrounder for details) will be used to prepare a defense of the municipal position on natural gas franchise agreements, and to develop legal provisions for a revised model agreement, as well as to intervene in OEB proceedings and take appropriate legal action as required. We will be seeking to allow all municipalities to take advantage of changes resulting from the negotiation of a new model agreement, whether they have recently renewed their franchise agreements or not.

In January, AMO requested information from its members on the timing of upcoming renewals of existing franchise agreements. If you haven't already sent this information in, we are requesting that you do so now to assist us in our efforts. The gas industry is seeking 15 and 20 year renewal terms for existing franchises - it is extremely important that municipalities not undertake to renew franchise for more than fifteen years. The OEB, in decision EBO 125 (the precursor to the Model Agreement), stated that it was of the opinion that in the case of renewals a ten to fifteen year term seems to be adequate. Longer terms may affect the possible benefits achievable from a new agreement or any future changes in legislation.

Why the Defense Fund is Needed:

The OEB has not yet determined the process that they will use to approve a new model franchise agreement, but have made it clear that they would like to see a revised agreement in use by January 2000. The need to establish a defense fund is therefore pressing. We anticipate that AMO will make representation to the OEB in the Fall, and we want to have well-prepared arguments to advance our position, to counter the extensive financial and legal resources available to the gas industry lobby.

AMO's defense fund will allow us to intervene on behalf of the municipal sector in a generic hearing, or on behalf of individual municipalities seeking approval of their franchise renewals.

Your contribution to this fund is extremely important, as the costs involved in preparing and defending a case before the OEB are considerable, and represent an unbudgeted activity for AMO, requiring special assistance for research and legal representation.

When AMO launched its defense of the original model franchise agreement before the OEB in 1987, these costs were covered through a similar member-supported fund. The results of AMO's involvement then helped to secure for all municipalities the ability of municipal engineers to grant approvals and to specify the location and depth of buried facilities; special requirements or the right to refuse gas facilities on bridges; beneficial cost-sharing arrangements for relocation of gas pipelines; and guidelines for the length of initial and renewal terms.

AMO's Position on the Issues:

In current discussions with the gas industry, AMO has argued that private utilities using municipal property to earn profits should compensate municipalities and their property taxpayers on an annual basis for the economic benefit received from the use of the municipal resource. Increased operating costs related to ROW management should be borne by customers of a particular utility, and not unfairly passed on to property taxpayers.

AMO also maintains that municipalities must have the authority to collect permit fees for right of way access to offset municipal costs related to ROW administration and reduced pavement life. Discussion has also focussed on the duration of franchise agreements and the duration of franchise renewals, where AMO is proposing that renewal agreements be no longer than 10-15 years as was originally suggested by the OEB. AMO is also seeking to clarify issues surrounding the expiry and/or termination of franchise agreements. These and other issues are more fully detailed in the Backgrounder.

AMO remains committed to developing a new model gas franchise agreement that protects the interests of municipalities, and one that establishes fairness for property taxpayers. We need your help, and your financial contribution, to ensure that this objective is met. AMO's success in this initiative will have profound impacts on municipal right of way management across all energy sectors well into the future.

As always, our staff are available to answer any questions you may have. Please contact Pat Vanini, Director of Policy and Government Relations, at 416-971-9856, extension 316 or Casey Brendon, AMO Policy Advisor at extension 341.

I look forward to your prompt support of this important effort.

(A copy of the Backgrounder providing details respecting AMO's Model Natural Gas Franchise Agreement and the Gas Franchise Defense Fund, referred to in the foregoing communication was forwarded to all Members of Council with the October 14, 1999, agenda of the Policy and Finance Committee and a copy thereof is also on file in the office of the City Clerk.)