Letter: Power plant sale risks Medicine Hat advantage

By Letter to the Editor on February 6, 2021.

Dear editor,

Before discussing the proposed power plant sale, and related price, let’s review the current Medicine Hat electricity price advantage that we have over other Alberta cities.

We save roughly $24 per month on our electricity bills. In the 2016 consensus there were around 28,000 private dwellings in Medicine Hat. So what we could also be risking with a possible sale, is some or all of our citizens $8 million-plus annual advantage.

As far as estimating a potential power plant selling price, just to clarify what we might be considering offering for sale, one could make various assumptions and use traditional methods of calculating the perceived Present Value, (https://financialmentor.com/calculator/present-value-of-annuity-calculator).

However, if interest rates equal inflation rates, as they roughly do now, the PV of the $27 million annual dividend, indexed for say 40 years, is simply the sum of the payments, so roughly the PV is over $1 billion!

Other simple metrics considered by potential investors to estimate value, include the price earnings ratio (PER). So a PER of 40 would also put the potential value of the power plant in the one billion dollar range – seems high but 40 is not unrealistic today when Amazon’s was at recently at 94.

Yet another even more obvious method is to calculate the asset value that would generate a $27-million annual dividend, follows, using a 2 per cent rate of return, $27M/0.02=$1.35 billion.

Using 5 per cent, that value is $540 million. So any rough estimates less than $500 million, reported in the News’ article, are questionable. Let’s think about what Medicine Hat could be sacrificing and recognize that we could lose our Medicine Hat advantage.

“Not for sale” is the answer from this amateur investor and long-term resident.