Municipal Matters: Generations of legacy; generational change
By Rochelle Pancoast on September 12, 2024.
Generations of leaders who came before us in the City of Medicine Hat developed and established a business legacy we should all be proud of. The proceeds from owning the energy business (natural gas production, electric generation, natural gas distribution, electric distribution), environmental utilities and land business units over the last several decades have contributed to our Medicine Hat Advantage shown through: – The atypical number and quality of public amenities we have for a community this size. – An endowment fund set to offer predictable interest earnings for generations to come. – Property taxes lower than they otherwise would be because of profit-centre support. – Strong local energy security and reliability because of our ability to self-supply our electrical needs. – Lower utility bills. Despite recent volatility, benchmarking shows bills for the average local customer remain lower than our peers. But a prosperous past doesn’t mean it will continue. Through generations of prosperity, our community is now accustomed to a higher service standard. But, the outlook is shifting considerably and we need to prudently navigate both community expectations and unprecedented regulatory change. Today: – All those extra amenities and higher service levels mean the city has a higher-than-normal cost structure to maintain. – The city’s natural gas production, which we were literally built upon (inspiring Rudyard Kipling’s reference to “all hell for a basement”), is now largely depleted. The city acquires almost all natural gas volumes from outside sources. We are also working through the costly abandonment and reclamation of (uneconomic) wells. Electric generation has temporarily filled the proceeds gap left by natural gas production’s wind-down, but that was uniquely driven by unusual market-based supply changes (coal conversions/retirements), heightened geo-political issues and the resulting record electricity market prices. The city’s energy business is used to weathering commodity market cycles, but this is different. Energy transition pressures introduce a material risk of having to comply with an accelerated path to net zero carbon emissions – a definite concern for our gas-fired electric generation fleet. We are expecting draft federal Clean Electricity Regulations to be finalized this fall that will either risk the viability of our electric generation fleet after 2035 or require significant investments to diversify/modify our assets at a time when technological solutions are not yet clear. Whether those regulations survive the anticipated elections (or provincial lawsuits) remains to be seen, but there is strong global momentum toward decarbonization, so the question is more about timing and the available ways to get there. Steps for moving forward The uncertainty is high, but this fall the city’s energy, land and environment division will bring forward key items to help pave the path forward: – A deep-dive presentation on energy and the change drivers will be shared at an upcoming council meeting, including an outline of key strategies for navigating this uncertain period. – That presentation will be shared with the city’s large commercial and industrial customers, and others as part of a prioritized engagement effort. – Potential achievement of key milestones related to energy transition projects like Clear Horizon Carbon Capture and Sequestration Hub and the recently announced ownership interest in the Saamis Solar Park. – KPMG will provide council a recommendation for how best to drive value from our energy business for the benefit of the community (‘Energy Business Review’). And, staff will look to do all that while engaging proactively in our local budgeting process and the provincial market redesign. Through all this, we remain committed to finding solutions that are appropriate for our community and maintaining the ability to adapt quickly in these uncertain times. Rochelle Pancoast is the managing director of the city’s energy, land and environment division 25-24
