Dividends from the city's power generation division could fall by 90 per cent from a record high in 2023, city finance officials reported Wednesday.--News File Photo
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Medicine Hat’s power plant dividend will be $50 million less than forecast this year as prices on the Alberta power grid collapsed from record highs in 2023, the city’s latest financial report revealed Wednesday.
So strong were prices and export sales last year that the division provided a record $137 million in profits to the city’s general treasury, but only one-tenth of that number could be available in 2024.
“As a resident, I’m loving low power rates, but as a city, we’ll have to deal with it,” said audit committee chair, Coun. Darren Hirsch, after the figure was presented in the city’s tri-annual financial report at city hall.
“(The power dividend) is not something that we can continue to rely on to pay our bills … It’s going up and down like a yo-yo.”
Lower export sales at lower prices, along with lower local rates and sales, saw revenue plunge by more than half up to Aug. 31 compared to one year earlier.
That eliminates the plan for city finance officials to use new income to restock a reserve accounts, which provided a local customer “affordability rebate” last year, pays for capital projects and fills a municipal budget gap.
Officials predicted softer prices in 2024, but still relatively strong performance and an estimated $69.9-million dividend.
The revised year-end estimate is now just $19.3 million.
Adding further pain, the power segment results are combined with profits and losses in gas production, where prices have also lagged, and a $6-million loss is expected.
Combined, the commodity businesses would only provide $12.5 million to the municipality.
“Electric generation will not be able to provide profits like we’ve seen it the past, and that’s something that we’ve conveyed to council and committee for a while,” said corporate services commissioner Dennis Egert. “There have been huge swings (in market prices) so it’s really easy to see why there’s a sharp decrease to export sales revenue.”
City officials stated that the 2023 Alberta pool price – where the city sells excess power supply – averaged $133 per megawatt, while the year-to-date figure is $71 and the price in August was just $31, a time when prices are traditionally at their annual high point.
Budget officials had planned for a $47-million deposit to replenish the city’s capital reserve, but now will maintain a $3-million payment to the general municipal budget and deposit the remainder into an operating reserve.
That fund’s purpose is to help withstand steep drops in revenue, said officials.
“As we’re utilizing funds from the reserves, we’re not putting money back,” said finance manager Lola Barta. “That will become a concern if it continues.”
Administrators attribute the decrease one-third to lower demand an two thirds to falling prices due to higher supply on the Alberta system from lower-cost renewable power and the return of former coal-fired plants that now burn natural gas.
The province reported in September that default retail rates – which follow the grid price to an extent – were 60 per cent lower through the summer compared to 2024.
City grid sales could wind up 40 per cent lower than forecast at $44 million, and large contract local customer revenue is off by 40 per cent as well.
Revenue from non-industrial franchise customers could be 10 per cent lower at $85 million.
On the expense side, the lower cost of natural gas fuel at the plant is the main driver in a 40 per cent reduction along with lower operating costs from lower production.
Investments soar
A bright note in the Aug. 31 financial report was the investment portfolio, totalling $783 million, which to the end of August earned a return of 9.29 per cent, slightly above a benchmark.
That’s higher still in the fall “driven by some really strong equity returns,” according to treasury official Ryan Wright.
The city also saw returns above 9 per cent in 2023, he added, but that recovered losses suffered in previous years. New returns are adding value relative to the long term.
“If things are relatively flat for the remainder of the year, (returns) could be much higher,” he said.
