July 21st, 2018

Power business making money

By Collin Gallant on December 5, 2017.

NEWS PHOTO EMMA BENNETT
New forecasts for the city's power plant say the electricity generation business will return to profitability this year, and could produce an $8-million payout to city coffers in 2018.


cgallant@medicinehatnews.com
@CollinGallant

City administrators and councillors are hailing that large power profits could return to the city next year as electricity prices across the province improve.

The local power plant posted a $3-million operating loss in 2016 — its worst year ever — and was expected to lose the same again this year.

According to a new business plan presented Monday however, administrators say a small profit is expected for 2017, and in 2018 earnings could be three times higher than predicted.

If it holds, a $10.3-million profit would produce a near $8-million dividend toward municipal reserve funds and property tax abatement.

The reason, say administrators, is better power prices, low fuel costs at the natural gas-fuelled power plants and cost containment.

“It’s a $15-million swing in revenue,” said Brian Strandlund, general manager of power generation, which had predicted a $3.6-million profit when the operating plan was written in late 2016.

“The power price has gone up while gas has stayed down; that’s the market change in the province.”

That was the highlight as the city’s six major utility units presented updated plans.

Together the utility departments, not including gas production, downgraded planned overall fee increases that could add $12 to the average homeowner’s monthly bills.

Power distribution fees will rise the most, by $5.30 per month, albeit lower than the forecast of $6.55, to pay for new power line reinforcement to be completed this year.

That system is need to boost the amount of power the city can export, which is a key pillar of the better outlook for electricity sales.

Utility committee chair Phil Turnbull, elected six weeks ago, called the spending an investment that will boost the dividend and benefit citizens.

“They’ve found new ways to find revenue,” he said. “This is what we have to do, unless we want to stay a small producer and never make the sort of profits we were used to.”

During council debate he heaped praise on a new administrative team that reduced most of the fee increases that were envisioned in the 2017-2018 budget plan.

“We’re seeing people who experience in the private sector who can operate with a bottom line and citizens in mind,” he told council.

Mayor Ted Clugston also basked in the financial report.

He was a key booster of the Unit 16 spending, and the $56-million plant was commissioned this fall.

“It has something to do with it,” he told reporters after. “It’s come on line under budget by $10 million, and now we have the ability to export power … It’s a long time coming and it’s proving its worth.”

He also pointed out in council session that a new dividend formula means profits will be more difficult to spend.

Council passed a new budget plan in 2016 that would entirely cut energy and gas production dividends out of the municipal budget by gradually increasing tax rates over 10 years.

At the same time, a new dividend policy earmarked any new dividends toward a heritage-style investment fund, though for the next nine years, half of any dividend can go towards lessening tax increases with reserve funds.

Utility commissioner Cal Lenz said his staff expects higher commodity prices are likely due to the shutdown of two major coal plants and a better industrial outlook in the province.

The report predicts exports will come in $8.5 million more than expected while internal city sales would climb by $6 million piggybacking on the Alberta average price.

At the same time, buying more fuel to produce that power would only increase costs by $1.6 million, and other related costs only jump by $6 million.

Salaries will also drop as three positions are being eliminated.

“We’ve been big on cost-containment,” he said.

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