Crews string power lines across the river from the city's main power plant in this September 2018 file photo. Despite a strong winter, the past few months of decreased demand could lead to lower-than-projected profits for the utility division - possibly even a $5.7-million overall loss.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
Cold winter temperatures boosted new-year profits in the city’s utility division, but dropping demand and much softer pricing forecasts could see those dampened by year end, according to the latest city financial statements.
Combined, the power, natural gas and oil production units can expect year-end earnings to come in $14.7 million less than predicted in the budget, resulting in a net loss across the division of $5.7 million.
That’s compared to a forecast profit of $9 million that analysts say will be dragged down by lower demand for power (affecting sales and pricing), higher natural gas costs (affecting fuel costs at the power plant), and dismal oil prices (leading to shut-in production).
“It goes to show that a variance at April 30 can be much different by (Dec. 31) in a commodity-driven enterprise,” said Coun. Darren Hirsch, chair of the city’s audit committee, which received the report on June 25.
The power plant is still predicted to bring in $29.5 million in profits, about 10 per cent lower than budgeted, but losses in the petroleum sector could be 50 per cent higher at $46.2 million.
That is despite more quickly realizing savings from a planned shut-down of 2,000 uneconomic gas wells that the city launched in earnest this spring, administrators said.
The biggest factor is shutting in of joint oil production activities as lower worldwide demand hammered prices for Western Canadian Select this spring.
“(Operational cost savings) will be more than offset with unfavourable oil sales revenue variances,” the report states.
The city’s power plant generated $5 million more profit in the first third of 2020, bolstered by an extremely cold stretch in February when export prices spiked.
“It was a huge month,” said Coun. Phil Turnbull, who sits on audit and, separately, chairs the energy committee. He described more recent power prices as recovering after a COVID-19 related lack of demand, but “It’s very dynamic and very difficult to forecast – that’s why you budget conservatively.”
However, new forecasts factor in lower demand and pricing for power across Alberta due to economic slowdowns. City forecasters state projected profits could be 10 per cent lower than predicted, when in the last two years, actual earnings have far out paced budget predictions.
Electrical distribution inside the city’s service area would also see lower profits, but revenue from gas delivery, sewer and solid waste service are considered stable, or increasing in the case of water delivery.
Over all facets of the division, a predicted $9-million profit is now expected to be a $5.7-million loss, a difference of $14.8 million.
