The Unit 16 power plant is seen near Box Springs Road in the city's northwest quadrant this week. On Monday, city council members approved borrowing up to $66 million to install a second generator at the site.--NEWS PHOTO COLLIN GALLANT
cgallant@medicinehatnews.com@CollinGallant
The money is arranged and contracts are being awarded, but city council members worked this week to calm fears over rising debt levels and the need for a potentially $66-million power plant expansion.
Mayor Ted Clugston on Tuesday invoked current record heat wave and brown-outs in California as proof to have on-demand gas generation capacity. The night before, councillors unanimously approved financing for the 44-megawatt Unit 17 project.
“It proves the point about continuing with business as usual (during the pandemic) here in Medicine Hat,” he told reporters. “It wouldn’t be acceptable here to have power outages.”
Council members also went to lengths before the vote to detail the need for more backup power and the business case for borrowing that by city policy is paid off with power plant revenue.
“It’s an investment to improve our capacity,” said Coun. Phil Turnbull, chair of the utilities committee. “It sounds like a lot of money, but when it’s about the profits that we make in the sector; we expect that to continue.”
The city’s power plant has recorded more than $80 million in profits since it commissioned the Unit 16 generator in the north end. Now, Unit 17 would be built in sequence in the north end by mid-2022, and add another 44 megawatts of production, about 17 per cent, to the city’s output.
Councillors said they expect costs to be contained on the new unit, it is required to ensure local emergency supply and brings the potential to draw new industries.
Two major contracts accompanied the commissioning of Unit 16 in 2017.
That project was similarly estimated to cost $66 million when it was approved in 2015, but came in $10 million under budget.
Costs for Unit 17 may be lower, comparatively because the site work is complete, though upgrades on Unit 16 have taken place since and much of the original savings were from favourable currency exchange hedging.
The General Electric engine is expected to cost US$25 million, and administrators said Tuesday that with the final financing in place they would secure U.S. dollars to order the main component.
Coun. Darren Hirsch also speculated that the city could use some combination of reserve funds and debt to finance the project.
Chief administrator Bob Nicolay said that was possible, but the least costly solution was still being determined.
Others speculated that borrowing rates were extremely low and suppliers and contractors would likely be motivated to obtain contracts in uncertain economic times.
Coun. Julie Friesen said interest rates “are the best they’re ever going to get, and the price is probably the best it’s ever going to be.”
Turnbull agreed, stating “it’s a good day to buy generation capacity when the companies that make the machines are desperate to sell them.”
Also on Monday, engineering firm Burns and McDonnell was awarded the design contract worth $1.45 million after seven bids were received.
