The city's Unit 16 power plant on Box Springs road is seen in this May 2018 file photo. Power prices are much lower than they typically would be for this time of year, leading city budget forecasters to alter their outlooks.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
Utility rates in Medicine Hat are moving in opposite fashion to how they typically act throughout the year, causing city budget forecasters to rewrite estimates and even rearrange the schedule to close some low production gas wells.
Changes in power use across the province due to the pandemic have sent electricity rates much lower since the spring.
Meanwhile, upheaval in oil prices has been coupled with generally stronger pricing for natural gas.
Prices for customers normalized somewhat for September, but the head of the city’s utility and energy divisions told the News that the publicly owned power plant is projecting profits. A stronger natural gas market means the city will “improve the loss” in its troubled natural gas division.
“There are a combination of factors at play here,” said utility commissioner Brad Maynes. “We’re still projecting a significant profit at the power plant … And with the gas price going up, it helps. With the accelerated abandonment program, which we’ve always viewed as flexible, it’s postponed some (closures) of our wells … and we are focusing on fields that aren’t even close to the (current price) range.”
Utility rates released Tuesday show that power prices will rise from relative lows this summer while the price of natural gas strengthens as fall approaches.
Residential and most commercial customers will pay 7.5-cents per kilowatt of electricity used during September.
That is nearly a 1-cent increase from the previous month, August, when rates should have reached their yearly high, but instead showed a one-third discount compared to 2019.
Power prices trended downward starting in April as the effects of pandemic commercial restrictions and oil-price collapse lowered industrial power demand.
At the same time, shutting in oil production as companies weathered the storm could reduce the amount of gas produced from co-mingled wells, though Maynes said storage levels for gas are still high. That should reduce the price in a normal market, said Maynes, who said general worry about the near-term future of the sector could be fuelling speculation and bolstering prices.
At the current price, $2.59 per gigajoule for customers in Medicine Hat, the gas division will see lower than expected losses. As well, high gas costs increase operating costs at the gas-fed power plant.
“We’ve expected that, from time to time, we would see surprising gas prices,” said Maynes. “But in the long term, we don’t see a high price (environment) returning.”
The power commodity rate has consistently been about 10 per cent lower year over year since April, when the full effect was felt from the pandemic shutdown on commercial use and oil-price collapse on industrial use.
The discount grew to 30 per cent in August when the bare rate was 6.46 cents, compared to 9.42 cents in August 2019.
Rates in 2019 also remained above the August 2020 mark in 11 of the 12 months, though Maynes said the generating unit should exceed conservative profit estimates.
In both 2018 and 2019, the city power plant banked about $36 million in dividends as pricing improved and the city brought new production on stream.
The City of Medicine Hat sets local rates at the average of four other retail rates in the province.
The range of prices per kilowatt hour across the province is from 7.17 cents for Enmax, to 7.68-cents for Epcor customers in Edmonton.
Hatters will pay $2.59 per gigajoule of natural gas in September, the rate rising from $1.76 during the low-use month. Comparable default rates in Alberta range from $2.49 (Direct Energy) and $2.69 (AltaGas).
