The city's power division is still making big profits but the financial outlook for the city remains cloudy as the full pandemic effect is yet to be realized.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
The city’s power plant should again pump out a major profit, but that won’t produce a traditional dividend as the city finance department rearranges how it accounts for capital spending and the performance of business units.
High electricity prices this winter brought in $24 million more than expected from export sales before April 30, and that could grow to the end of the year, according to the latest financial statements, presented Tuesday.
Council’s audit committee heard the longer-term financial outlook is positive but still murky considering the effects of the pandemic, and administrators are working on a major cost-cutting plan laid out late last year.
“We are looking at a balanced budget by the end of the year,” committee member Coun. Jamie McIntosh told the News on Wednesday. “There is still an amount of uncertainty and how COVID may affect our revenues to that point.”
General municipal forecasts at April 30 assumed no lifting of health restrictions until year end, though the measures affecting recreation facilities and some business income will ease this month.
McIntosh said reopening recreation facilities – the Esplanade and Co-op Place – are positive for the community, but will add staffing and operations cost, and similarly, WestJet is set to resume flights to and from the Medicine Hat Regional Airport.
The financial question for the city is to when usage will return to pre-pandemic levels.
“There are a lot of unknowns, and we still need to be cautious going forward.”
Overall, the report states administrators are still proceeding with nearly $14 million in budget cuts, called the “Accelerated Financially Fit Initiative” or AFFI. That will reduce the need for bridging funds from reserves to balance the budget.
Specific to the pandemic, the parks and recreation department may post a $1.9-million higher deficit over its entire operation.
As well, community development, including transit operations, the Esplanade and Veiner Centre, would see $800,000 less revenue. The municipal works department is also expecting reduced activity at the airport to drop revenue by $337,000 for the year.
In commodity business units, a predicted profit of $28 million from power sales is in line with recent years, when the electricity division filled city coffers for tax abatement and stocked a heritage savings account.
In 2021 however, power and gas production are now viewed as combined results by city finance officials, with power essentially covering ongoing losses in gas until cost cutting and shutdown of wells can be completed.
Petroleum production was expected to lose $11 million in the 2021 budget, but that could grow to $13.9 million due to lower oil sales (the city sold the majority of its oil interests, located in the Glauc C field, late last year), and the need to buy more natural gas at higher than forecast prices.
Those expenses were offset by owed operating cost, but the operating deficit was still $1.3 million more than expected through the first four months of 2021.
On Jan. 1, a new dividend model came into force that distributes cash more widely throughout city departments to pay for capital construction and maintenance.
Administrators say it will arrest any growth in city debt and also stock an emergency operational fund this year that will have a standing balance of about $11 million.
While no deposit from operations is expected for the heritage savings fund, currently valued at $48 million, it is expected to grow by $1.2 million this year due to investment returns in the AIMCO-managed fund.
Overall, the city’s treasury holdings surpassed $500 million as of April 30, including $233 million in internally managed cash and money for short-term needs, $48 million in medium-term money managed by ManuLife, and $220 million in longer-term funds for well abandonment and the heritage reserve.
Internally managed funds posted a 0.4 per cent return over the period, the ManuLife account 4.8 per cent loss, and AIMCo. a 4.24 per cent gain.
City debt dropped slightly to $420 million but is expected to rise to nearly $500 million by year end, including letters of credit with petroleum regulators.
