With energy prices on the rise, the city's profits could spike nest year, but officials say anything can happen over short periods of time in a volatile market.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
Medicine Hat’s power and gas divisions could record a bonanza in 2022 due to high and still rising commodity rates, but budget forecasters warn that even a two-year outlook is not clear.
Amended budget forecasts for next year were presented to city council Monday, which predict profits rising by 50% above original forecasts in the 2012-2022 budget, reset last year.
That comes as electricity prices on the Alberta grid hover at record highs, and natural gas prices have more than doubled heading toward the high-demand winter heating season.
If that holds, the windfall for the city’s utility production units could be an additional $80 million in sales revenue equating to an additional $21 million in profit once related higher costs are factored in.
“It’s an interesting time in the commodity markets right now,” said Travis Tuchscherer, the city’s manager of energy marketing and analytics.
“The high performance in 2022 (will be an) exceptionally strong year and is not expected to be sustained over the long-term.”
Power prices are “at the highest point since deregulation” more than two decades ago, while gas is expected to stay strong through to next summer, he said.
There is currently rising demand for natural gas and oil after near historic lows in 2020 led to shut-in production. It would typically lead to greater exploration and new supply, said Tuchscherer, but that is “muted” due to uncertainty related to carbon prices and emissions plans.
“It’s a drastic change in commodity changes,” he said.
The price changes would be enough to put the now-combined commodity division at the city, known as “Comco,” to reach a positive annual result of nearly $13.8 million, once amortization, transfers and depreciation are factored in.
A $6.8-million loss was predicted when the 2022 numbers were last updated one year ago.
In 2019, city council agreed to a corporate reorganization that would see typically high power plant revenue offset losses in natural gas as that division is wound down and wells are abandoned.
Price increases between 25% for power and 43% for gas would add fuel to the power plant, which has returned between $20 million and $46 million annually from 2018 to 2020.
Higher priced gas would only lessen a loss on petroleum production by about one-third to $7.5 million.
The city’s most recent financial update, including the lucrative summer period in electrical generation, were delayed by the October municipal election. There is no revised date for their release.
