Fixed rates offered to City of Medicine Hat customers for power and natural gas bills will rise in 2022.-NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
Gas and power prices are on the rise, as is interest in fixed-price contracts as a way to avoid price swings and higher bills.
Those too will increase in 2022 in the City of Medicine Hat, but administrators still state the stable pricing system can be a benefit to consumers worried about fluctuating bills.
“It’s tough to predict prices, even for industry experts; this is a hedge where you can lock in that price,” said Travis Tuchscherer, the city’s manager of energy markets and business analysis.
This month the commodity price for electricity sits above 13 cents per kilowatt hour, while gas is $4.79 per gigajoule for local customers who are on default pricing.
The department’s fixed rate for power has sat at 6.8 cents since 2018, and a lesser-known fixed gas price is $3.50 per gigajoule.
That gas price is $1 to $2 below rates this fall, but has been generally much higher than a default price updated monthly for the last eight years.
Power dipped below the fixed rate in 2020, but has since been to the advantage of ratepayers.
“Consumers get a fixed price and can understand what their prices will be,” said Tuchscherer. “It’s been a very volatile market, with a lot of factors that play in. For customers who want to have certainty, this contract price provides that.”
This year has featured record high power prices on the Alberta grid.
Medicine Hat sets its default prices as the average other Alberta providers, but sets fixed rates with a calculation heavily weighted toward cost-recovery plus a rate of return.
Higher gas prices in Alberta will mean both fixed rates will have to rise in 2022.
Council with vote next week on final fee adjustments that would move the fixed power price to 8 cents and gas to $4.35, equal to about a 20% increase.
Tuchscherer said the higher fixed price for gas reflects forecasts that the city will have to pay more this winter to buy additional and higher priced gas from outside the city to meet high demand periods in the home heating season.
Similarly, the cost-recovery point for power will also increase because higher priced gas is used to make electricity at the power plant.
“We’ve transferred away from assuming our own (gas) production cost, because there’s a greater cost of procuring gas off the Alberta system for our needs, especially the winter,” he said.
“(In power) we look at comparables (fixed rates from other Alberta Utilities), but we’re providing that with our own production, so we can provide a more ‘cost-plus’ rate.”
In 2008, the city moved away from annually set pricing system that considered the bare cost of production plus a 10% return on investment.
It was moved to more market-based monthly default pricing, but that actually lowered bills for consumers from 2012 onward as natural gas prices remained depressed – though it undercut the profitability of the division.
Following a brief spike to $8 per gigajoule, the department introduced a fixed price of $5.50 based on the cost-plus model. At the same time, administrators recommended customers not sign up and it was twice the average cost of the floating rate over the previous five years.
A more popular option was the fixed power price set at 6.8 cents in 2017. That level, however, was the same as an Alberta government rate cap, giving consumers little upside to locking in the price. When the UCP removed the cap in 2019, about 2,000 customers signed on in the first month.
