February 28th, 2024

Energy division rakes in $105M

By COLLIN GALLANT on April 7, 2022.

The city is expecting 2021 energy profits to top $100 million.NEWS FILE PHOTO

cgallant@medicinehatnews.com@CollinGallant

Profits at the city’s combined gas and power production division topped the $100-million mark thanks to rollicking electricity rates last year and higher than expected gas prices in 2021.

Such a year was it at the power plant that income covered a $6.9-million loss in gas and provided a $66-million dividend to city reserves – a record for the power division by half.

“It is significant, but comes with an asterisk,” said Dennis Egert, the city’s corporate services managing director, at Wednesday’s meeting of council’s audit committee.

“Those excess funds are being forwarded to reserves to fund future capital and abandonment.”

The windfall from power was set aside to recently created capital, operating and savings reserves, created in late 2020.

Overall, the municipal side of the city operations met its budget but required $5 million from emergency reserve cash to withstand a fluctuating financial picture related to the COVID-19 pandemic.

Better investment returns, layoffs, and gas well abandonment also helped the financial picture, while hampered operations at city facilities, including the airport, hurt it.

As well, $9 million in reserve spending will be required to fund the 2022 budget as the city’s financial plan clearly calls to remove commodity revenue from funding operations.

Egert said the city has faced significant challenges over the last few years, and can expect continued “headwinds” inflation, the pandemic uncertainty, lower operating grants from the province and general market volatility affecting commodities and the city’s investments.

“We want to be balanced and sustainable in the future … this peak in the cycle (of high commodity prices) is not expected to be sustainable,” Egert said. “We don’t know what the future holds … and we can’t be spending surpluses before we’ve earned them.”

Council will be presented the full results later this month.

On Wednesday, committee chair Coun. Darren Hirsch and member Coun. Andy McGrogan shared officials’ view that the overall report is positive, but buoyed by utility results and investment income.

“It really is enlightening of some of the challenges the city is facing,” said McGrogan.

Of the use of reserves to balance a revenue shortfall, Hirsch said “it rolls into some of the tough discussions that this council is having.”

In power division, sales beat expectations by 80 per cent to reach $203 million as power prices reached a record high average in 2021.

Most of the un-budgeted revenue came from sales to the power grid, which tripled early year expectations. Sales to customers inside the city franchise area rose to $143 million.

Overall, costs rose by $32 million, mostly related to more expensive natural gas to fuel the power plant, but the overall result is $105 million in profits.

Gas lost less money than predicted due to higher prices and lower operating costs as wells were abandoned faster than expected.

Power prices however, are expected to moderate this year and going forward.

“It is a volatile industry, and the strategic approach related to dividends is still in place,” said Egert.

The city’s investments held in AIMCo. earned a 14.07 per cent return in 2021 – up from 6.2 per cent in 2020 and near the record year of 14.35 per cent in 2019.

That fund, comprising the gas abandonment reserves and the heritage savings account, now totals $242.9 million compared to $178 million deposited since 2017.

Overall the city’s net financial debt shrank during 2021 from $199 million to $163 million.

The cumulative balance of all reserve funds rose by $98 million over the course of the year to sit at $575 million at Dec. 31.

The city’s long-term debt sat at $406.3 million at year end, that’s up $30.2 million from 2020, though for a fifth straight year debt related to municipal services fell. It now sits at $34.4 million, compared to utility-related debt of $371.9 million.

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