By COLLIN GALLANT on October 6, 2022.
Blazing power prices in Alberta will more than double the profits from the city-owned power plant this year – providing as much as an $85-million dividend – the use of which will be debated by council as the 2022-24 city budget is written this fall.
Interim financial results released this week state that record-high power export prices could boost combined profits in gas and power production to $140 million this year, an increase of $74 million over budget forecast at the beginning of the year.
Combined with other utility income, like gas and power distribution, water and sewer, the windfall from the business units could be $85 million.
Last year, city dividend policy changed to move open accumulated profits up for use on capital projects throughout the corporation, as well as create a secondary dividend from investment income to offset a portion of tax revenue requirements.
Council will decided what to do with a second year of substantial profit at the power plant – keyed mostly by sales onto the Alberta power grid.
“We will bring that to council later this year to make sure we’re in alignment,” city finance director Lola Barta told Tuesday’s meeting of council’s audit committee.
Overall, the city’s municipal operations division is expecting a “slight” operating deficit of $1.9 million at Aug. 31, which could be addressed by management and cost-saving decisions over the final four months of the year, said corporate services top administrator Dennis Egert.
Last year the city carried over more than $5 million in operating surplus to address emerging needs from lingering effects of the pandemic.
As it is, Egert said in his report on the general financial situation, the city’s position remains strong but several fronts are unsettled.
The Government of Alberta’s financial position has changed, but it is not known how grant or operating income may be affected by new surpluses in Edmonton.
Local business conditions are strengthening, but investment income has fallen while costs for fuel and labour have increased, as has the cost of borrowing as interest rates rise.
“Inflation appears to be peaking, but the question is how fast we can level off and get back to the target of 2 per cent range,” said Egert, who said the investment portfolio is also affected by a downturn, but it is fairing better than the general market.
The city’s investment portfolio totalled $583.2 million at Aug. 31, and has seen at 7.31 per cent drop in the first eight months of the year as stock markets declined sharply this year.
That is compared to a calculated loss of 10 per cent had the city not diversified its holdings over the past 16 months, said treasury officials.
Committee chair Coun. Darren Hirsch said in the long view there has been “heavy lifting to diversify, but it’s paid off in spades.”
As for the investment markets, said Hirsch, “Buckle up, but we’re hoping for a soft landing.”
Outstanding debt sat at $438.9 million, including $45 million in letters of credit held by provincial petroleum regulators. Most of the remainder consists of fixed-rate loans which currently average a borrowing rate of 3.6 per cent.
“Any new debt (taken on) will be higher than that rate, likely at 4 to 5 per cent range,” said Egert.
Specific to energy, a stronger natural gas market, along with closing marginal wells over the past two years, also helped the bottom line, though with added marginal cost to gas-fed power plant. Previously a portion of power profits were used to offset losses in gas production.
The budget forecast natural gas to average $3.50 per gigajoule, but the actual average to date is $5.67.
The city doesn’t publish a power price forecast, but documents state it gained $25 million on price differential alone, not including increased volume.
The city exported four times the amount of forecast sales to the grid in August alone, and at record prices.