Mayor Linnsie Clark speaks with Coun. Robert Dumanowski prior to Monday's city council meeting.--News Photo Collin Gallant
cgallant@medicinehatnews.com@CollinGallant
Changes are coming to how utility rates are set for the City of Medicine Hat.
It ties them more closely to prices the city pays for natural gas it buys on the open market, and which has shot up much higher this year than rates set last January predicted.
The surprise move, approved by a 5-3 vote at council, abandons using the provincial average to set default local gas prices, but maintains the 10-year-old formula for power and introduces some new rate options for customers to consider.
The changes – which were not included in the divisions’ business plan presented earlier this month – were introduced during a presentation and public hearing on fee and rate changes on Monday.
Four councillors spoke in favour of stalling the changes until after a larger rate review in early 2023, but after two hours of discussion, Coun. Robert Dumanowski avoided a tie by voting in favour.
Others, like Mayor Linnsie Clark, argued that a delay would mean another year of uncertain cost recovery for the commodity business (Comco) unit.
“It’s unfortunate but (delaying it) presents a tremendous amount of risk for Comco,” she said, stating the city rate update is due on Jan. 1, while the review is still several months away.
Also Monday, an expected proposal to provide relief for low-income residents this winter was pushed to the Dec. 5 meeting. The province is expected to announce some utility measures Tuesday night.
Utility committee chair, Coun. Alison Van Dyke, said the city needs to better recuperate costs of buying gas for resale and to burn to make electricity at the city’s power plant.
“For life-long ratepayers in the City of Medicine Hat, this will be an adjustment,” she said. “It will have to come down to a tremendous amount of communication that will be needed.”
The city’s fixed-rate contracts have sat well below market rates for almost the entire year, which has cost the power plant $18 million in added fuel cost that couldn’t be captured in rate setting.
Last year, councillors called for an overarching rate review, including the “average formula,” which is due next spring.
On Monday, administrators said they would come back to council for better direction.
“Is it a business, do we operate it like our competitors would operate it, or do we (set rates) based on a cost-plus (a return) model that would have implications for our dividend model, or savings reserves?” said acting city manager Rochelle Pancoast. “We will return to council (in early 2023) for that guidance.”
Currently, customers are either on the floating default rate that is set monthly based on the average of other power and gas company prices, or on a fixed-rate price that stays constant and is reset every year.
Next year, for gas, which the city largely secures on the Alberta system for resale, the default option would be based on a 120-day weighted average price, essentially the cost to the city. The fixed rate would be available for 12 months, up from six, but with a new rates calculated every quarter. A “contract variable” option would charge the actual daily market price plus a premium.
Power prices would be similar, though for residences the averaging default model would remain.
“It’s important that we have market-based rates,” said Travis Tuchscherer, manager of energy marketing and business analysis for the utility.
“Instead of holding a price for 12 months, we can adjust that rate sooner,” he added. “It allows us to manage risks more quickly.”
Dumanowski said he was inclined to vote down the plan considering the short notice and need for greater review.
“From a business standpoint, certainly it’s a prudent course, but … I think this needs to be coupled to a broader rate review,” said Dumanowski. “We want it to be profitable, but I have considerable concerns about what’s been presented, especially after an environment when we’ve made good money.”
Couns. Cassi Hider, Ramona Robbins and Shila Sharps also called for consultations and considering the business model before making major changes.
Coun. Andy McGrogan said, “When you think about gas rates perhaps falling for a whole year before we look at rate setting again, it isn’t good business.”
Coun. Allison Knodel also voted in favour.
“It creates mixed feeling, for some good reason,” she said. “We have to stay present and with the times. and the reason we’re making the change is to be forward thinking and take care of the business.”
This year the default market price for power has remained well above the fixed rate since it was reset at 8 cents in January. Over 11 months it has ranged from 10.28 cents to an all-time record of 18.73 cents, while gas rose above the $4.35 fixed rate last February and hasn’t fallen back.
Original business plans suggested council approve new whole-year fixed-rate prices for 2023 at 15 cents for power and $5.50 for gas.
Beyond that, the list of fees and charges used by the city to maintain infrastructure and pay administrative costs is also set to rise by a total of $11 per month next year for the average residential account, and then by about $8 in 2024.
Budget debate goes late
During a busy council agenda on Monday, initial debate of the 2023-24 municipal city budget continued past the News press deadline.
A full synopsis of discussions, which are expected to conclude at the Dec. 5 council meeting, will be published in Wednesday’s paper and at https://www.medicinehatnews.com.
