The city's main power plant in the South Saskatchewan River valley is seen on May 3, 2018. --NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
Hatters with annual fixed-rate utility contracts saved about $550 each compared to those with default market rates this year, analysis by the News suggests.
That comes after heavy criticism from ratepayers about the city-owned utility doing little to shield Hatters from runaway utility bills this year, and major changes Monday to avoid further losses.
On Monday council narrowly approved a plan to reset rates more often and better link operating costs to both fixed and default rates it offers.
Those opposed said the larger conversation and review of fees should have been completed first, but those in favour said the utility company must be able to avoid selling gas and power at a loss.
“If we have a fixed rate in January and someone signs up in December for 12 months, that’s a tremendous amount of risk and it wouldn’t be advantageous,” said Mayor Linnsie Clark.
The new offerings passed by a 4-3 vote after 90 minutes of discussion, with opponents stating they had mixed feelings about proceeding before a larger review, scheduled for the spring, was completed.
“I like the idea of running the business like a business, but what kind of business are we?” asked Coun. Ramona Robbins, who said the profits from the utility company flow back to the city as a benefit the community. “But that doesn’t help people month to month to pay their utility bills.
“I know we spent a lot of effort asking people to sign up for fixed rates, and that did help people. I’m concerned that it’s going up in January, but I appreciate there might be good reason for that.”
Coun. Allison Knodel said she supported the change, but acknowledged it initially means higher rates for customers, though the city needs to do a better job explaining the need and the end benefits.
“It really is better for Comco, and it allows less of a guess of what we’ll make (in profits) and money that we can make for people,” she said. “We’re working on communicating what the advantage of living in Medicine Hat is. It’s our business and we have to be responsible, and that may not directly translate to the lowest rate, but more money because there’s less risk.”
The new formula changes the much-criticized system of charging the average of other utility providers for gas, but leaves it in place for default power rates.
Fixed rates would be updated more regularly to better reflect rapidly changing costs, said Travis Tuchscherer, the city’s manager of energy marketing and analysis.
“It’s a full-year price, with peaks and valleys of what the commodity prices do over the year,” he told council.
That said, the combined gas and power production division will make major profits this year, with almost 40 per cent of revenue from power sales to the Alberta power grid.
The division expects an $85-million dividend that finance officials propose be used to build a dividend-paying investment fund.
Coun. Shila Sharps has said a portion of that profit could halt rates or stop planned tax increases.
“Taxpayers are screaming that they can’t take any more,” said Sharps.
“(The dividend) is the elephant in the room and we need talk about what we can do to lessen the pain for the community. There’s still work to be done.”
Since 2012, the city had set both commodity rates at the average of default rates across the province, but since 2017 has promoted a fixed-rate option as a way for customers to lower their bills.
Currently the fixed-rate offering is determined using a cost recovery plus a margin of return model, but that includes the cost of buying gas off the Alberta system for home-heating and to supply the city’s power generation plant.
Natural gas prices have risen well above the 10-year average in 2022 due to global markets.
The default gas rate has been higher than the fixed rate in 10 of the last 11 months, with recent financial documents revealing that each $1 of difference equates to $2.5 million in losses for the department.
The additional cost of fuelling the power plant could reach $18 million by year end.
Going forward in 2023, an adjusted fixed rate would be published at the beginning of each quarter, and available at any time during the quarter for customers to secure a 12-month set rate. At that time, the ratepayer would revert to default pricing, but be able to acquire the fixed rate of the day.
A variable rate contract would set price at the average of actual Alberta market prices over the 120-day window for gas or monthly average of power, plus $1 premium for gas or 2 cents for power. (The city contracts gas purchases 90 days ahead of time.) Large industrial and commercial operations could also sign up for a new time-of-use option, meaning better rates overnight when demand is typically low.
Fixed vs. floating
Average difference between regulated rate option and fixed pricing for city gas and power.
Regulated rate option (default) price versus fixed rate contracts in 2022.
Power Gas
January 16.19 $3.64
February 16.18 $5.05
March 10.72 $4.93
April 10.63 $4.59
May 10.63 $6.44
June 11.70 $8.70
July 14.75 $9.09
August 17.17 $6.68
September 15.79 $7.21
October 18.73 $5.11
November 17.73 $5.50
December N/A N.A
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Average RRO 14.57 $6.09
Fixed rates 8.00 $4.35
Difference 6.57 $1.74
Usage (11 mos.) 5500kWh 108GJ
Cost difference $361 $191
Note: Calculations are inexact as usage rises and falls in certain months. The utility department hasn’t released an overall analysis on the impact of fixed rates sitting below market rates.
(Power: rate in cents per kilowatt hour, gas in dollars per gigajoule. Typical usage of 6,000 kWh per year and 120 GJ of gas.)
