Coun. Darren Hirsch, chair of the city's audit committee, says a mid-year financial report powered by electricity sales could open the door for further discussions about rate relief for the city's internal customers.--News Photo Collin Gallant
cgallant@medicinehatnews.com@CollinGallant
Medicine Hat is on its way to another bonanza of power plant profits in 2023, according to mid-year financial statements released Tuesday.
High winter prices on the Alberta grid sent revenue soaring over the first four months to levels already above the whole-year forecast.
That puts the city-owned utility on track to produce a dividend of $138 million this calendar year, and that’s after a $10-million per-month discount to customers is factored in to cover the cost of extending last year’s rate for six months into 2023.
“Most of the (additional) operating income are from transactions into the power pool at higher (than expected) amounts and at higher prices,” Dennis Egert, the city’s managing director of corporate services, told Tuesday’s meeting of the audit committee.
The high prices are expected to continue until year end, at which point most of the dividend will be transferred into capital and operating reserves, as well as the heritage savings endowment, and a return-producing fund that offsets property taxes.
“In the short term we expect a lot of volatility (in power prices),” he told committee. “This level of profitability will not last forever.”
The total dividend for 2023 could be $40 million more than during last year’s record-setting financial performance at the power plant, and $90 million more than was predicted in the 2023 budget.
The famously conservative annual budget predicted net earnings of just $45.3 million for 2023, but the figure as of April 30 was $55.8 million.
Finance officials believe that could grow to $141 million, with the difference being more lucrative grid sales, whereas the department builds its initial business plan weighted to more predictable sales inside city limits.
Exports “are the cherry on top,” said committee chair Coun. Darren Hirsch, who later told reporters that considering the results, council may decide to examine rate offerings that are expiring for most Medicine Hat customers at the end of June.
“It’s not a bad thing, perhaps bringing this to council (members) for a discussion to see what’s the flavour (of rate discussions),” he said.
The size of the discount already provided is outlined in the accounting presented Tuesday.
In it, the power plant had transferred $40 million to a separate retail office over four months, growing to $60 million by the end of June.
“Retail” pays the going rate for power from the plant, but charges customers either fixed, variable or floating RRO.
Transfers back balance the books, but highlight the cost to the power company of a rate extension available to customers to retain 8-cents per kilowatt hour when the floating rate was double to four times higher to begin the year.
In the municipal operating budget, the city is operating with a $500,000 surplus due to construction timing and unfilled staff vacancies.
“We’re on track to meet our budget with some potential upside,” said Egert.
The surplus could grow to $2.3 million by Dec. 31 as higher than expected returns from full-year investments mature.
Among the treasury report, the city’s combined $687 million in investments and cash grew by an average of 3.23 per cent in the first four months, compared to a near 7 per cent loss in all of 2022.
“It’s bounced back pretty significantly,” said treasurer Ryan Wright, adding the city’s target for annual return is 5.5 per cent. “We should be able to see real growth this year (above inflation).”
The city’s debt stood at $459 million at April 30, down from $465 million at Jan. 1, but will rise to $513 million after borrowing to fund this year’s construction program. That higher amount is about 52 per cent of the city’s mandated debt limit.
