The City of Medicine Hat has the autonomy to offer any default price it wants, but it must have best business practice in mind as well.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
The power price Hatters have seen released monthly since 2009 is often referred to as a “regulated rate option,” but it is not legally a “regulated rate option” as defined by provincial rules, Alberta utility regulators tell the News.
The issue of technical definitions arises as city council and the power division are facing extreme scrutiny and backlash over power rates doubling compared to last year.
At a meeting this week, hundreds of angry ratepayers challenged council members to explain how current rates are set. They called for a simplified system, lower prices and greater transparency about the finances and financial goals of the city-owned power company.
Another call is for the city to base contract offerings on bare production cost.
Councillors are set to debate on Tuesday relief options that could include rate directions, after twice voting to delay a rate study in the first two years of their term.
Fixed-rate calculations remain privileged information for the 110-year old publicly-owned company that operates in otherwise private industry in the province.
But, local administrators say there is no attempt to deceive the public on pricing, and using an average of private-sector offerings ensures a level of oversight and bench-marking while depoliticizing rates.
“We’ve attempted to mimic the approach because it’s set by reputable players that submit to the AUC, where it’s reviewed,” said Rochelle Pancoast, managing director of energy, land and environment. “There’s a certain level of credibility there.
“We certainly recognize that commodity prices are at high levels across the province … and we know it’s adding to the financial burden in Medicine Hat. It’s challenging to find some balance in the solutions and rationalize what is a very complex situation.”
Critics have called for the city to untether its rate setting from the rest of the province as prices across Alberta spike.
In practice, the city utility division arrives at the monthly rate – which is charged to customers without contracts in place – based on the average of similar rates in the province.
That means the local rate may mimic an “RRO” – required from Alberta’s three large distribution companies, Enmax, Epcor and Direct Energy – but is not technically one.
“The City of Medicine Hat is not subject to RRO regulations,” according to a statement from Alberta Utilities Commission officials on Thursday.
“The city council sets the rates in Medicine Hat.”
As a grandfathered municipal power provider, Medicine Hat can act autonomously in most regards.
But that doesn’t mean the rate is an attempt to gouge customers or ignore local cost factors, said Pancoast.
Before 2009, city council would approve rates submitted by administrators on a monthly, quarterly or annual basis in a complicated process that often shifted profits out of the then-extremely lucrative gas production division.
That led council to adopt a system of automatically adjusting prices based on the competition. Fixed rates were introduced about 10 years later.
Pancoast told the News the effect is that formula puts focus on city operations and analysis, and can give customers service below the city’s costs when the rest of the province is cheaper.
“It’s a risk,” she said. “If we’re on the wrong side of the market, where our costs are higher than the prevailing market, it gives us a signal that we need to improve our cost structure or production approach to increase revenue, or get out of the business.”
For example, based on the city’s formula, natural gas was offered below $3 per gigajoule for much of the 2010s when a local fixed rate (based on cost recovery of the city’s production) was above $5.
On the power front, RRO rates in Alberta rarely rose above 10 cents during the 2010s, but have climbed steadily after the initial stages of the COVID-19 pandemic.
The power plant lost $5 million on operations in 2018, but could produce a record-setting dividend of $130 million this year.
In 2023, the monthly rate in Medicine Hat (set as the average of the four main RROs) has been above 20 cents in five out of eight months.
It was near an all-time high of 29 cents this summer when many Hatters saw a discounted 8-cent power contract expire, while the fixed rate is now in the 16-cent range.
Former councillor Phil Turnbull is helping to organize meetings to call for reforms, and told a crowd calling for rates set at bare cost that they should expect the power plant to operate at a profit.
“I’m on the record saying that you can operate it as a business, and in a good year a business will pay a dividend to its shareholders,” he told a crowd of protesters at a meeting on Tuesday. “There’s a win-win here to be had.”
