As well as a four-month relief package dating back to August, the city is expected to introduce a 'best in market' power price as early as October.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
Hatters can expect a new power rate next month as a larger review of the business philosophy of the city-owned power plant gets underway.
On Tuesday, council approved $32 million in reserve funds to provide a “cost-pressure relief program” for residences and small business owners. That will provide $800 and $2,000, respectively, in credits on power bills over three statements.
Council could also consider major changes in financial operations at the power generation unit, the results of which could have massive implications for the city’s budget.
“Council can revisit the (business operating) philosophy and an interim compromise is the ‘best of market rate’ until such time until we can come back with a deeper dive into the complexities,” said energy division managing director Rochelle Pancoast.
The rate could be developed quickly, she said, but a review should be done before long-lasting decisions are made.
“It allows us to do some homework through a third party, a deep dive into the interconnectivity (between the city and utility),” she told council, calling the study “broader” than a review.
A review would evaluate complex issues in city financial structure and competing priorities, such as short- and long-term needs, business unit objectives and municipal needs, or utility ratepayer and taxpayer interests.
Hatters reacted sharply to higher bills this summer, calling for rates to be untethered from the provincial average, which has been policy since 2009.
Mayor Linnsie Clark has said she is open to discussing a number of options in the commodity rate setting, but a review is required before major decisions are made.
“We hope that will be the solution, at least on an interim basis, that will provide residents with some of the financial security that they need,” she told reporters.
Pancoast said her department is studying options for an initial “best in market” rate, which could match the lowest in the province.
“One flavour is looking at major (private utility operators) and understand what’s the lowest one-year contract option, but not making it a contract and everyone in the city … could get it,” she said.
“It would be based on the one-year (term), but updated every few months or quarter.”
That could dampen future dividends or eliminate them entirely, she said, depending on council’s final decision.
“It could be more stable than default options,” she said. “It still gives us ability to adjust, but we may struggle to be cash positive in a few years … it’s volatile, but we see prices dropping off as early as next spring.”
Administrators told council they could develop an interim rate by mid-month for approval in early October – a process that will include a public hearing.
Currently, an expected $130-million dividend from the power plant would be used to stock reserve funds for capital construction, or unexpected operating expenses (it’s the source of funds for this week’s relief program, for example).
If this year’s projections hold, the power plant will have produced $330 million in profits over the past five years, after recording an operating loss in 2017.
Council launched a “valuation process” in 2021 to determine the worth of the power business, but cancelled the effort when public backlash saw it as a potential route to sell the utility. It would have also studied the effect of the changing Alberta market, where the city earns large profits on export sales.
Coun. Andy McGrogan called the review “necessary,” and others voted unanimously in favour after debate to include ownership model options in the study, or create an arm’s-length corporation, similar to Enmax in Calgary.
Coun. Darren Hirsch said the two utility units once hedged each other, with one performing well in downturns of the other. Now the gas division is nearly wound down. There is a boom-bust cycle and, “I’m not sure we can expect bonanzas for too much longer.”
“We have some large bills coming to cap some of these wells,” he said. “In isolation, it’s a big number (for a power dividend), but people need to realize that we have big bills on the other end.”
Utility dividends are currently earmarked for capital funds that cover portions of construction and infrastructure maintenance, an operating reserve, plus a “heritage savings reserve” endowment that bears interest and will begin offsetting taxes in 2025.
Since the power plant and gas production units were combined several years ago, gains in power have offset an operating loss in gas before a dividend is calculated. Those losses have lessened over the years.
