The city's Unit 16 power plant on Box Springs Road is shown in this file photo with the Methanex Plant in the background. City internal analysis shows the 'best in market' option for a power rate may not be the best deal available for local customers.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
The “best in market” power price – promised in order to quell frustrations over high local rates – may not be the best deal in the end for Medicine Hat customers, the News has learned from internal analysis from the city’s utility division.
It all could lead to a reworked option for an interim power rate this fall when council is presented with the information Tuesday.
A reworked rate is the second of three measures ordered by council in early September to deal with price complaints.
Credits on utility bills began arriving in the mailboxes in Medicine Hat, Redcliff and the immediate areas of Cypress County this past week.
The new rate proposal arrives next week after council agreed with senior officials to plan a replacement rate for contract and default pricing while a more in-depth review of the power plant business model is underway this fall.
That was initially loosely described by utility officials as potentially being the average of one-year contract prices from Alberta’s major power retailers.
New documents state that a “wholesale market rate” might be preferred, partly because power prices are expected to fall below current contract offerings of Alberta’s major retailers.
“It meets all the identified objectives and is expected to be a lower rate than (“Best in Market”),” reads a background memo to council.
Objectives are to offer a generally lower rate than other providers, bring in stable income for the power plant business unit and be responsive to business conditions to avoid losses.
The “wholesale option,” the memo states, would offer a single rate based on the 12-month price forecast, then re-adjust up or down on a quarterly basis in line with a continually updated forecast.
According to wholesale market forecasts from the city, prices should be below current record highs for the next 12 months and eventually fall to less than half the current city contract rate by March. The monthly range falls between 8 and 12 cents per kilowatt hour, one-quarter to one-half today’s rate of nearly 17 cents, and also the average of out-of-town contracts that comprise a “best in market” calculation.
Such a change, which would be subject to a public hearing later this month, would move all contract customers over.
Part of the power-price decline shows up in default prices put to regulators this week by major utilities. The average could be in the 20-cent range when it is formally announced early next week, down from 30 cents this month.
Council and administrators have been pressured since the summer to switch a longstanding default and contract rate-setting formula after prices followed provincial rates to record-setting highs.
At the same time, the relatively new practice of having customers re-sign to lower fixed rates was blamed for a four-fold rise in pricing when accounts were left on default rates.
Power, which was 8 cents per kilowatt hour on a special six-month offer that concluded in June, jumped in some cases to nearly 17 cents on a new contract or to above 30 cents for default customers who neglected to sign a fixed rate. A meeting of 500 angry ratepayers in late August demanded a single rate system.
Starting in the mid-2000s, the city began setting its single price for power at the average of default rates of major providers in other parts of the province. The city added a fixed-rate option for power in 2015, then changed offerings again last year.
Currently, comparable rates used for the average comprise Enmax, Epcor (in both Edmonton and the Fortis Alberta rural service areas) and Direct Energy.
Administrators defended the practice this month, stating it provided a benchmark for local costs and operational efficiency. As well, they said changing the rate would affect revenue projections that feed the dividend model the city uses for capital projects, operations and tax abatement.
An update on the business model review is due in early December.
