While the expected dividend from the city's power plant continues to outpace projections, a utility cost relief program and falling prices have yet to be taken into account.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
A dividend from the city’s power plant could grow to $99.9 million more than expected this year, according to financial statements released Tuesday, but the net budget effect likely won’t be as much once a “cost relief” program and incoming lower power rates are factored in.
City finance staff, meanwhile, say the changes will have an effect on the end of year and future financial performance of the city, while elected officials say the profits that replenish or grow reserve funds need to be better explained to citizens.
Coun. Darren Hirsch, chair of the audit committee which received the report, tagged the fund development and dividend policy as the city’s financial “saviour” after natural gas profits were erased when the market collapsed in the early 2010s.
Committee member Coun. Shila Sharps said provincial support for operating and capital expenses to cities has dropped off.
“But we aren’t talking about what’s picking that up,” she said. “People complain about our profits in Comco (commodity businesses gas and power), but that’s what’s carrying us. Our citizens haven’t seen the difference, and we need to start bragging about it.”
The report, a four-month update of city financial performance, states that high power prices and high volume sales to the Alberta power grid continued through the end of August.
That was largely expected, but forecasters stated Aug. 31 that a $147.7-million dividend could be paid from the power generation business unit – about $13 million more than the year-end prediction at April 30.
That prediction of a record-breaking payment from the power plant to municipal coffers underlined discontent from ratepayers this summer as general power prices rose to record highs.
In response, on Sept. 4 council approved $33.2 million in utility credits rolled on to local consumer’s bills – four days after the financial reporting period ended.
As such, projections do not include the effect of likely rate changes for city internal customers to be debated Oct. 16.
“We do have rate discussions that are pending,” said Hirsch.
Corporate services division head Dennis Egert said both the credit issues and the pricing changes will have an effect on the city’s budget going forward.
“Looking at the forward market, looking at the targets that we follow, we are expecting a reduction in Alberta power prices going forward,” said Egert, citing rate estimates in the 12-cent per kilowatt range, a 25 per cent drop for most customers.
In the city’s accounting, the dividend would still be paid into various reserves, but after $33 million for utility credits is withdrawn this fall from the “operating reserve.” That account would see $40 million of the dividend returned to make up the difference. It is already the source of $11 million the city will use this year to balance its municipal budget without adding tax revenue.
In the current dividend formula, the city’s capital reserve would receive most of the additional cash, nearly $76 million.
About $30 million would be added to the Heritage Savings Reserve, bringing the balance to $197.4 million for the fund that will produce a tax-abatement dividend in 2025.
The plant financials show a largely expected story about the widening profit margin and lucrative sales onto the Alberta grid. As power prices rose, the cost of gas, used to fuel the city’s generators, fell, lowering expenses by $27 million.
The city’s other operating costs rose as it produced and sold more power, including a carbon levy expense (up $1.9 million to an expected $8.2 million for 2023), and payments it makes in lieu of taxes selling to customers outside Medicine Hat (about four times higher at $28 million).
Total revenue on power sales was budgeted to be $204 million in 2023, but could wind up $170 million more thanks to greater sales income both inside and outside the city’s franchise area.
Export sales to the power pool, initially budgeted to be $58 million, will likely be $138.5 million by Dec. 31.
Internal sales, forecast to be $105 million, could hit $198 million.
