June 20th, 2024

Another big power profit year expected in 2024

By COLLIN GALLANT on October 27, 2023.

Even with new lower rates for local customers, projections for 2024 suggest another windfall for the city's power plant business.--NEWS FILE PHOTO

cgallant@medicinehatnews.com@CollinGallant

City energy officials expect the price of power they sell to remain strong in 2024, and profits to rise even as it resets prices lower for local customers and a single-rate for gas is proposed.

They also say that a recently set cap on local sales prices shouldn’t have a large effect on the predicted profits.

“It’s a good news story, compared to the original budget – we are expecting an earnings increase of about $26 million,” said utility business official Travis Tuchscherer, who presented the figures for discussion in a council committee of the whole meeting on Monday.

The annual adjustments to the city’s two-year budget, covering this year and next, will be next taken up for formal debate on Nov. 20.

The budget passed last December forecasts pricing for 2024 completed 12 months ago. It determined the city’s power plant could earn a profit of $54 million, but updated price forecasts state that about $81 million could be expected.

That’s due to stronger pricing that is now considered to remain into 2024 while the price of major input cost of gas is lower.

“The biggest change is obviously price, and that has a huge impact through the budget and especially how much power would be made available to the sell into the pool,” Tuchscherer told council.

He said grid prices were about 50 per cent higher than expected in 2023, leading to a windfall from export sales, at an actual average of about $150 per megawatt of power

The new 2024 figure is $91 per megawatt, up from $77 per megawatt predicted last year.

“We’re still expecting strong prices in 2024, but no where near the highs in 2022 or 2023,” he added. “Gas has decreased and power prices have increased (assumptions). Both add value for our power assets, but there is a smaller decrease for gas production … it has a bigger impact on cost decreases.”

Mayor Linnsie Clark questions whether new rate setting for power and a proposed gas “market price formula assumed costs, but was told since it’s a market price is doesn’t consider costs.

Coun. Allison Knodel asked administrators to spell out how the recent 11-cent rate cap might affect the outlook, but was told that “I don’t anticipate any large variances from the (local rate cap),” said Tuchscherer.

“There’s a $30-million increase on electric sales, does that take into account the cap?” Knodel replied.

“We’ll still have an increase in sales despite the cap.”

While the profit will be higher than budgeted for 2024, it won’t be a year-over-year increase.

It is typical for the energy division to beat profit expectations, considering the conservative manner in which it assumes sales to the Alberta power pool.

For 2023, the original budget predicted net earnings of $45.3 million, but that was banked by the April 30 update after then-record-setting prices for exports in March.

More recently, the year-end has grown after a another record-setting summer on the Alberta grid to $99 million more than budgeted and $173 million overall.

New forecasts for 2024 peg earnings before adjustments at $80.1 million, about $26 million more than budgeted, thanks mostly to lower natural gas prices which are a major expense at the power plant.

City council has ordered a third-party review of the combined power plant and gas production business, also known as Comco, or “Commodity Company,” that is set to be undertaken in 2024.

That could affect local rate setting, management models, or lead to changes to how dividends to municipal operations are determined or used by the civic side of city operations.

The dividend formula was last changed several years ago to determine internal capital needs and operations, as well as cover money lost in gas production, before funds were used to stock several municipal reserve funds.

That includes operating fund, capital reserve and a heritage savings fund that will become a tax-subsidizing income fund next year.

Singe-rate for gas

Administrators are also recommending council approval that aligns closely with a recent move to a single rate for power pricing. That system is considered and interim rate until the wider business study is complete.

Power prices are now set on wholesale prices available to power retailers before any mark up. They are updated every three months starting on Nov. 1.

The changes to gas commodity rates would have to be amended by council and would be presented as utility fees, and charges are updated later this year ahead of Jan. 1.

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