The Alberta Electric System Operator's trading page is shown on a computer monitor at 1 p.m. on Tuesday. City power officials report much lower prices are being seen in 2024 than in recent years when export sales produced large dividends from power plant operations.--News Photo
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The plunging price of power in Alberta will likely cut into dividend forecasts for the City of Medicine Hat, at the same time administrators say there could be a cash crunch to complete projects and balance the budget.
The city’s power plant boomed out a $134-million dividend in 2024, thanks largely to record high pricing on the Alberta grid, but this year, export prices have fallen by half.
They are not expected to return to similar levels until 2034, administrators told a council committee last week, due to new supply in the Alberta energy market.
In it, generators bid on prices to match demand, but this year has seen the re-addition of former coal plants converted to burn natural gas as well as more lower-cost renewable power production.
“We had expected prices to drop, but the fundamentals (of the market) are playing a big part,” said Rochelle Pancoast, managing director of the energy, land and environmental department, during a regular commodity update at the Sept. 5 energy committee meeting.
The Alberta power price averaged $133 per megawatt in 2023, but to date in 2024 that figure has dropped to just $71.
That includes an average of $34 for the recent month of August, compared to $186 in August 2023.
“That’s typically the highest priced month of the year, along with July,” said director of utility business analysis Travis Tuchscherer.
The city’s forecast price for the remainder of the calendar year is $61.50, and the 2025 forecast is $51. Every $10 of per-megawatt price equals one cent per kilowatt.
Later, during a strategy review for the division, Pancoast said the power production unit will be stressed to provide profits at the same rate over the next 10 years.
Pancoast says finance officials are “now contemplating negative cash flow” for the city in the medium term, meaning they will need to rely on reserves to balance the budget and pay for some projects.
Alberta Utilities and Affordability Minister Nathan Neudorf remarked last week on the precipitous fall in power prices over one year – from all-time record highs in mid 2023 – claiming his government’s recent action tamped down prices.
“I’m proud to see our efforts are paying off,” he said in a statement last week, referring to some bidding procedure changes made on July 1. “The numbers speak for themselves and prove our new policies are working. Many more will follow.”
Analysts pointed to increased supply for the change in pricing.
A larger provincial market review could take two years to implement, and presents the potential for large challenges at the city-owned energy business, said Pancoast.
Lower export prices would lower profit expectations at the city, while it also faces regulatory hurdles toward lower carbon emissions outlined by Pancoast to council members.
Last year, results at the electricity division provided a $134-million transfer to city reserves, and a further $33 million was allotted for rebates to local customers to offset high prices. The dividend has been at or above $40 million or more in seven of the last 10 years, though nothing was paid out in 2015 or 2016.
Dividends are now directed to capital and tax-abating savings reserve, and new reserves are being considered to cover the costs of “net-zero” transition and abandonment liabilities.
A third-party review of the energy business and how proceeds are used in the large municipal budget is due later this year.
Elected officials placed a floor price of 7 cents per kilowatt hour on power sold to residential and small commercial users when interim rates were approved last fall
Late last year, the division raised its 2024 guidance to predict a $91 per MWh price leading to an $81-million dividend, up from an original forecast of $77 per MWh and $54 million.
At the same time, officials suggested a decrease in local rates would have a lesser effect on profitability than would export prices.
