A public hearing will be held next month regarding the future of the City of Medicine Hat's power business. The city's north-end Unit 16 power plant is seen in this file photo.--NEWS FILE PHOTO
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Placing Medicine Hat’s energy division under a municipally controlled corporation could lead to better business results, apart from political decision-making, according to top administrators, whose view appears to be in line with most elected officials.
But, citizens will have their say at a public hearing next month.
On Tuesday council approved holding the standalone hearing – required by provincial regulation – on Tuesday, June 24 beginning at 4 p.m., before a final decision is considered.
That comes after an hour long discussion this week at council featured analysis, costs and potential operating plan and setup for the company that would be wholly-owned by City Hall.
A “skills based board” could provide better, faster decision making compared to elected councillors, to meet a host of “strategic challenges” and flow annual dividends back to municipal coffers.
Those dividends have become standard in city budgets for more than 100 years, said energy division head Rochelle Pancoast, but could become “unsustainable” under city processes that can run against business practice.
“Through time we’ve behaved as an energy company inside the single entity of a municipality, and at times how we’ve approached that has been called into question because they are sometimes incongruent,” she told council.
A city is a “service provider” that should be risk averse, transparent and conservative with tax dollars, she said.
“The typically private industry is interested in generating profit,” she said. “They’re not laying their cards out there for the whole world to take advantage.”
A third-party review presented last fall by consulting firm KPMG stated that to meet strategic challenges and increasing complexity in the sector, a more focused “skills based” management model is needed.
An MCC, like Calgary’s EnMax or Edmonton’s Epcor, could offer a better chance for the power plant to overcome challenges on the Alberta power market and carbon regulations over the next five to 10 years.
The past 10 years provided a total of $500 million in profits for municipal use, but which city finance officials say is “unsustainable” in an era of low prices and regulatory uncertainty, unless they are overcome.
Council approved moving to a required public hearing next month, after which a final decision would be scheduled. The corporation could be created and operating within one year.
Coun. Robert Dumanowski told council that such a setup would maintain the utility and prolong the value to the city and residents.
“We’re in a very different energy environment than we’ve ever been before,” he said. “It allows us to operate more efficiently, but as a city-owned (utility).
“The election question will be do you support public utilities. Yes, an MCC is publicly owned.
“It’s not about ownership it’s about direction … this is a smart thing to do and the responsible thing to do.”
Energy committee chair, Coun. Darren Hirsch, has often voiced support for focusing management decisions with industry veterans in the complex field, rather than elected officials.
Mayor Linnsie Clark was absent Tuesday, but has previously said she believes the change should be an election issue when Hatters go to the polls in October. She hasn’t said whether she will seek re-election.
Coun. Ramona Robins has announced she will not run in the fall, but said this week that at this stage in the term, the issue may be too large to deal with.
“There’s so many ways to go, but I’m not sure the timing is right,” she told council. “I don’t think the path is clear.”
How it would work
An MCC would have operational and capital decision-making authority over the power plant and the city power and gas distribution networks.
KPMG recommends keeping natural gas production under municipal control, but also divesting remaining wells soon to avoid mounting losses and long-term liabilities.
At the same time a rate review committee would be created to verify the MCC’s rate proposals, verifying cost-plus recovery on distribution rates and competitive commodity rates, said Pancoast.
Estimated initial setup costs would total $4 million, then an additional $1.2 million in operating costs under the new model is expected.
Rates would likely rise by 1.75 per cent, or 0.18-cents per kilowatt, to meet the change.
Pancoast said the city would set the philosophical direction of the corporation, including a need to maintain local power market exemptions, in a shareholders agreement. Finance officials state a set dividend of the greater between $7 million or 30 per cent of net income would be appropriate.
The company would also hold a $76-million “Energy Transition Fund,” currently set aside for potential low-carbon projects.
Utility debt would remain on the city’s books, but a promissory note of equal value would level the accounting, and the division would assumedly be responsible for ongoing payments from its business results.
Only about $30 million of the city’s almost $500-million debt load relates to municipal infrastructure.
