An information webinar was held Wednesday ahead of a June 24 public hearing on a City of Medicine Hat option to move its energy business into a Municipally Controlled Corporation.--NEWS FILE PHOTO
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Hatters were told Wednesday that a city-owned corporation to operate Medicine Hat’s energy business could provide a better long-term profitability, and would have the ability to create a new rate formula, but would also be required to bring those rates before a council-controlled committee for approval.
Opponents to the idea of creating a municipally controlled corporation (MCC) have wondered if it could lead to profiteering, a loss of public consideration, or higher rates.
Administrators on a public webinar Wednesday afternoon said there are guardrails, like a rate-review committee, city councillors on both boards and a shareholders agreement to set philosophical parameters.
“Ultimately these are questions about what would change,” said energy division managing director Rochelle Pancoast to preface the hour-long presentation.
“The (MCC) would be an autonomous entity, but 100 per cent owned by the city with a number of check and balance provisions to ensure it’s enacting in the best interests of the city along the way.”
That was in response to a number of questions in a webinar open to the public as an information session ahead of a public hearing on June 24. Council would have to make any decision to proceed or not at a subsequent meeting.
On Wednesday, submitted questions centred on the scope of a corporate board’s authority, its makeup and the impetus toward arm’s-length management of the city’s power plant and distribution departments for gas and power.
“If council can govern the corporation, why can’t they govern a (city division)?” according to an unattributed question read out by a moderator.
A third-party report received last year from KPMG stated that council was overly burdened with municipal, regulatory and business decisions, and a more focused, private-sector approach would benefit the publicly owned business.
Distribution rates currently follow a process similar to the Alberta provincial regulator’s examination of cost recovery plus a regulated rate of return – which would continue under a separate rate review committee made up of qualified finance and utility businesspeople.
Those delivery and network charges and fees, as well as commodity rates, would eventually fall to the MCC to formulate and for the rate review committee to approve.
“At that time it’s up to the MCC to propose rates to the rate review committee, which would determine the fairness,” said Travis Tuchscherer, the city’s director of energy and business analysis.
“But that is subject to what’s recommended by the MCC,” and could include fixed or variable rate contract prices.
During a recent pricing controversy, council agreed to bring in an interim, blanket-rate formula – setting a floor and ceiling price of 7 and 11 cents per kilowatt hour – after prices spiked above 30 cents in the summer of 2023 and locked-in rates were offered at 15 cents.
It currently follows the wholesale price of power on the Alberta market, which is available to retailers then resold at a markup to customers outside Medicine Hat. That theoretically offers a “best in market” price, though the actual wholesale price has been below the city’s floor price for much of this year.
KPMG suggested in its report that a committee be formed, similar to commissions regulating Crown utility providers like SaskPower (electricity) and SaskEnergy (gas) to examine capital expenses and forecasts that affect rate offerings.
Pancoast has said an MCC would be limited to maintain its current area of operation and Medicine Hat’s exemptions as a franchise area.
It would have a natural motivation to keep prices in line with the larger market and “would be motivated to keep costs as low as possible,” said Pancoast, in order to compete on the Alberta grid and earn larger profits on export sales, which have historically driven dividends.
That market however, is currently depressed and could change even more as a large market review is underway by the province.
“We’re facing significant regulatory hurdles … and (large) spending in the future,” said Pancoast. “We face that challenge with or without the MCC, but it could provide … an extra edge we need in an increasingly complex (electrical sector).
“It’s an opportunity to drive greater scrutiny and deliver bigger dividends over time – we’re hoping to improve the outlook through an MCC.”
City administrators have estimated that one-time costs to set up an MCC over the course of one year could total $4 million, then added costs would be about $2 million per year, or about 1 to 2 per cent of current costs.
