The City of Medicine Hat's main river valley power plant is seen on Aug. 14, 2023 from near Saamis Drive in north Medicine Hat.--News Photo Collin Gallant
@CollinGallant
For 10 years, profits at the power plant have offset losses in the City of Medicine Hat’s gas production business, but a current proposal to create a corporate board would split up the two halves of Medicine Hat’s energy interests.
A municipally controlled corporation, akin to Enmax in Calgary, is being explored to “drive better results” for Medicine Hat’s largely export-dependent power company, at a time when changing markets, regulation and technology has put the sector in flux.
Meanwhile, long-term abandonment efforts in a shrinking city gas division are proceeding more quickly and at lower cost than estimated several years ago, but as much as $75 million is currently unfunded.
Energy managing director Rochelle Pancoast told a Q&A session on the MCC earlier this month that the goal is to have a professionally managed board improve operational results, and therefore profits that would flow to the city for municipal needs.
“We would apply those (dividends) against the abandonment requirements,” she said on June 11. “We’re hoping to drive to bigger sums … We know we’re challenged long term with the current state, with or without an MCC. But we’re hoping to improve the outlook.”
Several speakers at the public hearing called for a halt to both exploring an MCC and a current process to advertise the city’s remaining 500 gas wells for sale to private-sector buyers.
Another said city council rejected a recommendation to sell the gas portfolio, which had prospered under public ownership.
The combined “Commodity Company” or “Comco” business unit of the city has remained generally profitable when the results of gas and power production are considered in tandem.
However, the gas production section was losing $100,000 per day in 2019, when council approved a staff plan to abandon nearly 2,000 wells to reign in operational losses that totalled $36 million that year.
A municipally controlled corporation for the city’s energy business would not contain all the city’s utility assets, or even all of its energy interests, officials said Tuesday in response to questions at a public hearing.
Some participants to that hearing asked for clarification about the plan, which would create a management board to operate some city business units.
Such a corporation would comprise the power generating business (the power plant) as well as the separate “distribution” departments for power and gas delivery in the city and franchise area. That is essentially the subsurface piping system and power lines in the local networks. It would also include the city’s energy marketing and trading office, which arranges exports to the provincial power grid.
A 2024 report and recommendations from consultant KPMG states the power business and very stable distribution companies would form a strong operating unit of related businesses, while they discouraged including gas production because it would add stress to the financial model.
As currently proposed by City Hall, an MCC would not contain the city’s gas production assets – gas or oil wells and immediate gathering pipeline networks – or other rate-based utilities, such as water, sewer and solid waste. Those rate-based utilities would remain in the city’s environmental utilities department.
For ease of use, administrators have said it is likely that a single bill would contain all charges for local customers.
City finance director Lola Barta told the online audience on June 11 that the city has $76 million earmarked for general abandonment, and mid-year financial statements estimate a $138-million liability related to ongoing and future reclamation work.
“We’ll start using that reserve to pay some costs going forward,” Barta said in response to the News’ question about separating the units.
“One of the recommendations was how to mitigate losses in the gas production; options were to accelerate the abandonment program or look at divesting the business unit.”
This month the News was first to report that the remaining portfolio of about 500 wells was listed on industry websites in search of potential buyers. City officials have said they will evaluate bids before making a recommendation.
Non-binding bids are due July 3.
