New rules for Alberta's energy market were detailed in August but it is still not known exactly how the redesign will affect Medicine Hat, though a financial hit to the city's bottom line is all but guaranteed.--NEWS FILE PHOTO
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The City of Medicine Hat’s managing director of energy, land and environment Rochelle Pancoast says it is unclear how the city’s energy division will be treated under new rules introduced as part of the province’s restructured energy market.
The details of the market redesign were released in August and the rule definition and engagement period is ongoing. While there are still numerous question marks, it is clear the new rules will translate to a lower price environment around the city.
The REM changes will impact the city when it imports power from outside Medicine Hat, or exports surplus to the grid beyond the city.
“If prices are significantly lower outside of Medicine Hat into our export and import area, we would certainly expect that the volume of exports would go down and the value of exports would go down, which certainly would impact our financials and our anticipated dividend back into the city,” Pancoast told the News on Friday.
“What that means for our behind-the-fence grid, because we have a single point of delivery into the province, is less clear, and how the rules will be applied to the City of Medicine Hat is even less clear.”
The loosely drawn new rules do not account for the city’s exemption under the Electric Utilities Act.
The exemption gives the city the right to generate enough electricity to meet local peak demand and distribute it as the exclusive retailer for its franchise area.
Anywhere else in the province, there is competitive retail with different pockets of supply and demand that will be subject to the new rules regarding pricing and transmission.
“Anything in our micro-grid, we have full control over and isn’t subject to those same rules because that’s what we’re exempt from. It’s like we’re a little bubble outside of the provincial rules,” said Pancoast.
Pancoast says the city is actively engaging with the Alberta Electric Systems Operator to advocate for appropriate treatment of the city under the new regulations.
“It’s not like they’re necessarily offside. It’s just that we may need additional rules or additional clarity of both intent and alignment that makes sense in a way that honours our exemption.”
She says there are still many questions remaining about how the city’s blended portfolio will be treated as a market participant and what that will mean for the city’s energy business, as well as future development opportunities like the proposed Saamis Solar project.
For example, under the new regulations, Pancoast says it’s unclear whether the city would be on the hook for transmission payments should the Saamis Solar project go through. But since the city isn’t looking to interconnect into the provincial grid, she says the city believes it won’t be faced with that cost.
Pancoast says its important the city keeps a long-term horizon in mind when responding to these changes.
“When we’re trying to make decisions, both at the business level or at the project level, like Saamis Solar, we also need to be mindful about the long life of our assets, and we need to recognize that what might be occurring in the next few years might be different in the longer term.”
“I’ve often said at council meetings that the cure for high prices is high prices and the cure for low prices is low prices. That’s part of what a commodity cycle looks like.”
One of the evolving factors that needs to be considered in a long-term horizon is carbon deregulation. Even as the federal government revisits carbon compliance requirements, the general trend toward net-zero obligations is here to stay.
Even the projected impact on the value of Medicine Hat’s energy exports, which is expected to take a hit after localized marginal pricing takes effect, can end up being an opportunity for the region to attract new investment, says Pancoast.
“We just have to be thoughtful about some of those feedback loops.”
Pancoast says the market redesign originally touted decarbonization as one of its principal goals, but the province seems to have completely removed that objective from the final design.
“It does appear that renewable energy is penalized for their intermittency as part of the design,” she said.
