The city's Unit 16 power plant on Box Springs Road is seen with the Methanex plant in the background in this May 2018 file photo. Lower power prices is going to have a significant effect on the city's business dividend.--NEWS FILE PHOTO
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A reversal in power prices will eat into profit expectations at the city power plant and reduce an expected year-end dividend, members of council’s audit committee heard Tuesday.
Lower grid prices, lower demand due to warmer weather and even lower rates on local prices re-formulated last year could cut power profits by $18 million, officials said.
That would still provide a $51.6-million transfer into city reserve accounts, but once losses due to softer natural gas prices are absorbed, a $46-million dividend would be the lowest since 2020.
“When you prepare the budget, you take a best guess in terms of where (commodity) pricing will be,” said committee chair Coun. Darren Hirsch, also chair of the energy committee. “The reality is, and this was projected out some time ago, power prices were going to soften … that soft patch that we thought was going to occur is now occurring.”
Power pricing in 2023 set records and produced a record $137-million dividend as the Alberta default power rates soared above $300 per megawatt in the summer.
That forced a revisiting of local price setting and a $33-million rebate to local customers last fall.
The current 30-day rolling average for companies successfully bidding to the Alberta Electrical System Operator is $35. The local price for Hat-based customers is at $70 per megawatt, or 7 cents per kilowatt hour – a floor price set by council.
That “provides price stability” for local customers, said corporate services managing director Dennis Egert, but is a negative for the city budget that is already stressed by high inflation and lower provincial construction grants.
After a better than predicted price and demand environment in January, warm weather over the winter led to lower demand and lower prices driven down by wind and solar power production.
At April 30, revenue from external electric sales was $25.1 million – about $11.6 million below expectations at that point of the year.
At the same time, internal city sales was $35 million, about $1.8 million lower at four months due to declining local rates that are benchmarked on a provincial grid calculation.
Budgeters now project actual year-end figures to total $165 million – about $36 million less than budgeted – leading to an $18-million reduction in projected dividend from the business unit, now pegged at $51.6 million.
“Last year power prices were really incredible,” said Lola Barta, the city’s finance director. “We’re still selling out on to the grid but the prices aren’t there.
“That has a negative impact on our transfers.”
Among other highlights in the financial report, city debt was $5 million lower at the four-month mark at $432 million.
That is mainly due to less than expected borrowing in 2023 as officials avoided higher than usual interest rates. The average rate paid on current debt is 3.48 per cent. The department is now awaiting a cleared picture on interest rates before restarting borrowing.
Total investments held by the city were up $16 million to $749 million, equating to a 3.91 per cent annualized return and above 7 per cent for the quarter.
