City power, gas sales plummet
City power sales, which had stabilized the City of Medicine Hat’s bottom line since gas profits evaporated, fell to a 10year low in 2016.
They were joined by gas sales which reached another new low last year.
The figures are part of the 2016 city financial report, presented to council on Monday, and come on the same night council voted in tax increases to specifically deal with shortfalls of the once reliable commodity revenue.
“Electric is the biggest disappointment in some ways, though it is somewhat predictable,” said Coun. Bill Cocks, chair of the utilities committee.
“The long-term forecast is not good either ... it’s a difficult situation.”
A slowdown in the Alberta economy, lower industrial use and excess capacity dragged heavily on prices for power across Alberta. The city sells onto the grid and also sets local rates against the Alberta average.
Utility commissioner Cal Lenz said the power price forecast for 2017 is essentially unchanged from last year.
“It’s not a surprise that commodity rates are in the tank,” said Mayor Ted Clugston, who stressed the new focus of energy division is increasing oil, not gas, production.
The city is planning to add 20 per cent to its power production capacity, he said, but felt new gas generation will be profitable again, once coal plants are retired in the province.
“Nobody can make money at these prices,” he said. “There comes a point when they have to come back to the market.”
On the power market — where Medicine Hat booked $40 million in export profits in 2011 — the power plant lost $3.5 million in 2016, while natural gas production booked a $20.3million operating loss.
The city’s internal gas and power distribution networks continued to be profitable. Combined they provided $2.19 million to city coffers — only slightly more than the dividend produced by city water, sewer and landfill operations.
During budget discussions last year, administrators said they don’t expect either unit to produce a dividend until at least 2019.
In petroleum, the city’s production company has launched a growth strategy, and early this year brokered a sale of one-fifth of its gas fields, mostly in Saskatchewan, to take unprofitable wells off the books and also reduce well abandonment liability.
“Gas prices forecast to be low for as long as we can see,” said Cocks. “That’s why we chose to divest assets early on this year. We’re barely able to break even at these prices and we don’t see that changing soon.”
In 2016, the electrical utility’s receipts totalled $63.6 million — about half the all-time highs of about $120 million in 2011 and 2013. The recent figure is also 10 per cent off the next worst year of 2007.
Gas posted sales of $102 million, slightly lower than 2015, but about 20 per cent less than averaged since gas prices collapsed in 2009.
That decline dragged down gas revenue but volatile power prices took off at the same time — a phenomenon that was often described as local hedge, with the gas-fed power plant making money when petroleum prices were low.
While power plant expenses were down last year, the reductions didn’t match the drop in sales, and both units posted their lowest sales figures since at least 2007.
Administrators point to heavy cost cutting in the petroleum division and a new strategy to seek oil deposits in the near region through new drilling. An initial update was encouraging but more information could be coming soon.
“We can get margins in oil and we expect there is more upside in oil,” said chief administrator Merete Heggelund.