Sell off or partner up: City’s future in power
All options sought as city officials seek best outcome for taxpayers with its power unit
Offers to sell its power generation business or partner with private industry are now being considered by the City of Medicine Hat, officials said Tuesday.
That announcement comes after several years of pullback in the “Gas City’s” natural gas production unit, and increasing talk among elected officials and administrators about shielding the municipality from volatile commodity pricing.
The gas unit business units were the source of civic pride, but years of depressed prices made it a money loser for at least the past four years.
During that time however, power plant profits stabilized the city’s bottom line, and citizens concerned about the implications of selling the “city-owned” utility called the News within an hour of the announcement asking for more information.
“We’re looking at all options,” energy commissioner Brad Maynes told the News on Tuesday afternoon. “This is to make the public aware of where we’re going on. We’ve done a lot of this work (portfolio optimization) in gas.
“The (power) outlook is quite strong. We’re looking at potentially monetizing the asset and investing in areas that are more stable (return).”
“If the opportunity isn’t right, the status quo remains in place.”
A release on Tuesday afternoon describes the move as a way to reduce volatility in city operations, and “when economic advantage is evident” it would seek “strategic alternatives” for its power plant.
That includes a sale or potentially some other form of partnership, according to the release that also states consideration would be given to a buyer’s reputation, practices and with concern for traditional pricing.
“We understand that is a big concern for residents,” said Maynes, further outlining the division’s opinion that the city’s unique power charter that shields Hatters from major charges to Alberta grid upgrade could be maintained.
“We believe there are situations where that’s possible.”
Mayor Ted Clugston deferred interviews on the issue to the chair of council’s energy and utility committee, Coun. Phil Turnbull.
He described the current process as a “feasibility study” for power plant operations and “risk management” in the face of advancing carbon costs at the gas-fired facility, and increasing renewable power production and the potential for battery storage.
“If we’re ever going to sell, when is the best time to get the maximum amount of value, so that we’ll have a big chunk of cash that can pay a dividend from a bank,” he said.
“I want to investigate all the situations, all the risks, so citizens don’t get hung up like they did on gas.”
A sale of the city’s distribution network, on which it earns a regulated rate of return, is not being considered, said Maynes, who would not comment further on whether active discussions are talking place with a specific buyer.
A potential value is also not being released publicly.
For context, the city will end up spending about $110 million altogether by 2023 to build a combined 99-megawatt, gas-fired, two-turbine north-side power station. That will bring total city capacity to more than 300 megawatts including the river valley station.
The business generated more than $30 million in dividends to municipal coffers in both 2018 and 2019, but posted a record loss of $5 million in 2017.
Final financial figures for 2020 will be announced in March, but administrators told the News this summer that they conservatively estimated a substantial profit from the business unit despite fluctuating prices due to the pandemic and reduced provincial demand.
The city’s energy division has moved to greatly reduce its oilpatch exploration and production business, selling 1,500 wells in 2017 and a current program to close in another 2,000 gas wells it says are unprofitable in the long term.