Exploring a Municipally Controlled Corporation
On July 21, 2025, City Council defeated a motion to move forward with the establishment of a Municipally Controlled Corporation.
About the project
The City of Medicine Hat was exploring the possibility of transitioning our distribution and electric generation energy governance to a Municipally Controlled Corporation (MCC) with a Rate Review Committee.
This came from an extensive third-party review of the governance structure and overall business philosophy for the City’s current energy business. The Review was meant to help the City decide on a business model that is intended to deliver optimal value for the community in light of changing community and external circumstances.
On July 21, 2025, City Council defeated a motion to move forward with the establishment of a Municipally Controlled Corporation to manage the City of Medicine Hat’s electric generation, electric distribution, gas distribution, and energy marketing and business analysis business units.
On June 24, 2025, City Council heard from members of the public who were for or against the proposed plan to establish a Municipally Controlled Corporation and Rate Review Committee for the City’s electricity generation, electricity distribution, and natural gas distribution business units. Following the public hearing, City Council approved a motion to defer deliberations to the July 21 meeting of City Council.
On May 20, City Council heard a presentation on the MCC and what implementation could look like. This 1 hour 46 minute presentation from the energy team is the most current information, and a great place to start!
Important context
Medicine Hat’s energy business has been central to its identity since the early 1900s, providing employment, affordable and reliable services, and a steady source of municipal revenue. Its success epitomizes the City’s strength, independence and ingenuity, and is a significant source of community pride.
The conditions under which the energy business flourished are changing:
- Local natural gas production is declining.
- Alberta’s electricity market is undergoing significant reforms.
- The transition to a low-carbon economy and power system, in addition to the federal Clean Electricity Regulation, will impact the City’s ability to economically generate electricity with its natural gas units.
The energy review included reviewing the City's:
- rate setting approach,
- what business model is most appropriate,
- the best strategic approach to ensure optimal value for the community,
- and the implications of a changing energy market (e.g., declining natural gas production, energy transition regulatory requirements, electricity market changes, and increased community interest).
KPMG chose to evaluate three models after considering the energy business current state and outlook:
- Status quo
- Municipally Controlled Corporation (MCC)
- Divestiture
- financial value and capital costs,
- service delivery,
- risk,
- rates,
- and implementation.
Within the energy review, KPMG also evaluated the following elements within the three models:
- Ownership model: business model; governance model
- Electric Utilities Acts and other regulatory constraints and considerations
- Potential benefits and impacts related to rate and dividend
- Energy transition requirements
- Overall strategic approach to ensure best value to the community
- Competing trade-offs and complexities including short and long-term interests of the business, municipality, ratepayer, and taxpayer
- Other relevant considerations
Importantly, in 2021, the City explored the market value of its electric generation assets. Emerging from this was a sentiment that there are long-term benefits to owning our own utilities. City ownership of its utilities is important and an MCC model retains City ownership and its valued Electric Utilities Act exemption.
KPMG's recommendation came with four strategic actions, if an MCC model were to be implemented:
- Establish a rate review committee to support Council in its role of approving energy distribution and commodity rates.
- Increase the focus on expediting the abandonment or sale of the natural gas production assets.
- Establish an MCC to own and operate the distribution businesses (both natural gas and electricity) and electricity generation business.
- Develop a dividend policy, and stipulate investment parameters in the unanimous shareholder agreement.
City Council approved the development of an implementation plan to better understand what the establishment of a MCC for its energy business might look like.
The implementation plan included:
- The services the corporation intends to provide
- The names of the shareholders of the corporation
- The geographic locations in and outside Alberta in which the corporation intends to provide services
- A projected utility rate structure
- A market impact analysis
Watch the City Council update on the implementation plan.
The plan came before Council on May 20, 2025. City Council approved a motion directing administration to proceed to arrange, in accordance with legislated requirements, a public hearing regarding the potential incorporation of a municipally controlled corporation (MCC), with the City as sole shareholder, that would operate the City’s electric generation, electric distribution and gas distribution business units (and the supporting energy marketing and business analysis function).
The public hearing took place on June 24, 2025 at 4 p.m. at City Hall in Council Chambers.
4 strategic actions
1. Municipally Controlled Corporation
A few well-known Municipally Controlled Corporation (MCC) models exist in Alberta, notably EPCOR and ENMAX. ENMAX, a municipally controlled corporation, owned solely by the City of Calgary, has a board with relevant expertise to manage its energy business interests, which are increasingly complex. Red Deer is also exploring moving to a MCC model for its electric utility business.
Benefits of an MCC:
- Improved governance
- Increased financial accountability and transparency
- Improved access to capital
- On-going value to the City through dividends from distribution revenues
- Maintained competitive rates
- Limit the City’s liability and protect taxpayers from financial risk
- Ease the burden on Council and free up time for Council to focus on other important matters
Explore the FAQs to for answers to common questions about an MCC.
2. Rate Review Committee
In conjunction with an MCC, the City would establish a Rate Review Committee (RRC) that would be comprised of individuals with relevant experience to support the rate-setting process and recommendations.
The committee would follow industry-accepted rate design practices to recommend fair and competitive rates for ratepayers. Rates would reflect the distribution businesses' needs for consistent and industry-appropriate returns. City Council could delegate rate approvals to the RRC to separate the role of Council and the rate regulator. Alternatively, the committee could provide recommendations to Council for approval.
- Help to delineate Council’s conflicting role of protecting both ratepayer and shareholder interests
- Provide more structure to the rate setting process
- Increase transparency around rate setting
- Improve access to technical expertise in rate-setting
Explore the FAQs to for answers to common questions about an RRC.
3. Dividend Policy
A dividend policy would be a key component of a broader set of policies, which along with a mandatory unanimous shareholder agreement, would outline the roles, responsibilities, authorities, and relationships between entities. The City would also include guidelines for energy business investments in the unanimous shareholder agreement.
- Protects the financial sustainability of the MCC
- Provides the City with a predictable dividend and a process to assess any investment requirements.
Explore the FAQs to for answers to common questions about a dividend policy.
4. Divestment in natural gas production
What's the benefit of these 4 strategic actions?
The four strategic actions (MCC, RRC, dividend policy, and divestment of natural gas production) should provide the focused and informed oversight, and greater access to financing that energy business will need to navigate regulatory and market uncertainty.
 | Create Value By promoting positive investment decisions, and by leveraging new sources of financing, the MCC structure could enhance the long-term viability and profitability of the energy business, potentially increasing returns to the municipality and benefiting the community as a whole. |
 | Additional Checks & Balances Strengthened governance and oversight from an independent, skills-based board, the MCC structure could provide more focused and informed oversight over the direction, risks, and performance of the energy business. |
 | Reduce Risk Exposure An MCC could reduce the City’s direct risk exposure through enhanced governance, improved capital access, and more predictable cash flows. |
 | Minimize Conflicting Roles Separating energy business decision-making from the City allows for specialized expertise to maximize value on behalf of the City, while enabling the City to focus its capital expenditures on essential municipal services. At present, City Council must wear 'three hats' to balance the interests (‘three hats’) of community (taxpayers), ratepayers and the long-term sustainability of the energy business. A rate review committee could support fair rates for the rate payer in addition to an MCC board maximizing value for the energy business. |
Why was the City considering this?
The basis of how we approach decision making on these and other energy topics is to drive value for our community by:
- Ensuring delivery of cost competitive, reliable, compliant energy to local customers (to protect and grow our economy);
- Providing sustainable profits from the Energy Business back to CMH, and if not viable, transition to external source(s);
- Managing the transition risk to protect our taxpayers from shouldering any unintended transition liability.
The City’s energy business is faced with a changing market and regulatory landscape that will significantly impact its business, increasing the risk to the profitability of its electricity generation and natural gas production business units.
- Declining natural gas production and retirement obligations
- New Regulations will impose costs with a significant financial impact.
- The City's current governance model may be sub-optimizing business value
Declining natural gas production and retirement obligations
Historically, the natural gas production business was profitable, but it is now facing the high costs of asset retirement obligations (AROs), and significantly declining production.
In recent years, the energy business has been highly reliant on profits from electricity generation, however this profitability is at risk because:
- The Alberta power market is undergoing changes.
- The City’s natural gas-fired generation fleet is becoming less competitive relative to the market.
- The City's Greenhouse Gases compliance costs are increasing significantly.
Achieving a fair and appropriate return on rate base will likely be a priority for the distribution businesses as they need to invest significantly in growth and sustaining capital over the next 10 years. 
Evolving Regulations
Market design changes and evolving regulations create a level of uncertainty in the power market. With broad efforts to reduce emissions, greenhouse gas compliance costs are increasing, exerting a significant financial impact on operations over time.
The provincial Technology Innovation and Emissions Reduction (TIER) Regulation imposes greenhouse gas penalties that can be offset by investing in emission reduction projects, but even those offsets become increasingly expensive as time progresses. The federal Clean Electricity Regulation (CER), as it currently stands, sets emission limits that must be achieved by 2035, and even further by 2050. City-owned natural gas-fired power generation assets are at risk of forced or uneconomic shutdown unless viable mitigation solutions are found.
The required capital identified by the energy business is approximately $490 million over the next years to sustain and grow the business (value reflects 2024 budget forecasts for 2025-2032). This amount does not include investment that could be required for energy transition, which could be substantial.
Optimizing governance model to drive business value
The City's current governance model may be sub-optimizing business value. Medicine Hat's City Council is unique in that it must balance the interests of taxpayers, ratepayers, and the long-term sustainability of the energy business. Due to the reality of elections, City Councils do not naturally have energy and utility-focused technical expertise and lack the independence to perform their functions as rate regulator and board of directors.
The energy market is highly volatile, and this risk profile is not typical of a municipality. Importantly, the energy business is subject to the City's policies and processes. Municipal financial processes do not support decision-making required for managing the energy business, such as:
- Capital projects are approved as part of the City's overall capital budgeting process, not on their merits to the energy business or their potential impacts to rates.
- Financial statements are based on municipal accounting practices. For example, expense items include transfers to capital, and commodity revenue is not reflected in the distribution businesses, dividends are accounted for as a series of transfers.
Complexity is expected to grow in the industry due to changes in the Alberta power market and energy transition regulatory changes requiring a high-level of expertise in the energy sector.
What's the City's overall energy strategy?
The Energy Business Review, MCC model recommendation, and associated exploration is a process that will help City Council decide on a business model that is intended to deliver optimal value for the community in light of changing community and external circumstances.
This process fits into a broader strategy—a need to adapt the City's energy strategy—to maintain its competitiveness for ratepayers, shelter the taxpayer from potential financial losses, and meet the changing demands of the 21st century.
- Sustaining investments, so long as economically viable and compliant; use credits and explore emissions abatement solutions
- Diversify if/when economically favourable, in scaled and affordable phases
- (Slowly) prepare for longer term electrification and heating alternatives/fuel blending
- Optimize existing production through wind down; assess upside options
- Monitor advancements and pursue studies and pilots to learn more
- Energy Business Review and financial planning to ensure tools are available and best value for community
- Monitor and influence policy and regulatory changes; seek grants to assist with any early steps
- Regional Carbon Capture, Usage, and Storage Hub; education and engagement prioritizing large customers who may face greatest impact of change; allocation of firm supply, and/or system investment
The City's energy strategy is complex and is informed by many factors. Read more about City's Energy Strategy.
How can you get involved?
On July 21, 2025, City Council defeated a motion to move forward with the establishment of a Municipally Controlled Corporation to manage the City of Medicine Hat’s electric generation, electric distribution, gas distribution, and energy marketing and business analysis business units. Administration will reevaluate the possibility of a Rate Review Committee independent of an MCC and bring recommendations back to City Council in September 2025.
Public engagement for this project included:
1. The Q&A tool
2. In-person Q&A, Friday, June 6 between 11 a.m. and 1 p.m., Helen Beny Lounge, City Hall
3. Online Q&A, Wednesday, June 11 from 5 to 6 p.m., virtual Teams presentation
See the FAQ with answers to questions from the public.
4. The public hearing
On June 24, 2025, City Council heard from members of the public who were for or against the proposed plan to establish a Municipally Controlled Corporation and Rate Review Committee for the City’s electricity generation, electricity distribution, and natural gas distribution business units.
Videos
FAQs
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Energy Review
- Why the energy review?
- Who conducted the energy business review?
- What challenges to Medicine Hat’s energy business are identified in the energy business review?
- What are the recommendations from the energy business review?
- Do any of the recommendations impact the City’s exemption under the Electric Utilities Act?
- What options were considered?
- When will the recommendations be implemented?
- Did the KPMG review compare MCC outcomes in other municipalities, especially where it led to rate hikes or executive bloat?
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Municipally Controlled Corporation
- Who owns the entity?
- Would the City still own the Energy Business as an MCC?
- Would the City still control an MCC?
- As an MCC, would the City still own all of the Energy Business assets?
- Who governs the entity?
- Who regulates the entity?
- Would ratepayers still benefit from a single utility bill?
- How is it financed?
- Would an MCC protect the City and taxpayers from Energy Business risks?
- Will our rates go up under an MCC?
- Democratic oversight: Is there a reduction in democratic oversight when considering that an MCC is directed by an appointed board of directors and not directly by publicly elected councillors?
- Transparency: Would transitioning to an MCC may result in more limited public access to financials, decision-making records and operational details that would typically be available from a municipal government department?
- Board Appointments: How are concerns related to guaranteeing impartiality managed, ensuring qualifications and will the public have input?
- Set up costs: It has been identified that there are set up costs that could be in the range of $4 million or more and can be a concern?
- Future Privatization: MCC structure could bring about concerns regarding future sale of assets, partnering with private interests or privatization without a referendum?
- Reduced public engagement: Concerns related to possible reduction to opportunities for public engagement related to the energy business
- Long term decision: The formation of an MCC is a long term commitment without a clear path to profitability
- What legal and financial liabilities does the City retain, particularly with transferred debt and asset ownership?
- How does the MCC reduce risk if the City remains the sole shareholder and ultimate backstop?
- How do I apply for or get nominated for the Board of Directors for the MCC?
- Do corporations have the same responsibilities to provide the utility? If we have rolling power outages, and that is a profitable thing, where would it end?
- What measures will Medicine Hat’s MCC have in place to prevent ENMAX/EPCOR rate increases from being replicated locally?
- What does the balance sheet transfer look like, and when will taxpayers see a return on that capital?
- What specific powers or opportunities would the MCC have that the current Energy Division lacks? Do those benefits come with increased financial or operational risks to ratepayers?
- The MCC will use a cost-plus rate model. Who decides what qualifies as ‘costs’ and what’s to stop overspending from being passed directly to ratepayers?
- If the MCC goes into debt or defaults on obligations, will taxpayers still be on the hook, despite the claim of limited liability?
- The MCC will not be consolidated in the City’s budget (modified equity method). Doesn’t this reduce transparency and make it harder for taxpayers to track performance?
- Council can appoint and remove directors, but the MCC will be independently run. How can voters hold anyone accountable for poor performance?
- Will ratepayers be able to view meeting minutes, executive salaries, consulting contracts, and decisions made by the MCC and RRC?
- Will citizens be notified of material asset sales, partnerships, or decisions affecting utility control before they happen?
- Why are citizens only given a short window to respond when the implications are multigenerational?
- Given that MCCs are profit-driven entities, how does the City plan to ensure that annual profits benefit the public? Will there be a firm commitment to using MCC profits to reduce municipal taxes each year?
- The City of Medicine Hat was once recognized for having the lowest utility rates and municipal taxes in Alberta—an advantage that has since disappeared. What is Council’s stance on returning to this “Medicine Hat Advantage” philosophy?
- The “Financially Fit” model, previously implemented to control spending, seems to have been abandoned in recent years. Why has the City moved away from this strategy, and how will the MCC affect future fiscal discipline?
- Why has the City not explored the option of a Public Utilities Commission (PUC) as an alternative to the MCC, or restructure internally instead of transferring ownership and operations to a legally separate entity?
- What controls will be in place to prevent excessive executive compensation within the MCC?
- Why is the City transferring $103.9 million in assets to the MCC, and what guarantees protect taxpayers if the MCC fails to deliver value?
- How will the City ensure public hearings on rate changes are accessible, and not just technical sessions designed for industry insiders?
- How does the City justify $7 million in startup and transition costs, including board setup, software licenses, and IT duplication, when current operations already exist?
- What is the projected administrative overhead (salaries, consulting, legal, IT duplication) over the next 10 years compared to the existing model?
- Will the entire financial model, including assumptions used in Appendix A, be independently audited or made available for public review?
- Executive compensation: There may be concerns that executive salaries can be in the millions for other MCCs. Could this occur here?
- Decision timing: The MCC process has been moving quickly and the potential decision timing is getting close to a new municipal election
- Public consultation on the proposed MCC model
- Is the plan to give the MCC a mandate to function being given a very limited scope that has been mandated by current management? Why form an MCC?
- Does this mean there will be another charge on our bill?
-
Rate Review Committee
- Would the City still control rates?
- Who regulates the rates?
- What would the rate review committee do?
- How would rates be designed?
- Who would be on the rate review committee?
- Who would make up this rate review committee?
- How would the committee increase transparency around rate-setting?
- Rates: Concerns related to rate hikes, service reductions, etc.; concerns for profits
- How will the MCC ensure that utility rates remain competitive, or preferably, lower than provincial averages?
- What actual authority will the Rate Review Committee (RRC) have? Will they approve, reject, or only advise on rate applications?
- Why are only 2 out of 8 RRC members from Council, and none directly elected by the public? Skills-based does not guarantee public accountability.
- Will ratepayer and business groups (like MHURA) be allowed to formally intervene or appeal RRC decisions?
- How is the rate Review Committee different than the board? How much will the committee members get paid? How much will the board members get paid? Why would anybody want to serve on a board for the MCC if they have no control over setting the rates?
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Dividend Policy
- What does a dividend policy do?
- Is this policy set in stone?
- Will there be guidelines for investing in the energy business?
- What are the projected dividends from the MCC over the next five years? Is there a transparent plan to communicate this to the public annually?
- If dividends from the MCC are expected to decrease in the short term, how will the City manage budget shortfalls?
