FAQs

The City of Medicine Hat is tied to the provincial grid and is therefore subject to regulations under the Alberta Electricity System Operators (AESO). We are also governed provincially by the Electric Utilities Act.

• Local consumers don’t pay transmission tariffs when supplied locally
• Municipalities aren’t allowed to own generating assets but CMH can, with limits
• Distribution rates are not regulated by the AUC
• CMH is the only retailer in the franchise area
• BUT – any interface with or through the provincial grid must follow provincial rules

Thanks to the rigorous maintenance and care for our generation assets, we are fortunate to have full availability of our equipment in times of need. This typically puts us in a position to fully satisfy our local demand and also export excess electricity to support the grid. Our residents can count on reliability and stability with respect to electricity.

The Medicine Hat Gas Agreement (1966) grants exclusivity to CMH to drill and produce natural gas within franchise area. Exclusivity does not extend to retail. Renewed in 2009 for additional 21 years by Order-in-Council.

An Order-in-Council related to section 71 of MGA allows CMH to acquire mines and mineral interests if related to or in connection with the operation of the CMH’s gas utility. Expires Dec. 31, 2044.

A Ministerial Order authorizes CMH to control Allied Oil & Gas Corp. for purpose of acquiring and managing oil and gas interests and assets related to or in connection with CMH gas utility. No expiry.

On September 5th, 2023, Council directed administration to:

Convene an independent (third party) review of the City of Medicine Hat (CMH) COMCO business unit to confirm overall strategic approach to ensure best value for the community. 

This review will provide the information that we need to make informed decisions (regarding our energy production business units) that are in the best interest of the community now and into the future. 

On March 7, 2024, we announced that KPMG LLP was awarded the contract to conduct the independent review.

The independent reviewer will consider questions like:

• What are the key drivers to confirm asset value sustainability?
• What are the sources and uses of funds from the assets and how should that change, if at all?
• Who can and should bear the risk and value (and liability) of ownership and why?
• What is the preferred philosophy of ownership and why?  (e.g. behave like a commodity business or as a cost of service entity or other?)
• What is the best legal structure?  (e.g. separate legal entity as Municipally Controlled Corp or other, or not, and as GENCO or COMCO or more?)
• What is the appropriate governance model (e.g. status quo, board, advisory group, committee membership, other)
• How do we protect and grow our competitive advantage from asset ownership?
• What is the appropriate financial structure for the assets?  
• What changes, if any, are recommended for distributing funds from operations (e.g. existing distributable cash and dividend policy or other related policies)?
• What changes, if any, are recommended for energy rate design?
• How do regulatory constraints or flexibility impact the preferred model?
• Given broader SWOT considerations with particular assessment of energy transition requirements, what factors are most important in influencing the preferred model and what variables might signal a revisit of the model in the future? 

KMPG LLP was selected through a competitive bidding process for their combination of proven expertise across a number of the required knowledge areas including municipal government, Alberta electricity market, commodities, rate design, financial strategy, regulatory and more.

1. The City’s energy business is confronting a changing market and regulatory landscape that may challenge the long-term viability of the electricity business.
2. With regard to greenhouse gas (GHG) emission reduction, the City’s provincial TIER compliance costs are forecast to increase four-fold from $9.7M to over $42.4M annually by 2030.
3. There is an outlook for extended low power prices, where it could be less exp
4. Council is obliged to juggle three conflicting roles:
   1. Advancing the interests of the energy business of its governing body
   2. Representing City and taxpayer interests as the owner of the energy business, and
   3. Protecting ratepayers as the rate regulator
5. The natural gas production business is not expected to return to profitability.
6. Over the next 10 years, the City could require nearly $500 million to meet the needs of our existing energy business. This is before any incremental energy transition spending requirements.

There are four strategic recommendations included in the energy business review, all presented at a concept level.

1. Establish a rate review committee to support Council in its role of approving energy distribution and commodity rates.
2. Expedite the abandonment or sale of the natural gas production assets.
3. Establish an MCC to own and operate the distribution businesses (both natural gas and electricity) and electricity generation business.
4. Develop a dividend policy, and stipulate investment parameters in the unanimous shareholder agreement.

No. KPMG identified an outcome that would enable us to retain the exemption benefits.

The rate review committee would be independent from the energy business given they would be advising or acting as the rate regulator. They would be charged with increasing transparency in the rate setting process and recommend fair and competitive rates for ratepayers.

This committee should be made up of individuals with the technical and industry experience and expertise to evaluate commodity and distribution rates to inform decisions that protect the ratepayers’ interests on behalf of Council.

Yes. The City would own 100% of the MCC’s shares.

The MCC would operate at arms-length from the City. The City would appoint the MCC’s board of directors and retain any specific authorities it deems important. These would be reflected in an unanimous shareholder agreement.

Yes, as regulator or through the delegated authority to the rate committee.

An MCC would not have unilateral ability to determine the rates. The rates would be approved by a regulator, which may remain City Council, or delegated to the proposed rate review committee, who are charged with the interests of the ratepayer.

Yes. The MCC would own the physical assets. The MCC would, in turn, be owned by the City.

This would be determined by the terms in the unanimous shareholder agreement between the City and the MCC, but yes, the City could continue to bill for electricity and natural gas along with other municipal services.

An MCC will not change the risks, but could reduce the City’s exposure in three ways:

• Provide increased governance and oversight of the energy business with the addition of a skills-based board.
• Enable greater access to capital to invest in strategies that could reduce the Energy Business’ exposure to regulatory and market changes.
• Increase the predictability of cashflow between the MCC and the City.

Each of the business units (electric generation, electric distribution, natural gas production and natural gas distribution) were assessed individually and then together as a whole, using the following options:

• Remain as a City department/division (status quo)
• Operate as a Municipally Controlled Corporation (MCC)
• Explore other ownership options (divestiture)

Other options were ruled out:

• Non-profit entity (could not share dividends)
• Rural utility association (does not serve non-residential customers, or consider energy production)

City Council is not required to enact any of the recommendations. If Council would like to consider a new path for the City’s energy business, these recommendations may be considered but more work would be required to inform a plan.

No. If the City receives the necessary approvals from the Alberta Utilities Commission to purchase Saamis Solar, the City will NOT be looking to build the full 325 MW (not anytime soon, or if at all). 

• The City has applied to build up to 75MW as a first phase.  This represents less than 5% of the City’s annual energy supply capability. 
• Any subsequent phases would only occur if and when it makes sense for the City and our local needs.

The full size of the Saamis Solar Project (which was approved by the Alberta Utilities Commission on Thursday, July 18, 2024 under ownership of DP Energy) is 325 MW on approximately 1,600 acres within the City of Medicine Hat's municipal boundary.

If the City receives the necessary approvals from the Alberta Utilities Commission to purchase Saamis Solar, the City will NOT be looking to build the full 325 MW (not anytime soon, or if at all). 

• The City has applied to build up to 75MW as a first phase. This represents less than 5% of the City’s annual supply capability. 
• Any subsequent phases would only occur if and when it makes sense for the City and our local needs.

The City’s interest in this opportunity is driven by customer interest in green energy, regulatory risk mitigation, and financial value (plus secondary benefits, for instance, like learning how best to manage intermittent energy within our grid).

It is important to note that utility-scale solar is the least expensive form of solar. According to publicly available data from a commonly known industry resource (Lazard’s Levelized Cost of Energy* Analysis – Version 17.0):

• Utility scale photovoltaic (PV) solar is the least expensive at $29-92/MWh**
• Community and commercial/industrial PV solar is in the middle at $54-191/MWh**
• Residential rooftop solar PV is the most expensive of the three, at $122-284/MWh**

* Levelized cost of energy takes all cost of ownership (capital, operating) through time and determines the total cost/MWh, before considering production revenue. 

** The above estimates are in USD and assuming US-based locations, but they are directionally representative across the three categories of solar. 

The City supports deployment of residential rooftop solar as shown through its ongoing Hat Smart program and the newer Clean Energy Improvement Program.  For electric generation, however, the most cost effective approach is to pursue utility scale solar for the benefit of its customers.

The decision to request control of the Saamis Solar Park project was a unique matter of timing. Solar assets have matured in recent years, allowing them to more recently become competitive with other forms of energy. At the same time, a third party was interested in this site to develop Saamis Solar Park. The City's interest in the site largely comes down to available space and a 'ready to build' opportunity. This is likely the only land within the municipal borders that is large enough and suitable for utility-scale solar. 

The City had attempted to participate in Saamis Solar Park in other ways and when it became clear that would not be an option, the City took efforts to purchase the site to attain the option to develop clean energy now or anytime into the future. Ultimately, if the City of Medicine Hat does not pursue this opportunity, another developer may and the benefits of ownership would be lost.

Staff will only recommend proceeding IF our additional due diligence, supported by third party experts, provides sufficient confidence that any investment the City makes in the project will be returned through time with an appropriate investment return, commensurate with industry expectations.

The City’s interest in renewables is driven by customer interest in green energy, regulatory risk mitigation, and financial value (plus secondary benefits, for instance, like learning how best to manage intermittent energy within our grid).

Ultimately, we are responding to industry regulations – both current and pending. We are bound to meet regulatory standards or risk the consequences of non-compliance which may affect the viability of our existing gas-fired generators.

The City does not weigh in on the science behind clean energy or climate change. We focus on being compliant with the rules that apply to us and remaining nimble to adapt to potential changes to those rules. 

We will continue to advocate other levels of government for rules that support the ongoing economic reliance on our natural gas fired electric generation assets. They play a critical role in local energy reliability, now and into the future.

Since the Saamis Solar Park is currently owned by DP Energy, please review the following:

• AUC Decision https://efiling-webapi.auc.ab.ca/Document/Get/809450
• https://dpenergy.com/project/saamis-solar/
• https://dpenergy.com/canada-saamis-solar-park-alberta/
• https://www.auc.ab.ca/featured/saamis-solar-park/