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Published in the Medicine Hat News, December 19, 2024
This fall, City Council heard the results of an independent, third-party review of the City of Medicine Hat’s energy business to confirm overall strategic approach to ensure best value for the community.
Following an intensive five-phase project that evaluated the current state of the City’s energy business, a strategic assessment of trends, regulations, and change drivers, options analysis, and recommendations, KPMG LLP recommended four strategic actions:
- Establish a rate review committee to support Council in its role of approving energy distribution and commodity rates
- Expedite the abandonment or sale of the natural gas production assets
- Establish a (City-owned but) independently-governed Municipally Controlled Corporation (MCC) to own and operate the distribution businesses (both natural gas and electricity) and electricity generation business
- Develop an MCC dividend policy
Those recommendations expect to preserve the City’s exemptions under the Electric Utilities Act including, for instance, retaining City authority over establishing our local rates, avoiding provincially determined transmission tariffs, and continuing to retain ownership of our (profitable) business units (with continued delivery of an annual dividend back to the City).
City administration ultimately endorsed KPMG’s recommendations and Council directed staff to establish implementation plans based on those recommendations.
So, what does this all mean?
Simply stated, no decisions have been made to trigger a change for our four energy interests: electricity generation, electricity distribution, natural gas production, and natural gas distribution.
However, staff are now charged with investigating, evaluating, and presenting the best approach IF we were to decide to execute one, some, or all of the recommendations. Additional due diligence will help better understand what a future state Rate Review Committee and future state MCC could look like BEFORE Council considers any further steps to enact the change(s). Essentially, KPMG’s recommendations were provided at a directional level, and more details are needed to appropriately inform whether those recommendations should be triggered into reality.
We know our century-old energy business is important to our residents: past, present and future. While the future energy environment that we see ahead of us is not at all the same as what our pioneers faced before us, our objective is the same - to ensure this unique enterprise continues to benefit our community long into the future.
Follow along at medicinehat.ca/energybusiness.
Published in the Medicine Hat News, December 19, 2024
Energy Business Review: Timeline
Sept. 5, 2023 City Council requested an independent, third-party review of the City of Medicine Hat’s energy business to confirm overall strategic approach to ensure best value for the community.
Nov. 25, 2024 KPMG LLP presented their analysis and recommendations.
Dec. 5, 2024 City administration endorsed KPMG’s recommendations and Council directed administration to develop an implementation plan to establish both a Rate Review Committee and a Municipally-Controlled Corporation.
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Medicine Hat – Representatives from KPMG LLP (KPMG) presented their analysis of Medicine Hat’s energy business at a special open City Council meeting on Monday, Nov. 25.
Read the report | View the slide deck | Watch the meeting
Following an intensive five-phase project that evaluated the current state of the City’s energy business, a strategic assessment of trends, regulations, and change drivers, options analysis, and recommendations, the review recommends four strategic actions:
- Establish a rate review committee to support Council in its role of approving energy distribution and commodity rates
- Expedite the abandonment or sale of the natural gas production assets
- Establish an independently-governed Municipally Controlled Corporation (MCC) to own and operate the distribution businesses (both natural gas and electricity) and electricity generation business
- Develop an MCC dividend policy
“Council is in an unenviable position of balancing the needs of three potentially competing interests: the residents, ratepayers, and the business,” said Ann Mitchell, City Manager. “We’re grateful the review provides an impartial outside analysis that can aid Council in making informed future decisions about our energy business that is in the best interest of the community now and into the future.”
The City’s energy business is faced with a changing market and regulatory landscape that will significantly impact the level of risk and profitability of its electricity generation and natural gas production business units.
Rochelle Pancoast, Managing Director of the City’s Energy, Land and Environment division is pleased that KPMG’s recommendations are now available for consideration. “We know public trust waned in 2023 when electricity prices were at record highs. It’s only natural for our residents to desire clarification, verification, and justification when unprecedented circumstances arise. I commend Council in recognizing the need for an impartial outside analysis which allows us all to move forward with more clarity and transparency.”
“Regardless of the path forward, my team and I are committed to continuing the hard work of generating and delivering the energy needs for our community and remaining nimble to react to a shifting energy landscape,” adds Pancoast.
Following the presentation, Council passed a motion to request staff to consider and evaluate the KPMG review and bring recommendations forward to Council by Dec. 9, 2024.
The full energy business review report and presentation are available on the City’s Shape Your City page at www.medicinehat.ca/EnergyBusiness.
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The City of Medicine Hat owns and operates its own electric generation and natural gas production business and remains the only municipally-owned commodity business of its kind in Alberta. The City also owns and operates its own electric and natural gas distribution businesses and is the sole electric retailer within the local electric franchise area.
For media inquiries, please contact:
media@medicinehat.ca
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With the City’s request to the Alberta Utilities Commission to obtain ownership of the Saamis Solar Park, we’re hearing our community compare this initiative to the Solar Thermal Concentrator that was previously located near the entrance to the Gas City Campground. In fact, the two projects use two completely different technologies for two completely different purposes. Here, we’ll shine a light on their differences.
The Solar Thermal Concentrator was a three-way partnership between the City of Medicine Hat and provincial and federal innovation agencies to test the feasibility of the technology in northern climates. The system used mirrors to concentrate sun rays and heat brine that is piped to the City’s main power plant as a replacement heat source to power the steam turbines, reducing the need to burn fossil fuels. The $13-million test site was built in 2012 and dismantled in 2020 when it was deemed uneconomical in our climate, thus satisfying the criteria of the pilot project.
A Solar PV system (which is the technology planned at the Saamis Solar Park) uses solar panels to absorb and convert sunlight into electricity right at the source site. The solar array is connected directly to a substation and distribution system where the electricity is transported throughout the city to its end destination (like your light switch in your home, for example). Unlike solar thermal, which was still in the testing/demonstration phase of development, solar PV is well commercialized and is now mainstream since it is economically viable and cost competitive today.
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Medicine Hat – Today, the City of Medicine Hat applied to the Alberta Utilities Commission to obtain ownership of the 325-megawatt (MW) Saamis Solar Park project within Medicine Hat’s municipal boundary.
The solar power plant and accompanying substation were approved, with conditions, by the Alberta Utilities Commission (AUC) on July 18, 2024 under the ownership of Saamis Solar Park Ltd, part of the Irish-headquartered DP Energy Group. The current AUC approval enables construction to begin in 2025 and to be in service by 2027.
“Engagement with the City of Medicine Hat has been extremely positive since the project’s inception back in 2016 and it’s rewarding to see that this project now has the potential to contribute to the City’s energy transition, whilst providing low-cost renewable energy to its residents,” says Damian Bettles, Head of Development for DP Energy in Canada.
Through negotiating a purchase and sale agreement, multiple conditions and internal processes must be satisfied before the City can consider developing the solar field, not the least of which is provincial approval, along with Council approval and financing.
Rochelle Pancoast, Managing Director of Energy, Land and Environment with the City of Medicine Hat, clarifies that the City is not immediately building a solar array. “Any decision on investing in new generation assets is subject to Council approval. Today, we are taking steps to acquire the opportunity, and all the associated approvals and engineering that have taken place thus far.”
The proposed Saamis Solar Park lies on 1,600 acres in the City’s north and is considered a productive use of vacant contaminated lands from the former Westco Fertilizer plant and property not yet ready for longer term urban/residential development. Medicine Hat is suited for solar electricity generation given its abundant solar resource.
If approved, the City intends to construct the project in phases to accommodate affordability, manage grid congestion, consider stakeholder needs, and acquire learnings before proceeding to the next phase. The project will diversify the City’s current 299 MW gas-fired electric generation portfolio by adding large-scale renewable energy into the mix.
“We are facing challenges of energy transition and emission-reduction targets. Staff are hard at work each day modelling solutions that could be viable in complying with clean energy regulations while meeting the needs of our community and continuing to deliver the advantage of our electric utility,” adds Pancoast. “We can no longer ‘wait and see’ and must actively plan for the future. In this case, solar energy is a commercially viable option that is forecast to benefit our bottom line.”
Pancoast also describes how City officials expect the Saamis Solar Park to contribute to the local economy in the form of construction jobs and being able to satisfy a growing customer interest in green energy.
“Amongst the many benefits of gaining control of this project is that electricity generated from the solar field will flow to the City’s distribution grid, rather than bypassing to the Alberta grid as originally planned, bolstering our local energy supply. Having green power to offer can help attract and retain carbon-intensive industry and other investment, as well as reduce our own carbon compliance costs.”
Green energy sources, such as wind, solar, and hydro, produce little to no greenhouse gases, helping to reduce overall carbon emissions from the City’s electricity generation portfolio. For reference, every 25 MW of solar electricity has potential to offset 21,000 tonnes of carbon dioxide annually compared to gas-fired generation, saving the City $1.5 million in carbon compliance costs at today’s levy. That amount grows to $2.4 million per year once carbon levies reach $125/tonne in 2027.
The City of Medicine Hat first awarded a development permit (permitted use) for the project to DP Energy in 2019.
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Medicine Hat – On Sept. 5, 2023, Medicine Hat City Council directed administration to convene an independent third-party review of the City’s energy business to confirm overall strategic approach to ensure best value for the community. Through a request for proposal (CMH23-113), the City of Medicine Hat awarded the contract to KPMG LLP. A number of strong parties submitted proposals and KMPG LLP emerged as the top vendor with 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.
The City of Medicine Hat owns and operates its own electric generation and natural gas production business and remains the only municipally-owned commodity business of its kind in Alberta. The City also owns and operates its own electric and natural gas distribution businesses and is the sole electric retailer within the local electric franchise area.
The intent of the review is to ensure that ownership, governance, financial, rate design approach, and other relevant considerations are assessed to deliver optimal value for the community in light of changing community and external circumstances.
“The innovative spirit of our forefathers established an energy business that provided an exceptional quality of life for Medicine Hat residents for more than a century,” said City Manager, Ann Mitchell. “With the transition to a low-carbon future looming, we must ensure that the way we manage this business makes sense, and that we are willing to adapt in a way that benefits both our current and future generations. I am eagerly awaiting the results of this review to shape the future of our energy business.”
During contract negotiations, the City of Medicine Hat and KPMG mutually agreed to include the City’s electricity and gas distribution business in the project, shifting the focus from a ‘COMCO review’ to an ‘energy business review’ to consider all energy related business units given their natural interdependencies and synergies. However, KPMG will not review the current 'cost-plus' rate design for distribution, as it already aligns with the standard approach used by other regulated utility distribution systems.
“We are undertaking this exercise largely in response to public feedback and plan to openly share status updates and milestones as appropriate through Energy, Land and Environment Committee and on our website,” said Mitchell. “However, it is important that the community understands up front that KPMG is bringing their expertise to bear on these complex topics and, consistent with their RFP response, will not be conducting community consultation as part of their review.”
The results of the independent third-party energy business review are expected to be presented to City Council by the end of 2024. Follow along at www.medicinehat.ca/EnergyBusinessReview.
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For media inquiries, please contact:
media@medicinehat.ca
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What is the Project?
The City is proposing a new substation to accommodate the growth and increasing electrical needs in the southwest area of the city and the city’s electric service territory.
Why do we need this Project?
The Project is needed to address the increasing demand for electricity and to support the development of important community infrastructure, such as housing, schools, recreation facilities, and commercial establishments, which would otherwise be limited without enhancements to the electrical system in the south.
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For all information about this project, visit East Ring Enhancement Project
October 2024
The City of Medicine Hat has submitted a Facility Application to the Alberta Utilities Commission (AUC)(External link) for the East Ring Enhancement Project (EREP).
While the application has been filed, there will be time for the AUC to undertake a preliminary review. We will notify you once a proceeding number and Application Office have been assigned. We expect to provide this update within the next week. Although the application has been filed, there is still ample time to review and participate in the regulatory review process, and our team members are available to assist you in navigating this process.
The project website will continue to provide up-to-date information, including maps and drone footage, to help you better understand what is being proposed. We appreciate the time and feedback provided by community members across the 24 km of transmission line that helps power our City.
Thank you,
EREP Project team
Strategic Pillars
Electricity
Managing Director Rochelle Pancoast takes a deep dive into the City of Medicine Hat's energy strategy in a world of decarbonization and energy transition. This presentation was delivered to City Council on September 16, 2024.
Managing Director Pancoast delivered this energy transition update via video at Southeast Alberta Economic Growth Forum in Medicine Hat on October 24, 2024.
Special thanks to Community Futures Entre-Corp for producing this video.
At a special open City Council Meeting on Monday, November 25, 2024, representatives from KPMG LLP presented their analysis and recommendations from their Energy Business Strategic Review.
