Medicine Hat should spin off energy business into arms-length corporation, auditors say

An independent municipally-controlled corporation should oversee the electricity business and its distribution side and natural gas distribution, the report said.

KPMG recommended selling off the natural gas production side.

The corporation, known as an MCC, would work like EPCOR Utilities in Edmonton or ENMAX in Calgary.

The city would own 100 per cent of the shares of the MCC and appoint its board of directors, which in turn would make energy business decisions separate from council.

“The strategic actions set forth have the potential to create value for the community compared to the status quo, by minimizing losses, promoting investment decisions that reflect the sustainability and growth of the energy business, and by using new sources of financing,” auditors wrote in a report.

Along with creating a rate committee, establishing an MCC ran by a skills-based board and selling the natural gas production assets, KPMG also recommended creating a dividend policy to determine guidelines for energy profits.

The third-party inspection was ordered by council after skyrocketing electricity rates rocked the city in the summer of 2023. The city awarded the contract to KPMG in March after a request for proposal process.

Council was not required to immediately vote on the proposal. It could also take other routes, such as maintaining the status quo or selling off all its energy business assets.

After the presentation and some deliberation, council voted to direct staff to “consider and evaluate” KPMG’s review and return to council by Dec. 9 to present their takes and recommendations for next steps.

Mayor Linnsie Clark was the sole vote against the second motion, saying she disagreed with asking staff to return so quickly.

Chief administrator Ann Mitchell said the relevant managing director, Rochelle Pancoast, had been working with the material throughout the last several months and so would be prepared to present by council’s required date.

The full report and presentation can be viewed on the city’s Shape Your City Business of Energy page.

Rate review committee

KPMG recommended the city create a review committee that would either have an advisory responsibility or delegated authority from city council to oversee the rates that determine utility bills.

Karen Gorecki, KPMG’s energy and environmental regulations lead, said the rate-setting group made up of individuals with technical and industry experience would be charged with making informed, transparent decisions.

“Council does not naturally have the energy and utility focused technical expertise and lack of independence to perform their functions as rate regulator (and) board of directors,” Gorecki said.

MCC

KPMG officials explained an MCC would have a board of directors that would take away some of the conflict council has in its roles of both protecting the interests of the energy business and protecting the interests of citizens and ratepayers

It would separate energy business decision-making from regular municipal businesses.

For example, KPMG representatives said, it would remove a scenario where council may have to choose between building a new recreation centre and constructing a capital energy project.

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READ: Medicine Hat faces uphill battle in clean energy transition

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KPMG officials said the MCC would not change risks that energy businesses will face in the coming years but could reduce some exposure through better governance through its independent directors and increase the predictability of cash flow between the MCC and city.

Such a corporation would enable greater access to capital to invest in strategies that could reduce the energy businesses’ exposure to regulatory and market changes.

In response to a question from Coun. Shila Sharps, a KPMG official said he’d think any solar projects the city starts would also move under the MCC, as it would be an established organization managed by experts with proper oversight.

The city applied to get permission to purchase the Saamis Solar Farm project earlier this year in an effort to secure the rights to any future construction.

‘A real privilege’

Mayor Clark, speaking to reporters after the council meeting, said she’s open to the possibilities the recommendations present but is wary of the city — and therefore, taxpayers — losing ownership.

“I’m going to wait and see what the recommendation from administration is, certainly,” she said.

“But my view has always been it’s a real privilege to have an electric utility and a power company and I would like to continue having it.”

Coun. Darren Hirsch said he felt council was ready to get going after waiting for some time for the third-party energy business review.

“The recommendations and what we do with this document is going to be the real key,” he said, explaining it was why he motioned to bring staff recommendations before council in two weeks.

“That will create the discussion within the community and certainly around city council.”

Hirsch said he saw both sides — keeping city council directly in charge of the energy business as opposed to the recommended municipally controlled corporation — but said he appreciated the MCC’s approach of a board of experts.

“I’m certainly not going to state that I’m for or against the MCC, what I’m going to do is sit down and listen to what the recommendations are and see if it makes sense. We have a myriad of options available.”

‘Not worth the cost’

Sounantha Boss, president of the Medicine Hat Utilities Ratepayer Association, was unimpressed with KPMG’s presentation.

“After an hour and a half into it, I thought, gosh, $590,000 of taxpayer money to hear that presentation…it was not worth the cost of that,” she told CHAT News in an interview after Monday’s meeting.

“I feel like a lot of the things that were discussed, it’s probably been talked about in the past with previous council, has been talked about even now, personally with amongst the citizens and the community.”

She was concerned by KPMG’s estimate that it would cost the city approximately one to two per cent more from revenues to run an MCC.

“Why would we want that? We don’t want our rates to go up. We want our rates to go down. You know, so there’s a lot of things that we need to take in consideration.”

Boss, who attended the presentation along with other MHURA members and former MLA Drew Barnes, asked where talk of the municipal consent access fee went.

“I’m very disappointed that they did not mention anything about the MCAF after we have advocated for it since last year,” Boss said.

“Council said it was going to be reviewed by the KPMG, never was discussed. So it’s a huge disappointment from our council.”

by Eli J. Ridder

Medicine Hat should spin off energy business into arms-length corporation, auditors say

Rate review committee

MCC

‘A real privilege’

‘Not worth the cost’

Our Community