Business

Medicine Hat shifts away from natural gas roots

As natural gas prices remain depressed for the better part of the last decade, the Gas City keeps moving further away from its wealth generator of the past.

Electricity becomes the source of wealth for the 'Gas City'

Medicine Hat keeps growing its electricity business (praxismedhat.com)

For more than a century, natural gas has been the secret weapon the city of Medicine Hat uses to subsidize property taxes and fund city projects.

However, as natural gas prices remain depressed for the better part of the last decade, the Gas City keeps moving further away from its wealth generator of the past.

Medicine Hat is a rare breed — a city that owns and develops its own natural gas, oil and electricity. The city's energy division earned $94 million before interest, taxes and amortization in 2014 from all its investments. The energy division was expected to contribute $70 million to subsidize taxes and fund city projects in 2014.

Electricity is the bread winner these days, a city utility that is set to expand with a new natural gas power plant announced for the Southeast Alberta city. It's a $66-million project which will increase the city's electricity generation from 203-megawatts (MW) of power to 247. The city's record demand is 177 MW and any extra electricity can be sold elsewhere on the Alberta grid, when there's a need.

"We're not speculating on sales to the grid, this is about the city's needs," said mayor Ted Clugston.

How to profit from electricity

When the electricity supply in Alberta is tight and prices spike -- that's when the city of Medicine Hat can sell off its extra power for a handsome return. That's why the mayor sees the new power plant as a great financial investment, saying "we expect to receive a return."

This year, electricity generation is expected to turn a profit of $6 million, even with relatively low market prices. Meanwhile, the city's natural gas and oil business is expected to break even or lose some money this year and over the next three years because of low global resource prices.

It was only a few years ago the city branched out into the oil business.

"I am trying to diversify as much as we can. We were so heavy into gas — 90 per cent of our income was from gas," said Clugston. "I've been trying to whittle that away so we don't put all of our eggs in one basket."

The new power plant has other advantages, including that it will be built far away from any body of water. The current power plant is located along the banks of the frequently flooding South Saskatchewan River.

"We almost lost the power plant in 2013. Thankfully we didn't," said Clugston.

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