On Monday, St. Albert city council will debate spending $75,000 on a study to explore whether a municipal energy corporation could be successful.
Coun. Ray Watkins brought forward a notice of motion Dec. 7 which, if passed, would direct staff to provide a feasibility report on establishing an energy corporation, including recommendations for council to consider, by June 30 next year. The motion suggests the feasibility report be prepared in conjunction with Ernst & Young’s ongoing operational and fiscal review.
The feasibility report would include an evaluation of net income projections, energy generation and marketing opportunities, financing methods, regional collaboration, and integration opportunities in new developments. It would also include the process, timelines and costs to establish the energy corporation.
With the COVID-19 pandemic "drying up" municipal funding sources, Watkins said he wants to see the city explore whether an energy corporation could be a future money-maker.
"It's another possible way to look at creating revenue for the municipality," he said.
Watkins’ motion was put on the table about a year after council voted against taking next steps toward creating a municipal utility corporation (MUC) last December. At the time, councillors Ken MacKay, Watkins, Jacquie Hansen and Sheena Hughes voted against it, citing overwhelming public pushback against the plan.
The idea was for the city to create a separate corporation to deliver new lines of service beyond what the city already offers, such as expanded garbage collection, inspection and maintenance services such as hydrant flushing, waste-to-energy and small-scale wastewater treatment facilities, and consulting services. That could bring in more revenue from service users.
Last year, the Gazette examined the successes and failures of utility corporations in other Alberta communities, and spoke with local experts, many of whom said they found potential flaws in the MUC business plan at the time.
Focus on clean energy
Instead of rolling several utilities into one corporation, Watkins said this study would explore whether focusing on clean energy would be a more successful venture. For example, a potential solar farm in St. Albert could be brought underneath the wing of the new corporation if successful, he said. Other energy resources, like hydrogen, could be added into the mix in the future.
"We're looking at energy with emphasis on green energy, and we want to look at hydrogen as a way to support our energy industry. Sure, a solar project could be part of that too, as could other green energy ideas."
Debt for those projects, like the $30-million in borrowing costs needed to get a proposed solar farm in the Badger Lands up and running, would be taken off municipal budget books and placed on the shoulders of the municipal energy corporation instead.
"For a municipal energy corporation, borrowing $30 million for the solar farm doesn't count against the debt ratio for the city ... Any liability associated with that is kept within the energy corporation," Watkins said. Additional debt for large energy projects like this wouldn't be tacked onto the city's debt, which can only go up to a certain limit by law. "There are benefits of being a limited company at an arms-length to the city."
However, the corporation still needs to make enough revenue to pay off its expenses. If the corporation can't do that, the city could be left to foot the bill.
In Chestermere, the city’s council decided to take back control of Chestermere Utilities Inc. (CUI) in 2018 after the arms-length utility corporation amassed nearly $35 million in debt over its seven years in operation, partially because the CUI had undercharged its customers for three years. The CUI continued to operate as a shell company just to hold the debt it had accrued – dissolving it completely would have pushed Chestermere's debt close to the municipal limit.
Frank Vagi, a chemical engineer and professor at the University of Alberta who spent his career specializing in utility systems and energy efficiency, previously told the Gazette a MUC could be worthwhile if done as a regional initiative to service more customers, instead of the city going ahead on its own.
Watkins said he expects the municipal energy corporation would be looking for partnerships if it goes ahead. He stressed his motion is only for the city to explore whether an energy corporation is even a feasible option.
"That's the whole idea," Watkins said. "That municipal energy corporation would be looking for partners. It would basically be out there operating as a standalone business, trying to create revenue based on green energy."
