One month away from a public hearing on incorporating St. Albert’s utilities into an Epcor-like, for-profit municipal corporation, plenty of question marks remain.
Some members of city council are already leaning toward saying yes to the corporation, despite not yet hearing from the public.
On Monday, city council spent an hour and a half behind closed doors reviewing a business case for a municipal utility corporation (MUC), before setting the public hearing date for Dec. 2. There was almost no public discussion on the case, and only 13 pages of the business case have since been made public.
Administration said fully releasing the documents could reduce the city’s competitive advantage.
Coun. Ken MacKay said after reviewing the business case he still needs “a lot more information” before reaching any conclusions around viability.
“I need a lot more information ... It’s not the why – I understand the why – it’s always the how. And I don’t think the how has been clearly articulated enough for me,” he said.
When asked about the lack of information in the business case – including projected budgets for each service, staffing costs and exact customer base – Mayor Cathy Heron said, “a lot of that is still unknown,” and there is “evidence the markets are out there.”
She said the business case has not nailed down who the MUC’s customer base would be.
“We didn’t want to be too prescriptive and say, ‘It’s going to be Sturgeon County.’ Because we don’t know if they want to buy services,” she said. “And then if we say Sturgeon County, then does that exclude Medicine Hat?”
Predicted utility rates are also not laid out in the business case, although Heron emphasized “current residents with current services will see no change.”
Corporate communications manager Cory Sinclair said in an email many details still need to be worked out for the MUC, but the business case assumes current rates in future growth areas.
He said the document is being reviewed by the city's legislative services department to see what parts of it will be shared publicly.
Heron said there is “good feasible proof” the concept of an MUC is worth exploring further.
Coun. Wes Brodhead said he has “seen enough to cast (his) vote.”
“If you want to start to investigate new revenue streams, sometimes you have to take a look and be prepared to take a step of faith. I think I’ve seen enough in order to make my decision,” Brodhead said.
Traditional utilities, such as water, wastewater and stormwater, would remain status quo under the MUC’s proposed business plan.
Potential new lines of services include garbage collection for apartments and commercial buildings, along with consulting and inspection services.
Waste-to-energy and small wastewater treatment plants are also listed, although these ventures would collectively result in a deficit for the first five years of the corporation, due to the need for St. Albert to inject equity.
Questions remain
Not all councillors are convinced of the utility corporation idea just yet.
Coun. Jacquie Hansen said on the surface, the MUC appears viable, but it’s not a “slam dunk yet.”
“I think that there’s still some questions and conversations to have; I think it looks hopeful at this point in time, but we’ve just had a first blush at it,” she said. “It’s not a slam dunk for me yet, but I am certainly leaning towards trying it, for sure.”
Coun. Sheena Hughes voted Monday against setting a public hearing date, in opposition to moving forward with the MUC. She said one big outstanding question is around the dividends from the corporation, and how the corporation can be viable without raising utility rates.
On Monday, council was presented with three comparable options for an MUC, with key differences between them being how much in dividends the corporation is able to transfer to the city, how city assets are managed and impact on utility rates.
The first scenario would not realize a profit in the first 10 years, the second option would be able to provide a dividend to the city in 2025, and the third option immediately offered a profit.
While the dividend in scenario three starts out at a high $1.8 million, that number steadily falls and holds at a $1.38-million 10-year average.
“I need to understand how on earth this is going to provide the same tax relief when the revenues are not predicted to go up every year,” Hughes said. “They have to go up every year to be able to continue to offer a dividend to the city that would be a tax relief dividend, which is what the claim was.”
MacKay said he needs to see what the true benefits are to residents, where the risk is, how easy is it to pull the plug if plans go haywire, and a more thorough comparison of other MUCs.
Potential risk
The city began looking into creating a utility corporation as a possible way to tap into previously unrealized revenue streams, in times of austerity and declining grants.
However, while there are possibilities of dividend returns to the city from an MUC, utility corporations do not come without risk.
There are success stories of MUCs, including Grande Prairie’s Aquatera, which made a $12-million profit in 2018, according to the business case.
But then there is the case of Chestermere, in which the corporation was dissolved after public outcry over ballooning utility rates and yearly deficits.
Medicine Hat owns the longest-run utility corporation in the province, owning and operating its own gas utility for over 100 years. Recently, due to extremely low gas prices, the corporation shut down 2,000 wells and laid off over 100 employees.
While dealing in very different utilities, Hughes said this demonstrates a need to have a solid understanding of client base.
“We need to know, how much of the client base is going to be outside of the municipality to make it viable, to make a profit.”
Public opinion “critical”
Getting really “full and frank” opinions from residents is necessary before reaching a decision on the MUC, MacKay said.
St. Albert residents would be the single shareholder of the utility corporation, and the business case says an internal analysis of developing an MUC would be incomplete without taking public perception into account.
“As residents are one of the most significant stakeholders of any city, it would be critical to take into consideration the perception of the residents before incorporating an MUC,” the case reads.
Hughes said she is concerned the city is not providing all the details but is still asking the public for an informed opinion.
“It looks that the new standard is that a lot of relevant details won’t be provided to the public moving forward, either,” she said.
A draft bylaw for the corporation will be presented sometime after the Dec. 2 public hearing.
Next steps
According to Heron, there is some additional work that needs to be done before a final decision is reached.
That includes a legal and tax implication review, the public hearing and then notifying the province of the city's plan.
One key consideration is whether an MUC would have to pay corporate taxes or be exempt.
According to Aquatera Utilities chief financial officer Jeff Pieper, MUCs are exempt from tax if they collect 90 per cent of revenue in their shareholder area, and if municipal shareholders own 100 per cent of the shares.
Coun. Ray Watkins declined to comment for this story. Coun. Natalie Joly did not respond before press time.
