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By Ashley Lavallee-Koenig

Ahead of 2025 Budget Debates

Red Deer to explore creating a Municipally Controlled Corporation for utility management

Jul 22, 2024 | 5:19 PM

Red Deer city council has voted unanimously in favour of further exploring the possibility of transitioning electrical utility (EU) control from a City department to a Municipally Controlled Corporation (MCC).

By Q4 of 2024 and ahead of the 2025 budget debate, administration is expected to return to council with a detailed plan including transition steps and budget requirements for this option.

The decision on July 22, 2024, marked one more step toward modernizing the city’s EU control. Red Deer is one of five municipalities in Alberta that have maintained control of their utility distribution, and it makes up 40 per cent of its annual revenue.

“It’s a challenging process to change from one government model to another. The challenges of separating a section or a department of the city that has been integrated into the fabric of our system for over 100 years is not a quick project,” said Sarah Tittemore, general manager of community services. “There are considerations that need to be reviewed to consider potential impacts to the city and operations that must be planned for and considered when developing an implementation strategy.”

Administration began looking into options for the City to update its utility structure in December of 2021. After evaluating a handful of options, it recommended that council direct it to further investigate the option of creating an MCC to optimize its time and efforts.

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Officials say an MCC would involve council creating a corporation separate from the City but governed by an appointed board and for the benefit of residents. It would carry out business and seek investments on behalf of the City and could take on its own debt and revenue, although council may also opt to keep that within the City’s direct control.

One example of this kind of model is EPCOR, which is an MCC owned solely by the City of Edmonton which owns and operates the natural gas, electrical, water, distribution systems, and more.

Other options presented to council included keeping the structure as it is now, with some minor updates to the model, or divesting and entering franchise agreements with private companies, which would greatly decrease City input and control of the utility. Council will be able to choose between these three options once they receive and evaluate the MCC report in the fall.

“The prime reason for the reduction down to the three was the ability of the different models to generate additional revenues and dividends that can be returned back to the owner of the utilities,” explained Paul Goranson of P. A. Goranson Consulting.

Research presented by administration found that overall, transitioning to an MCC model would be the best option to pursue further information about. Goranson and Kate McBride-Staples, research and evaluation lead with the City, shared that this approach offers greater departmental capacity and control than divesting; most strongly aligns with the City’s principles of reliability, responsiveness, affordability, marketability, adaptability, and financial benefits; and offers the City flexibility to move to divesting or other options in the future.

Risks associated with developing an MCC include a rigorous implementation process, limited ability to scale past the City’s boundaries, and a potential decrease to the City’s debt limit if it is to relinquish revenue and debt to the MCC, as debt limit is directly tied to revenues.

Current constraints faced by the utility department include capacity, as council needs to decide on planning, budgets, and rate setting of the utility, which limits its ability to adapt quickly to the rapidly changing industry. Another issue is the level of talent acquisition as the City is competing with large and sophisticated distributors. Increased public interest in renewable resources and electrical vehicles also requires a reevaluation of the EU’s management.

If council opts to move forward with developing an MCC after receiving the report in the fall, the province will require them to create a business plan, notify the minister of municipal affairs, consult with the Alberta Utilities Commission, and hold a public hearing.

Red Deer has maintained control of its utility operation and distribution since 1901. Although the electrical utility was the focus of the July 22 council meeting, it was mentioned that other utilities could face changes in the future as well.

Other municipalities that have maintained control include Lethbridge, Medicine Hat, Cardston, and Ponoka.

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