Cutting Electricity Costs to Attract New Businesses

The city of Medicine Hat will make utilities more affordable for businesses by offering immediate rebates. Read why a cut in short-term profits could lead to long-term economic sustainability


What Happened?

The City of Medicine Hat will give up a portion of profit from new power sales to make it more appealing for businesses to relocate to the area, or encourage existing businesses to expand. The profits being sacrificed will come from new power plant construction or expansion.

Goal

The City of Medicine Hat is looking to build out its business sector. To incentivize new business growth or existing enterprise expansion, the city is willing to make utilities more affordable. Medicine Hat wants to target manufacturing businesses, specifically, which would find lower energy costs particularly appealing, Medicine Hat News reported.

This incentive is possible in Medicine Hat, where the city owns utilities. Therefore, the Medicine Hat City Council passed an energy division program that would offer immediate rebates to businesses equal to 10 to 80 percent of the profits the city generates from new or expanded power sales. Medicine Hat will configure contracts with businesses on a case-by-case basis, with each agreement lasting up to 10 years. Once the contract expires, the power prices will return to standard rates for businesses and Medicine Hat will regain normal profit margins. If companies decide to relocate or expand in Medicine Hat, job creation will jump and economic activity will surge, Medicine Hat News reported.

How It Works

A business taking advantage of the reduced energy rate will notice the savings during high power demand and need – when usage rises by 20 percent. The utility will offer businesses a discount of 10 to 20 percent of its profit margin on the additional power sales. As power requirements grow for each enterprise, so too will the discount up to 80 percent of profits. When the 80 percent threshold is met, a business can negotiate with city to approve even more discounts by special resolution, Medicine Hat News reported.

This immediate rebate deal strays from the current situation where businesses are under energy supply price contracts with Medicine Hat. This locks them into paying for the cost of producing electricity plus a 10 percent profit margin. By only charging businesses basically the cost of electricity, the city can break even and the businesses can reinvest money into economic growth.

Unique Incentives

There are a variety of ways cities are encouraging economic growth and development with rewards or savings:

The Colorado Springs City Council is offering Kinder Morgan energy provider with a tax rebate in return for funding to remodel the downtown area. The energy provider can acquire a percentage of sales and use tax revenue to purchase building materials and equipment for construction of a new downtown office space. The $11 million redevelopment project would bring jobs to the city, and thus the council is making up to $110,000 in incentives available to the company, The Gazette reported.

The Spokane City Council is launching a pilot program to help entrepreneurs renovate old buildings in the downtown area by paying for water and sewer upgrades up to $40,000. It will make it easier for small business owners and entrepreneurs to set up shop in Spokane, generating jobs and economic growth, KXLY reported.

Supporting Business

Gov1 has reported on a variety of programs cities are deploying to nurture entrepreneurialism and increase job growth .

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