Go-ahead sought to find sale, merger deal for Guelph Hydro

guelphmercury com
By Doug Hallett
Feb. 2, 2017

A five-member committee that has been studying Guelph Hydro’s future wants council to give the go-ahead to explore potential sale or merger opportunities for the city-owned electricity distributor.

“The question facing Guelph Hydro today is not whether a change in its historically successful business model will be required,” the committee’s new report says, “but rather what new form it will take, how rapidly it will have to alter course, and how to ensure Guelph Hydro has the technical resources and the financial capacity to transform in order to thrive in the long term.”

If council supports the committee’s recommendations at a meeting on Feb. 15, the search for potential sale or merger transactions will proceed quickly.

“Partners for a specific transaction should be identified by the end of June 2017 if the city’s intention is to complete a transaction within the current term of council,” says the committee report, which was made public Thursday.

The five-member strategies and options committee chaired by city CAO Derrick Thomson, which started its work in the fall, says public consultation done so far indicates some reluctance to lose local control and public ownership of Guelph Hydro.

Although questions posed to the public so far “focused on decision-making criteria and did not include questions about options, some respondents nonetheless used the platform to voice early opinions about the potential for a transaction,” the report says.

“At this stage in the process, a large segment of those who commented want to maintain local control and public ownership, and there is low-level support for a sale, especially with a privately-owned utility.”

The public engagement done so far also shows “no support for Guelph Hydro to buy other utilities,” the report says. And “if a merger is considered, participants prefer other utilities in the region and those who are ‘like-minded’ with Guelph Hydro.”

In 1996, Ontario had 307 local electricity distribution companies (LDCs), most of which were owned and operated by Ontario municipalities and regulated by Ontario Hydro.

Today there are about 70 LDCs, and this number is expected to be closer to 60 once active mergers and acquisitions are completed in the next few months, the report says.

“Between 1996 and 2001, Hydro One bought 89 LDCs, absorbing 88 of them and establishing Brampton Hydro as a separate subsidiary,” it says. “Larger LDCs were created when their municipal owners were amalgamated ... Other LDCs merged with neighbouring ones, such as the merger of Vaughan, Richmond Hill and Markham to form PowerStream.”

The electric power industry is facing “disruptive forces,” including the lines that separate electricity providers from customers, the committee’s report says. Quoting another industry report, it says that “in the not-too-distant future, homes and businesses may rely on energy storage units, fed by local renewable sources and distributed generation, as their primary sources of power.”

The five-member committee “believes the speed and magnitude of the changes facing the industry will require LDCs to expand from the traditional ‘poles and wires’ business model to take on new and different roles,” it says.

The committee recommends exploring the sale of all or part of Guelph Hydro to one or more purchasers, as well as exploring opportunities to merge Guelph Hydro with one or more other LDCs. Approval of any such deals by the Ontario Energy Board would be needed, and the OEB would continue to regulate the electricity distribution rates in Guelph and Rockwood - the area served by Guelph Hydro Electric Systems Inc.

“Proceeds from a sale of Guelph Hydro could be dedicated to the city’s strategic priorities or invested in a fund for use over time, or both,” says the committee’s report.

It recommends against the option of Guelph Hydro buying other utilities, because prices for LDCs are currently high and because the city and Guelph Hydro both lack the appetite and perhaps the ability to borrow sufficient capital for such a purchase.

Because Guelph Hydro is “financially and operationally sound,” the committee would be able to proceed “from a position of strength” in assessing sale or merger options, the report says. “Guelph Hydro is a valuable and attractive distribution utility that enjoys a high level of customer satisfaction.”

While maintaining full ownership by the city of Guelph Hydro “remains an option in the short term, it does not address the long-term challenges and opportunities facing Guelph Hydro in Ontario’s evolving electricity distribution market,” the report says.

The committee “is of the opinion that options which enhance Guelph Hydro’s ability to meet those challenges and thrive on those opportunities must be explored more fully to determine if there is a potential transaction that could satisfy all the decision-making criteria,” it says.

“The sell and merge options, properly negotiated and executed, provide an opportunity for Guelph Hydro to enhance its financial performance and other outcomes for ratepayers, the city, and other stakeholders, while providing the tools necessary to meet the long-term challenges and embrace the opportunities facing the industry.”

Aside from CAO Thomson, the committee approved by council includes Guelph Hydro CEO Pankaj Sardana, Guelph Hydro board member and Applied Precision Inc. president Bob Bell, and two members of the public - Mark Goldberg, who is Entrepreneur-in-Residence at Innovation Guelph, and Richard Puccini, a former managing director and consultant at Dillon Consulting.

In a letter appended to the new report, Guelph Hydro Electric Systems Inc. board chair Jane Armstrong says the hydro board supports the five-member committee’s recommendations, but wants to be more involved in the process than it has been up to now.

“We believe that as we embark on a closer examination of potential options for GHESI that greater involvement of the GHESI board is necessary and appropriate...we look forward to increased representation and participation as we embark on the next steps in this process,” Armstrong’s letter states.

The community is encouraged to join the hydro conversation by visiting energizingtomorrow.ca or by delegating on Feb. 15 when city council members meet as the Guelph Hydro shareholder, said a city news release Thursday.

Delegates have to register by 10 a.m. Feb. 10. They can do so with an online form on the city’s website, by emailing clerks@guelph.ca, or by calling 519-837-5603.

“A tremendous amount of research goes into this recommendation,” says Thomson said in the release. “When we apply the criteria - which were validated through consultation with the community - to the four options, we see that selling or merging with another local distribution company may hold the most promise for Guelph Hydro ratepayers, the community as a whole and the city as shareholder.”

In 2008, the hydro board proposed a deal to merge Guelph Hydro with Horizon Utilities Corp., the Hamilton-St. Catharines electrical distribution utility. Then-mayor Karen Farbridge, who was on the hydro board, advocated for the deal, but Guelph city council ended up voting the deal down on a dramatic 8-5 vote in Oct. 2008.