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Barrie energy deal would yield dividends, require debt

Bigger is better: mayor

Barrieadvance.com
Oct. 1, 2015
By Laurie Watt

Barrie will make $2 million more each year in dividends as it becomes a minority investor in a larger electric company, says Mayor Jeff Lehman.

The city, however, will have to find $28.6 million in cash for an equity injection into a new, as-yet-unnamed company that is to include PowerStream, as well as Enersource and Horizon Holdings, two other municipally owned distribution companies.

Barrie is one of three municipal partners in PowerStream.

The proposed merger would create a distribution company that spans from St. Catharines and Hamilton in the southwest, through Mississauga, Vaughan and Markham, up to Barrie and beyond.

The new merged company would purchase Hydro One Brampton for $607 million, a “high end” price, according to a city-retained industry expert, Navigant Consulting.

The new company is forecast to achieve operating savings of $355 million over the next 10 years, as well as save $168 million in capital spending.

Bigger is proving to be better, in terms of dividends, Lehman explained, noting when Barrie had sole control over Barrie Hydro, dividends rang in at about $2 million per year. They quickly rose to $4.5 million after the PowerStream merger in 2009.

And with the new larger company, dividends could be $6.5 million.

Before signing on the dotted line, however, Barrie is demanding the new merged company not reduce dividends to fund growth.

“If we said we have to build a bunch of (highway) overpasses, we could do that,” said Lehman, noting the city could continue to use its dividends as it sees fit.

Barrie has used its hydro dividends mainly for community projects. In the past decade, the city put $4.6 million into the BMC, $3.1 million in to the Barrie Community Sports Complex and $16.3 million into RVH’s expansion.

In the past three years, however, the city has reinvested them in PowerStream solar and metering businesses. The proposed agreement keeps the solar business in the hands of Barrie, Vaughan and Markham.

Lehman said the merger is coming at a time when PowerStream needs to reinvest dividends to maintain its core business, but the larger company will absorb those costs and dividends will continue to rise.

The cost is control. Rather than having three seats on the board of directors, Barrie will appoint one director on the 13-person board and its interest would equate to 9.4 per cent of the new company.

The new board would be dominated by Mississauga, with four, followed by Vaughan with three, Hamilton and Markham with two each. Barrie and St. Catharines would each have one.

For this, Barrie plans to sell 10 per cent of Barrie Hydro Holdings Inc. to help raise funds for the equity injection, as well as cash in a $20-milion promissory note with Barrie Hydro Holdings Inc.

Interest from that note now rings in at $1.1 million and the money is used in the city’s operating budget.

For residential customers, the bottom line would be a $2 per month cut on the distribution line of their hydro bill.

“It’s not a ton of money, but the price going down instead of going up is a good thing,” Ward 6 Coun. Michael Prowse said, adding cost avoidance due to less duplication with the new company is a good thing.

“The lights will still come on. You’re still getting a good deal.”

Purchase price for Hydro One Brampton: $607 million. It comes with 150,000 customers and serves 300 square kilometres.

The new company would be Canada’s second-largest local distribution company.

Customers:

Source: City of Barrie staff report CCS 02-15