The following article appeared in the March 1 edition of the Guelph Mercury:
Backers of a proposed merger of Guelph Hydro and another regional electrical utility predict flicking that switch would reduce local power rates.
But supporters of the potential union of Guelph Hydro Electric Services Inc. and Horizon Utilities Corporation also admit local job cuts would come with such a marriage.
Still, its advocates are adamant local residents and ratepayers would be winners in merging Guelph Hydro and Horizon, itself a 2005 amalgamation of the electricity distribution companies in Hamilton and St. Catharines.
“Do we believe our customers will benefit? Absolutely — or we won’t merge,” Guelph Hydro chair Paul Truex assured city councillors during a special open meeting Tuesday to discuss the merger.
Guelph Hydro and Horizon recently signed a memorandum of understanding to develop a business case on the merger. To save $33 million in provincial taxes, the plan must be in place before a merger-tax moratorium expires in October.
“It’s obviously going to be a very big decision for us,” Mayor Karen Farbridge said Tuesday, adding public comment will be sought at another meeting in a few weeks. “It’s a significant asset for this community.”
In 2006, Guelph Hydro had assets of $106.7 million and liabilities like long-term debt of $50.4 million, according to the Ontario Energy Board, the industry regulator.
‘SERIOUS LOSS OF CONTROL’
A former long-term Guelph city councillor with expertise in the field is among those with misgivings about doing away with a century-old city asset worth $56.3 million.
“If (Guelph Hydro isn’t) viable at 46,000 (customers), what are they viable with?” asked Dan Moziar, former head of the local hydro commission and past chair of the provincial Electricity Distributors Association.
Guelph’s roughly 21 per cent of the merged entity would make it a bit player in its own electricity distribution, he said. “In my mind, it’s a serious loss of control.”
Moziar also questioned whether Guelph Hydro’s customer service would suffer after a merger, adding local engineering standards, such as newer and more efficient power lines, are superior to those at Horizon. He wondered how the two would mesh and at what cost.
He dismissed suggestions that Guelph Hydro and its customers would benefit from economies of scale available through such a merger.
The province arguably gave tacit approval years ago of the bigger-is-better hydro distribution model opposed by Moziar. In the 1990s, it delivered legislation to enable such deals — sometimes allowing for tax incentives as part of the new policy bargain.
Since then, fewer than 90 remain of 300 distribution utilities that existed prior to the passage of the legislation.
Guelph-based Hammond Manufacturing chief executive Robert Hammond said merger benefits remain unclear until the business case is made.
“Is the cost going to come down? That’s the question,” said Hammond, whose company uses plenty of power to make electrical enclosures and components.
Last November, a typical residential customer using 1,000 kilowatt hours a month paid $110.77 at Horizon and $114.05 at Guelph Hydro, according to the OEB.
However, the municipality will also be obliged to weigh other financial considerations in musing about this possible merger. Since Guelph Hydro was restructured into a corporation in November 2000, it has paid an annual dividend to the city of roughly $1.5 million, Truex said yesterday.
Guelph Hydro also pays almost $1.9 million a year in interest on $30 million in debt to the city.
“We’re a good investment for the city,” Truex said.
HANDLE WITH CARE
The International Brotherhood of Electrical Workers Local 636 is working to make other potential merger concerns front-of-mind matters for councillors.
IBEW 636 rep Tracy O’Meara said the deal between Guelph Hydro and Horizon is fraught with challenges for local Hydro staff.
“It has to be handled very carefully,” said O’Meara, whose union represents 77 of 100 workers at Guelph Hydro, including line-workers, mechanics, warehouse personnel, clerical and accounting staff.
Union members in St. Catharines and Hamilton affected by the Horizon merger weren’t happy to see working conditions change, benefits decline and commuting distances increase in some cases, issues that haven’t been fully resolved, she added.
“There’s been a lot of labour unrest there,” O’Meara, a Rockwood resident, said.
Truex acknowledged there would be staff downsizing to bring about operational savings in the new merger. He said Tuesday that buyout packages will be offered and remaining employees will have more career choices, room for advancement and training at the larger, merged company.
There was upheaval with the St. Catharines-Hamilton fusion that serves 233,000 residential and commercial customers. The St. Catharines utility had 102 staff at the time. Hamilton’s utility had 313 staff. A buyout program saw 50 of the roughly 400 mainly inside workers leave the company, St. Catharines chief administrative officer Colin Briggs said.
“It was controversial,” St. Catharines Councillor Joseph Kushner said.
But Kushner, who also sits on his local hydro board, favoured the creation of Horizon.
“The evidence is in nonescalating rates and dividends to the city,” said Kushner, a Brock University economics professor.
The merger cut operating costs 15 per cent, or $5.4 million, in 2006 alone, with savings passed on to the cities, said St. Catharines Mayor Barry McMullan, a member of his city’s hydro board.
Horizon customers saw a hydro distribution rate reduction averaging 2.3 per cent, Briggs said.
Horizon dividends continue to grow. They totalled almost $10.5 million last year, Truex noted. McMullan said St. Catharines received roughly $2 million of this and noted there could be further savings down the road.
“We feel it has a potential to grow significantly,” from future programs like green energy and savings from additional mergers, McMullan said.
Along with Kushner, he lamented the job loss.
“That’s the part that was difficult for the community,” the mayor said.
He also emphasized service hasn’t declined in St. Catharines from the merger with Hamilton.
“The whole experience from beginning to end has been excellent,” St. Catharines Coun. Mark Elliott said. “We haven’t seen a downside.”
He welcomed a hookup between Horizon and Guelph.
“You’ve had a very good utility there. Horizon looked at a number of mergers. Guelph came up number 1,” Elliott said.
Private-energy-sector analyst and consultant Tom Adams said it won’t be a cakewalk.
“There’s a substantial potential upside for consumers here, but there are some difficult steps along the way,” Adams said. “There is still the problem of rate harmonization.”
The Ontario utility giant Hydro One has been buying up small rural utilities, each with “rate structures all over the map,” Adams said.
Hydro One is now before the regulator with a proposal to phase in the same rate structures for various classes of customers.
“That creates real challenges,” Adams said, noting rates could rise for some customers and decline for others in an effort to harmonize.
When Toronto Hydro emerged out of a consolidation of several utilities, rates went up for the smaller ones, he said.
But he also noted that following the Toronto mergers, staff were reduced to 1,500 from 2,500.
“There are clear benefits in efficiency gains,” Adams said.
“Mergers are the way to go. They need to be done carefully. Customers need to be protected.”
PROPER PLANNING REQUIRED
It’s still early days to look at rate harmonization in the proposed Guelph-Horizon merger, Truex said in an interview this week.
“That hasn’t received much of our attention (yet),” Truex said, adding the focus will be to lower rates.
“There will be savings in the merging,” Guelph Hydro president Art Stokman said.
Truex told the packed public meeting the many benefits include a recognition “customers are paying more for the delivery of electricity than they need to,” in part because of costly regulatory requirements a larger utility could more easily handle.
Coun. Maggie Laidlaw questioned the benefits of large distribution companies during Tuesday’s meeting, suggesting nimble smaller ones could best respond to climate upheaval and catastrophes.
Truex said it’s not a size issue but one of proper planning.
Asked by Coun. Karl Wettstein why there haven’t been more mergers, Truex said: “Everybody wants to drive the bus.” But Guelph, Truex reasoned, is putting itself in a good position to be a key player in future amalgamations with a deal with Horizon.
“We’re prepared to let others drive — as long as we’re in one of the front seats,” Truex said.
Coun. Ian Findlay sought and got an assurance Guelph Hydro remains committed to the local community energy plan. The city is creating a 25-year plan to reduce energy consumption and Truex said Horizon has been informed of Guelph Hydro’s commitment to this goal.
“At the end of the day, it’s this council that makes the decision (on merger proposals),” Farbridge said Tuesday.
She added yesterday she’s hopeful council will have a business deal to consider by this summer.
Though it affects Rockwood residents, Guelph-Eramosa Township council won’t have an opportunity to vote a deal because the utility is owned by Guelph alone. Farbridge added, though all residents, including those in Rockwood, will be consulted on any concerns they have, as will hydro employees.
“This decision has to be in their best interests,” Farbridge said.
Even if those around the council table reject Horizon “we could likely expect future merger proposals,” Farbridge noted.
STARTING LINEUP
Who are the power people involved with this issue?
Guelph Hydro Systems Inc., with 100 employees, distributes power to 46,000 residential and business customers in Guelph and Rockwood. It operates out of the Hanlon Business Park on Guelph’s south end.
Horizon Utilities Corporation, owned by Hamilton and St. Catharines, is the third largest municipal distribution utility in Ontario. Its 360 staff serve 233,000 customers through facilities in Hamilton, St. Catharines and Stoney Creek.
Paul Truex — Guelph Hydro chair
Dan Moziar — former Guelph city councillor, former head of local hydro commission and past chair of the provincial Electricity Distributors Association.
Tracy O’Meara — Rockwood resident, International Brotherhood of Electrical Workers Local 636 union rep.
Tom Adams — Private-energy-sector analyst and consultant.