Barrie Hydro merger in works; PowerStream, city in talks

Posted By BOB BRUTON

Posted 5 days ago

Barrie Hydro could cross lines with PowerStream by the end of this summer.

City council has decided to enter into a non-binding letter of intent to amalgamate Barrie Hydro with the Vaughan/Markham-owned electrical utility, in order to probe the business case of a proposed merger.

"I think it's worth looking into the possibility of lower rates for customers, increased dividends to the shareholder, and the potential for cost savings at Barrie Hydro going forward," Coun. John Brassard said.

He said not investigating the merits of a merger would be irresponsible to Barrie Hydro customers - especially if the business case supports it.

That report could be ready, and a deal made to merge the two utilities, by the end of August.

"It is important that we go into this discovery process with our eyes wide open and examine all the benefits and potential pitfalls of a merger," Coun. Michael Prowse said.

"Questions regarding control should not focus on it being given up. More accurately, it should be seen as an opportunity to leverage our current position into a stake in a much larger and potentially more profitable corporation (PowerStream)," he said.

"A merger has the potential to reduce costs through economies of scale in operations," Coun. Jeff Lehman said. "This can reduce rates for the public and for businesses operating in Barrie."

Any merger could also be timely. Utility companies in Ontario have until Oct. 31 to buy each other out or merge to get a provincial transfer tax holiday, a savings of 33 per cent on any transaction price.

Only Mayor Dave Aspden and Coun. Mike Ramsay, who sit on Barrie Hydro's board of directors, voted against investigating the merger. "I think to amalgamate with another utility at this time is a bad idea," Ramsay said. "We will be a minority shareholder, with only a couple of seats on a new board of directors of 12 to 15 people."

PowerStream has more than three times as many customers as Barrie Hydro, which is solely owned by city residents.

Ramsay also said it could affect the revenue Barrie Hydro generates each year to offset property taxes and contributes to the city's share of Royal Victoria Hospital's expansion and cancer care centre. Reached in mid-April, Eric Fagen of PowerStream said it had no plans to purchase Barrie Hydro.

"It (a merger) is a lot different," he said yesterday. "By merging, the City of Barrie would have a share of ownership. What that will be is part of what would be negotiated."

Fagen said he was unsure whether Barrie approached PowerStream about a merger, or the other way around.

A majority of Barrie Hydro's board of directors, three of five, voted against merger talks with PowerStream. But it was city council's decision to make.

Ross Archer, chairman of Barrie Hydro's board of directors, doesn't support the merger talks.

"I was a little disappointed. As a director, I wasn't very enthusiastic about the move," said Archer, Barrie's mayor from 1976 to 1988 and chairman of the city's electrical utility since then.

"Barrie Hydro has been a good business for the city to be in," he added.

Its dividend in 2007 was $6.1 million, and interest from a $20-million promissory note the city holds from Barrie Hydro was $1.3 million last year.

Peter Bursztyn, an energy expert who teaches at Laurentian University's Barrie campus at Georgian College, also opposes the merger.

"I like the idea of local control over energy," he said. "I want to know who is pushing the buttons.

"We don't have to sell. What's in it for us? That's the question we should be asking."

A joint steering committee will be formed with four members from each utility, Barrie Hydro and PowerStream, to work toward a potential merger.

It will also review the impact on distribution rates for residential and general service customers, dividend payments to shareholders, employees, relative ownership of the merged utility, operating costs, financial stability and service reliability.

Any merger deal would lead to one head office for the electrical utility and a minimum of two operation/administration centres - one of which must be located in Barrie.

The agreement would also include a number of items that would require the unanimous consent of all shareholders.

"Risk and control are also issues. These can be addressed by having significant issues require unanimous consent of the partners on an ongoing basis," Lehman said. "(For example), Barrie would have to agree for certain decisions to be made."

Coun. Jerry Moore says it's important to remember that the only decision that has been made is to investigate merging with PowerStream.

He says there are new utility regulations coming into force which will limit growth potential, so this is one alternative which will allow the city to increase the shareholder/resident value in Barrie Hydro through cost savings, reduced rates, dividends, etc.

"Giving up control does not mean we cannot maintain the same type of dividend policy we currently have, so the effect on Royal Victoria Hospital need not be (negative)," he said.

But Ramsay says the research he's done into similar mergers shows there are no cost savings, although the salaries of managers increased.

"It's a radical change," he said. "Once you sell it, you can't buy it back."

Ramsay likened the merger to an exercise about a decade ago to consider having the OPP police Barrie, rather than city police. It was narrowly rejected by the council of the day.

Contact the writer at bbruton@thebarrieexaminer.com