Hydro One offer for Peterborough Distribution Inc. (PDI): A good deal for Peterborough


Hydro One is offering approximately $105 million to buy Peterborough Distribution Inc. (PDI) – the part of our local utility that delivers power to businesses and homes.

The deal will mean stable electricity distribution rates, guaranteed service levels, job security for existing workers and new economic development that will bring 30 new good paying jobs.

It’s a good deal for Peterborough.

  • NEW JOBS FOR PETERBOROUGH
  • STABLE ELECTRICITY DISTRIBUTION RATES
  • GOOD VALUE FOR TAXPAYERS
  • CUSTOMER SERVICE GUARANTEES

DOING NOTHING HAS A COST.

The electricity sector is changing. As a small electricity distribution company it’s going to become harder to be cost effective and provide service. That’s going to mean less money for upgrades, poorer service, dwindling dividends for the City, and the company will be worth much less.

If Peterborough doesn’t capitalize on this opportunity, PDI projections show that over the next five years is expected that:

  • Peterborough electricity distribution rates are expected to rise by 17.1%
  • The annual dividend PDI pays to the City will fall from approximately $1.2 million per year to $700,000

If we don’t act the value of PDI will shrink.
It’s estimated that not acting will mean a loss of $35 million
in value of PDI over the next five years.

THE HYDRO ONE OFFER FOR PDI

City of Peterborough Holdings Inc. has studied Hydro One’s offer to buy Peterborough Distribution Inc. very carefully, mindful of its job to manage the businesses it runs to ensure the best long-term interests of Peterborough and its residents.

The Board of City of Peterborough Holdings Inc., made up of leading business and community leaders, has been actively reviewing the terms of the Hydro One offer, examining the current business environment, and looking out for the best interests of ratepayers, employees, the City of Peterborough.


After this extensive due diligence process, the Board’s conclusion was the offer from Hydro One would mean lower electricity distribution rates, guaranteed service levels, a great financial deal for Peterborough, new jobs and economic development, and job security for existing Peterborough Distribution Inc. employees.

DETAILS

The proposal would guarantee lower electricity distribution rates, and lock in rate certainty, subject to Ontario Energy Board approval, for ten years.

Under the Hydro One proposal distribution rates will fall by 1% for the next five years, and then future changes would be aligned with inflation. This means Peterborough will have a decade of distribution rate stability.

If we do nothing, PDI’s distribution rates are expected to increase by as much as 17.1% over the next five years and as much as 28.8% 10 years from now.

rate-calculation

** All based on a 800Kwh residential customer. Utilizing annual rate increases of 1.5% in non Cost of Service Years. Cost assumptions included in PDI’s current projection

The same local utility workers who service Peterborough today, will continue to do the same jobs under Ontario Hydro should the deal be approved. Should the deal be approved, Peterborough can expect the same levels of customer service it enjoys today.

Hydro One has promised to go one step further and will provide a money-back customer service guarantee. Customers will receive a $50 Hydro One account credit for things like the company missing a scheduled appointment, or failing to return a phone call within one business day.

Ontario hydro is offering approximately $105 million to buy Peterborough Distribution Inc. After paying off PDI’s debt, taxes and other costs related to the sale, it will mean between $50‐$55 million for the City.

The money from the sale of PDI has the potential to be a game changer in addressing the City’s infrastructure deficit by being reinvested to grow the City’s annual dividend. The dividend supports many of the programs and services Peterborough area residents depend on.

  • Reinvesting money from the sale would allow the City to protect and grow the annual dividend it gets from City of Peterborough Holdings Inc. For example, reinvesting this money would allow the City to earn as much as $3 million to support City programs and services.
  • This deal will benefit the City and taxpayers by maximizing the value of PDI, and avoiding the risks of holding on to an asset that could decline in value.
Should the deal be accepted by Peterborough City Council, Hydro One will create 30 new jobs in Peterborough.

This would be in addition to the 70 Hydro One jobs already located in the City.

Hydro One will also locate a new regional Operations Centre and Fleet Maintenance Garage in Peterborough. This new development will bring with it economic development activity of between $100-$150 million over the next five years, and generate additional municipal tax revenue of approximately $100,000 every year.

All PDI staff will be offered employment with 12-month service and location guarantees as well as recognition of past service for seniority purposes. As well, becoming part of a larger organization will give PDI employees the chance to pursue opportunities across the province, if they choose to do so.

Who is PDI?

Peterborough Distribution Inc. (PDI) is one of the assets of City of Peterborough Holdings Inc., the utilities company owned by the City of Peterborough.

PDI distributes electricity in Peterborough, Lakefield and Norwood. The business is regulated by the Ontario Energy Board (OEB) which has broad powers relating to licensing, standards of conduct and services and the regulation of rates.

PDI is owned by City of Peterborough Holdings Inc. (CoPHI). CoPHI is wholly owned by the City of Peterborough.

CoPHI is comprised of several companies, including Peterborough Distribution Inc. (PDI), Peterborough’s regulated electricity distribution company.

CoPHI has a mandate from the City of Peterborough to manage the assets under its care to ensure the best long-term interests of Peterborough and its residents.

Recently, CoPHI received an offer from Hydro One to purchase PDI. PDI is the only CoPHI company that is under consideration for sale.

CoPHI’s Board has conducted a thorough and detailed review of Hydro One’s offer and has recommended that it be accepted by the City of Peterborough.

 

 

Who is Hydro One?

Hydro One is an Ontario-based company involved in the planning, construction, operation, and maintenance of our transmission and distribution network. The Government of Ontario is currently, and will continue to be, the largest single shareholder in Hydro One.

Hydro One’s transmission system carries electricity from generating stations to local distribution companies and large industrial customers through a high-voltage network of transformer stations, transmission towers and wires.

Hydro One owns 97% of transmission in Ontario with almost 30,000 km of high-voltage transmission lines. It owns and operates 26 interconnections with neighbouring provinces and states, which allow electricity to flow into and out of Ontario.

Hydro One’s distribution system delivers electricity at lower voltages to homes, farms and businesses through its network of hydro poles and power lines. Its network is the largest in the province, with 121,000 km of wires serving 1.4 million customers.

Want to know more about the proposal from Hydro One?

City of Peterborough Holdings Inc. welcomes your questions. Enter your question in the box below and we’ll answer.

We will be updating our FAQs regularly, so please check back soon for updates.

Please also check our FAQs below before submitting.


FAQs

About PDI

Not at all. PDI is a strong and well-run company.

Nevertheless, it faces challenges that will impact its performance over the medium and long terms.

Like all utilities, PDI’s business growth is linked to increases in customers and their consumption patterns.  Since there is limited forecasted growth in either, PDI’s business is not expected to grow.

At the same time, PDI’s costs are likely to rise.  PDI requires system and infrastructure upgrades.  Over time, these upgrades will increase local electricity distribution rates and reduce the annual dividend PDI provides to the City.

With stable revenues and rising costs, PDI forecasts predict that over the next five years:

  • The local electricity distribution rates charged to consumers are expected to rise by 17.1% over the next five years;
  • The dividends paid by PDI to the City could decline 30%, from approximately $1.2 million to $700,000 or less; and,
  • The value of PDI could decline by $35 million over the next five years.
PDI is a successful company with a strong record of financial performance and customer service.

Nevertheless, times are changing, and structural changes facing small distribution companies coupled with factors specific to PDI suggest that a sale is worth considering at this time.

Structural Changes

Changes in technology, customer expectations and new regulatory requirements present considerable challenges for small utilities like PDI.

According to the Ontario Distribution Sector Review Panel, these challenges are best met through larger entities that have the necessary scale and capabilities as well as a strong balance sheet. Small utilities simply lack the resources and access to capital required to address the significant changes already underway in the sector.

In fact, the Ontario Distribution Sector Review Panel determined that the optimal size of a local distribution company is at least 400,000 customers – over 10 times the size of PDI.

Facts Specific to PDI

PDI’s business is expected to have limited growth. Like all utilities, PDI’s growth is linked to increases in customers and their consumption patterns and neither is forecast to increase.

At the same time, PDI’s costs are likely to rise.  PDI requires system and infrastructure upgrades.  Over time, these upgrades will increase local electricity distribution rates and reduce the annual dividend PDI provides to the City.

With stable revenues and rising costs, PDI forecasts predict that over the next five years:

  • The local electricity distribution rates charged to consumers are expected to rise by 17.1% over the next five years;
  • The dividends paid by PDI to the City could decline 30%, from approximately $1.2 million to $700,000 or less; and,
  • The value of PDI could decline by $35 million over the next five years.
PDI is one of the assets of City of Peterborough Holdings Inc., the utilities company owned by the City of Peterborough.

PDI distributes electricity in Peterborough, Lakefield and Norwood. Electricity distribution makes up about 22% of your residential hydro bill.

PDI is composed of a number of departments, including: Electric Maintenance, Meter Technicians, Electric Operations, Engineering and Inspections.

Since 1998, local distribution companies (LDCs) in Ontario, including PDI, have operated as for-profit commercial enterprises under the Ontario Business Corporations Act (OCBA). Under this model, each LDC is governed by and directly accountable to a board of directors subject to legal duties arising under the OCBA.

Under this model, the oversight of PDI, and Hydro One, is first and foremost the responsibility of the Ontario Energy Board (OEB). The City does not and cannot regulate how much revenue PDI generates or the electricity distribution rates that PDI charges its customers. Those matters are determined by the OEB and not by City Council.

The OEB regulates investor-owned distribution utilities exactly the same way it regulates utilities owned by the province or by municipalities. The OEB has broad powers to set rates, establish customer service standards, investigate non-compliance and initiate enforcement proceedings. All distribution companies, including PDI and Hydro One, are subject to the same OEB rules and regulations.

The OEB has the power and mandate necessary to protect electricity consumers in Peterborough going forward. In deciding whether to approve the sale, the OEB must be satisfied that the sale does not harm PDI customers with respect to matters such as rates, reliability and quality of service.

There are broader structural issues as well as factors specific to PDI.

Structural Issues

Changes in technology, customer expectations and new regulatory requirements present considerable challenges for small utilities like PDI.

According to the Ontario Distribution Sector Review Panel, these challenges are best met through larger entities that have the necessary scale and capabilities as well as a strong balance sheet. Small utilities simply lack the resources and access to capital required to address the significant changes already underway in the sector.

In fact, the Ontario Distribution Sector Review Panel determined that the optimal size of a local distribution company is at least 400,000 customers – over 10 times the size of PDI.

Factors Specific to PDI

PDI’s business is expected to have limited growth. Like all utilities, PDI’s growth is linked to increases in customers and their consumption patterns and neither is forecast to increase.
At the same time, PDI’s costs are likely to rise. PDI requires system and infrastructure upgrades.

Over time, these upgrades will increase local electricity distribution rates and reduce the annual dividend PDI provides to the City.

With stable revenues and rising costs, PDI forecasts predict that over the next five years:

  • The local electricity distribution rates charged to consumers are expected to rise by 17.1% over the next five years;
  • The dividends paid by PDI to the City could decline 30%, from approximately $1.2 million to $700,000 or less; and,
  • The value of PDI could decline by $35 million over the next five years.

About Hydro One

The Province of Ontario currently owns 70% of Hydro One and has announced plans to reduce its ownership stake to 40%.

The Province of Ontario will remain Hydro One’s largest and controlling shareholder. By law, the Province is required to retain at least a 40% interest in Hydro One and no one other than the Province is permitted to own more than 10% of Hydro One. Hydro One is also prohibited by law from selling its Ontario electricity transmission and distribution businesses and is required to maintain its head office in Ontario.

The hydro rates charged by Hydro One are subject to regulation by the Ontario Energy Board (OEB).

Hydro rates cannot change without approval by the OEB. The OEB regulates investor and provincially owned distribution companies in the same way it regulates municipally owned utilities like PDI. All distribution companies are subject to the same rules and regulations related to setting rates and customer service.

Hydro One’s Offer

The Hydro One offer is a good deal for Peterborough and its residents. The Hydro One offer means:

  • Lower electricity distribution rates;
  • Guaranteed service levels;
  • A great financial deal for Peterborough;
  • New jobs and economic development for Peterborough; and,
  • Job security for existing PDI employees.

Click here to learn more about each of the key benefits of the Hydro One offer.

The opportunity for Peterborough to capture the best value for PDI is now.

There are several reasons:

  • Ongoing industry consolidation and the scale of required system and infrastructure upgrades will likely reduce the value that a purchaser is willing to pay for PDI in the future.
  • The Province of Ontario has established a temporary reduced tax rate period to encourage the consolidation of local distribution companies, which will result in significant savings for the City.
  • The proposed transaction with Hydro One brings a unique development opportunity to the City through the establishment of the new Service Centre. This opportunity will be lost if we don’t proceed now.
Thank you for your question. This question is best answered by Hydro One and we’ll be passing it along to them. We can say, however, that the price being offered by Hydro One is consistent with the market prices other municipalities have received for the sale of their local distribution corporations.
Hydro One’s $105 million offer reflects fair market value for PDI and is consistent with the market prices other municipalities have received for the sale of their local distribution corporations.

The opportunity to capture the best value for PDI is now. Ongoing industry consolidation and the scale of system and infrastructure upgrades required by PDI will likely reduce the value that a purchaser is willing to pay for PDI going forward

The Province of Ontario has also established a temporary reduced tax rate period to encourage the consolidation of local distribution companies. Taking advantage of this temporary tax rate reduction will result in significant savings for the City.

Hydro One’s $105 million offer reflects fair market value for PDI and is consistent with the market prices other municipalities have received for the sale of their local distribution corporations. After paying off PDI’s debt, taxes and other costs related to the sale, the City of Peterborough will realize approximately $50-$55 million.

The level of debt carried by PDI is comparable to the debt levels of other Ontario LDCs. If the agreement between PDI and Hydro One had called for Hydro One to assume PDI’s debt, the cash payment would have been reduced accordingly. This was clearly the case in earlier sales, such as the sale of Woodstock Hydro, Brant County Power and Orillia Power.

In many ways, the deal between Hydro One and CoPHI regarding the sale of PDI is very much like an agreement for the purchase and sale of a house – the total purchase price is set, the deal closes, the price is paid by the purchaser to the seller, and the seller is then responsible for paying off: a) the mortgage on the property, and b) any commissions and fees for which the seller is responsible.

Appropriately reinvested, the proceeds from the sale would yield an expected annual return of up to $3 million to support city programs and services. This is a significant improvement over the projected PDI dividend of approximately $700,000 in five years. The recent announcement by Toronto Hydro regarding the reduction in the annual dividend payable to the City of Toronto is confirmation that changes in the sector, and the need for ongoing investment, will impact the ability of LDCs to maintain historic levels of dividend payments going forward.

In addition to the sale price, Hydro One’s offer includes a significant new investment in the City of Peterborough. Hydro One will bring approximately 30 new jobs to Peterborough and locate a new Regional Operation Centre and Fleet Maintenance Garage in the City.  The new development will bring with it economic activity of between $100-$150 million over the next five years and generate additional municipal tax revenue of approximately $100,000 annually.

Over the last two years, CoPHI’s Board and senior management have been actively reviewing how best to manage the far reaching changes in public policy, regulation, technology and customer expectations afoot in the local electricity distribution sector.

Hydro One made its offer for PDI in fall 2016. After exploring all of the alternatives as well as conducting significant due diligence on the offer, CoPHI’s Board voted unanimously to endorse the sale in late October 2016 and refer it to the City of Peterborough for consideration.

Hydro One is in the best position to answer your question about why it is interested in PDI, and we will forward your question directly to Hydro One. What we can say, however, is that PDI’s territory is “the missing puzzle piece” in Hydro One’s service area and represents a very good fit with Hydro One’s existing asset base.

Thank you for your question. This question is best answered by Hydro One and we’ll be passing it along to them. What we can say, however, is that PDI’s territory is “the missing puzzle piece” in Hydro One’s service area and represents a very good fit with Hydro One’s existing asset base.

Use of Sale Proceeds

The City of Peterborough will determine how the proceeds of the sale of PDI are used.

One approach would be to reinvest the proceeds to protect and grow the annual dividend that the City gets from City of Peterborough Holdings Inc. (CoPHI). Indeed, City staff may recommend that the proceeds from the sale be invested in a legacy fund for an annual return.

CoPHI’s Board, for example, has determined that reinvesting the proceeds would allow the City to earn as much as $3 million annually to support City programs and services. That is a significant increase over the annual dividend currently paid to the City.

The City of Peterborough will determine how the proceeds of the sale of PDI are used. One approach would be to reinvest the proceeds to protect and grow the annual dividend that the City gets from City of Peterborough Holdings Inc. (CoPHI). CoPHI’s Board, for example, has determined that reinvesting the proceeds would allow the City to earn as much as $3 million annually to support City programs and services. That is a significant increase over the annual dividend currently paid to the City.

Customer Service and Reliability

No. The excellent service that PDI customers have come to expect would continue with Hydro One.

Hydro One will provide a service guarantee backed by monetary compensation.

Customers will receive a $50 account credit if Hydro One fails to miss a scheduled appointment or fails to return a phone call within one business day, among other things.

Hydro One’s commitment to customer service is wide ranging and includes:

  • Extended call centre hours (7:30 a.m. to 8:00 p.m.);
  • An Interactive Voice Response system (IVR) that won an award for the best utility IVR in Canada and the second best utility IVR in North America;
  • Extensive Conservation and Demand Management programs;
  • A Business Customer Service Centre staffed by agents with specialized expertise in understanding and dealing with mid-sized commercial and industrial operators; and,
  • Cutting edge communications and digital tools, from an innovative online Outage App to Outage Alerts by text or email.
  • Hydro One has also established an Internal Ombudsman dedicated to resolving customer complaints and improving customer services.

Further, the reliability of the Hydro One system around Peterborough has been very similar to the reliability that PDI customers have experienced.

Hydro One provides service to some of the most remote and sparsely-populated areas of Ontario, where reliability can be strongly impacted by severe weather events and where crews may need to travel long distances to fix an outage. However, even in the face of these challenges, Hydro One has achieved reliability scores in its 2015 OEB Scorecard that exceed the OEB targets for distributors and that show a positive 5-year trend.

It is much easier to detect and respond to any outages in a setting such as Peterborough than in a remote area, where crews may have to travel for a considerable distance to fix a problem and restore service. Accordingly, we do not anticipate that reliability within Peterborough will be adversely affected by the sale.

Hydro One’s level of reliability in the Peterborough area is broadly comparable to PDI’s own level of reliability, as set out in the table below:

reliability

With respect to customer service, CoPHI anticipates that the high level of service experienced by PDI will continue with Hydro One. Hydro One has achieved customer service scores in the 2015 OEB Scorecard that exceed distributor targets and that are comparable to the scores achieved by PDI.

Going forward, customers would have full access to Hydro One’s suite of customer services:

  • Extended Call Centre hours (7:30am to 8:00pm)
  • Utilization of a 24/7 Interactive Voice Response system
  • Targeted 80% of calls will be answered within 30 seconds during normal operation periods
  • Targeted 85% of customer correspondence will be resolved within 24 hours
  • Access to Hydro One’s innovative outage app, and outage alerts via text or email
  • Service Guarantees: a $50 credit to the customer’s account should Hydro One:
    • Miss a scheduled appointment
    • Fail to connect a new service within five business days
    • Fail to return a phone call within one business day

Customers would also have access to an independent ombudsman as an avenue of final appeal regarding service issues.

Any impact on reliability and customer service will be considered by the Ontario Energy Board (OEB) when deciding whether to approve the sale of PDI. The OEB must be satisfied that the sale does not harm PDI customers with respect to those matters.

Electricity Distribution Rates

PDI’s business is not expected to grow. At the same time, PDI’s costs are likely to rise due to required system and infrastructure upgrades.

The 28% reflects PDI’s best forecast of rate increases based on PDI’s past regulatory application experience and recent OEB approval trends in the sector. Absent the proposed sale to Hydro One, and following the OEB application cycle, we would likely proceed with cost of service applications in 2017, 2021 and 2025, together with annual increases in other years in accordance with the OEB’s Price Cap Incentive Rate mechanism.

The distribution rate accounts for approximately 22% of a residential hydro bill.

While the distribution rate decrease has been a feature of similar transactions involving Hydro One, it is also an important part of Hydro One’s offer for PDI.

In addition to the distribution rate decrease and five year freeze, Hydro One and CoPHI will request OEB approval for a 10-year rate rebasing deferral period. It is important to note that the OEB is very concerned with consumer rate protection. It is expected that an offer from Hydro One to hold or limit rate increases to the benefit to all PDI consumers would be positively received by the OEB.

If approved, the 10-year rate rebasing deferral period would align any distribution rate increases with inflation for years six to 10. It would also offer, through an Earnings Sharing Mechanism, a guaranteed share of Hydro One’s six to 10 year earnings efficiencies.

No. Hydro One has committed to protecting PDI customers from increases in hydro rates.

Electricity distribution rates are the rates that are charged to deliver electricity to homes, businesses, schools and other institutions. The cost of electricity distribution is one part of your overall hydro bill.

This sale of PDI would reduce the electricity distribution portion of your hydro bill for at least ten years:

  • In the first five years after a sale, the electricity distribution rate paid by PDI customers would be frozen at current levels, and reduced by 1%. This is a standard term that Hydro One has offered and delivered in similar transactions.
  • In the following five years, any electricity distribution rate increase would be aligned with the rate of inflation.
  • PDI customers will also share in the value of the efficiencies that Hydro One achieves during that five-year period, and these guaranteed savings will be used to offset Peterborough rates in years eleven onwards.

Hydro One is also considering a number of options to protect PDI customers in years eleven onwards, including the creation of a new rate class for the customers of the distributors it has purchased. This would be subject to OEB approval.

By contrast, in the absence of a sale, PDI’s distribution rates are forecast to increase by approximately 17.1% over the next five years to cover system and infrastructure upgrades.

The proposed sale of PDI to Hydro One will guarantee lower electricity distribution rates and will lock in those rates, subject to OEB approval, for ten years. In the first five years following the sale, PDI’s distribution rates would be frozen at current levels and reduced by 1%.  In the following five years, any distribution rate increases would align with the rate of inflation.

In the absence of a sale, PDI’s distribution rates are expected to increase by as much as 28.8% over the next ten years.

Under Hydro One’s proposal, subject to OEB approval, PDI’s distribution rates would only increase by 6.5% over the same period. That is a significant benefit for PDI’s customers.

It should also be emphasized PDI customers will share in the value of the efficiencies that Hydro One achieves during years six through ten, and these guaranteed savings will be used to offset Peterborough rates in years eleven onwards.

Hydro One is also considering a number of further options to protect PDI customers in years eleven onwards, including, subject to OEB approval, the creation of a new rate class for the customers of the distributors it has purchased.

The approach to rates that Hydro One is proposing is exactly the same as the approach in the recent sale of Orillia Power to Hydro One.

When the Ontario Energy Board (OEB) decides whether to approve the sale of PDI, it must be satisfied that the sale does not harm PDI customers with respect to matters such as rates, reliability and quality of service.

Job and Economic Impacts

The Hydro One offer provides job security for all existing employees.

All existing PDI staff will be offered employment with 12-month service and location guarantees as well as recognition of past service for seniority purposes.

Existing PDI staff will also benefit from becoming part of a larger organization with opportunities to pursue positions across the province.

There will be no staff layoffs as a result of the proposed transaction.
PDI currently employs about 60 staff. All those employees will receive job protection should the proposed transaction be approved. The 30 new Hydro One positions to be created would be part of the new Hydro One Operations Centre and Fleet Maintenance Garage. These new jobs are entirely separate from the existing positions held by PDI employees.
The Hydro One Regional Operations Centre and Fleet Maintenance Garage would be located in Peterborough. The specific location of the facility would be determined after the deal closes.

Decision Making Process

The City of Peterborough is engaged in a consultation process so that the public can have a say in whether the offer should be accepted as well as any potential changes to the offer.

The Peterborough City Council will make the final decision on whether to proceed with the sale.

In the event that Hydro One and the City reach a final agreement, the sale must also be approved by the Ontario Energy Board (OEB).

In deciding whether to approve the sale, the OEB must be satisfied that the sale does not harm PDI customers with respect to matters such as rates, reliability and quality of service.

CoPHI explored all of the alternatives, including preliminary discussions with a number of parties. The reality is that PDI is surrounded by Hydro One’s service territory and that, as a result, there are no other strategic purchasers.

Hydro One was also able to offer significant job and economic benefits, including a new Regional Operations Centre and a new Fleet Maintenance Garage. No other bidder could offer this kind of economic development benefit to Peterborough.

Peterborough City council is expected to vote on this proposal in early December after the public consultation period has ended.
The City of Peterborough is expected to receive $50-$55 million in proceeds under the terms of Hydro One’s offer. Reinvesting those proceeds would allow the City to protect and grow the annual dividend it gets from City of Peterborough Holdings Inc. from $700,000 to as much as $2.5 million.

In addition to a direct financial benefit, Hydro One’s offer includes:

  • Lower electricity distribution rates for at least 10 years;
  • Guaranteed service levels;
  • Job security for existing PDI employees;
  • 30 new jobs; and,
  • The location of a new Regional Operations Centre and a new Fleet Maintenance Garage in Peterborough, with an estimated economic impact of $100-$150 million.
CoPHI Board and Management believe this proposal provides the best possible offer for staff, its customers, the City of Peterborough and it constituents to address the changing electricity distribution environment in Ontario. We have also communicated our concerns for these stakeholder groups, should we do nothing.

With respect to this proposal, throughout the process to date, and in the public consultation meetings, we have encouraged the public and all stakeholders to provide comments that will assist in framing both positive and negative aspects of this proposed path.

CoPHI explored all of the alternatives, including preliminary discussions with a number of parties.

The reality is that PDI is surrounded by Hydro One’s service territory and that, as a result, there are no other strategic purchasers. Hydro One was also able to offer significant job and economic benefits, including a new Regional Operations Centre and a new Fleet Maintenance Garage. No other bidder could offer this kind of economic development benefit to Peterborough.

Miscellaneous

No. Distribution companies in Ontario, including PDI, generally do not own their own electricity generation facilities and do not contract directly with electricity generators for the supply of electricity. Instead, distributors are supplied power by the Independent Electricity System Operator (IESO), the provincial agency responsible for the planning and operation of the province’s power system.

However, CoPHI also owns Peterborough Utilities Inc. (PUI), a generation company that owns and operates solar and hydro generation facilities both within the current PDI service territory and within the territory of other distributors, including the territory of Hydro One. The electricity generated from those sites is not sold directly to PDI. It is sold to the IESO under long-term contracts. CoPHI anticipates that PUI will continue to invest in new renewable energy projects that offer an attractive rate of return to the City.

Both Hydro One and PDI have consistently exceeded the targets set by the OEB regarding the assessment and connection of renewable generation projects within their respective service territories.

The sale of PDI to Hydro One will not in any way impact the trend towards more renewable energy in Ontario or the opportunity for PUI to make further investments in the renewable energy sector for the benefit of the City.

The proportion of Ontario’s installed electricity generation capacity represented by renewable sources has grown considerably for the past decade and is now over 36 per cent of the province’s installed capacity. That trend is expected to continue under the new Long Term Energy Plan currently being developed by the Ministry of Energy and the Independent Electricity System Operator (IESO), the public agency responsible for the planning and operation of Ontario’s bulk power system.

Peterborough Utilities Inc. (PUI), the generation company that is owned by CoPHI, owns and operates solar and hydro generation facilities both within the current PDI service territory and within the territory of other distributors, including the territory of Hydro One. Several of those projects are owned in partnership with other parties, including the City of Peterborough and the Curve Lake First Nation. The electricity generated from those sites is sold to the Independent Electricity System Operator (IESO) under long-term contracts.

CoPHI anticipates that PUI will continue to invest in new renewable energy projects that offer an attractive rate of return to the City.

Both Hydro One and PDI have consistently exceeded the targets set by the OEB regarding the assessment and connection of renewable generation projects within their respective service territories.

Changes in technology, customer expectations and tough regulatory requirements present considerable challenges for small utilities like PDI.

According to the Ontario Distribution Sector Review Panel, these challenges are best met through larger entities that have the necessary scale and capabilities as well as a strong balance sheet. Small utilities simply lack the resources and access to capital required to address the significant changes already underway in the sector.

In fact, the Ontario Distribution Sector Review Panel determined that the optimal size of a local distribution company is at least 400,000 customers – over 10 times the size of PDI. Since 2000, the number of municipal electric distribution utilities in Ontario has dropped from over 300 to under 70.

Hydro One has a significant advantage because of its scale and can spread the costs of system and infrastructure upgrades across its large and growing customer base.

PDI, by contrast, has only 36,000 customers. Like all utilities, PDI’s growth is linked to increases in customers and their consumption patterns and neither is forecast to increase. It is difficult to spread fixed and incremental costs over such a small customer base.

Navigant’s analysis does not change CoPHi’s conclusions and recommendations about the value of selling PDI.

In assessing the potential income to the City from the reinvestment of the proceeds, Navigant’s analysis used the simplest low risk investment alternative as an example. In other words, they assumed that the proceeds would be invested in Grade A corporate bonds and not actively managed. That is an option for the City but CoPHi suggests that the City can do better. For example, an investment of some or all of the proceeds in PUG’s remaining businesses on a tax preferred basis could earn a considerably higher rate of return – and promote employment in the City.

In looking at Navigant’s comparison of potential future dividends and the potential income from reinvestment options, it is also important to note that Navigant assumes that the rates charged by PDI will increase by 29 % over the next ten years under a “no sale” scenario. In other words, the higher potential dividends forecast by Navigant are paid for through higher rates for PDI customers!

Navigant’s projection of higher dividends under the “no sale” scenario also assumes that PDI would experience an 0.8% annual load growth across all customer classes. This assumption is unrealistic given that the commercial and industrial load within PDI has been shrinking rather than growing.

It is worth noting that, even under Navigant’s analysis, the “sale” scenario yields considerably more value to the City than the “no sale” scenario – upwards of about $ 35 million of additional value.

It is also worth noting that even this figure does not take into account Navigant’s projection of $17.5 million in savings to customers over 10 years under the “sale” scenario.