Waterloo North Hydro to explore merger, acquistion options
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Waterloo North Hydro to explore merger, acquistion options

Selling off the utility isn’t in the cards, but the municipal owners of Waterloo North Hydro are open to possible mergers and acquisitions that will boost the bottom line.

Meeting in joint session last week, councillors from Wellesley, Woolwich and Waterloo voted to explore their options.

The local distribution company is owned by Waterloo North Hydro Holding Corporation (Holdco), which in turn belongs to the three municipalities on a proportional basis – the City of Waterloo owns 73.2 per cent, while Woolwich holds 20.2 per cent and Wellesley 6.6 per cent.

Early this spring, Holdco hired consultants KPMG to assess its growth and financial prospects, with the company suggesting four options ranging from remaining a stand-alone utility under the current structure to a sell-off to other owners.

In a report to councillors, the three municipal chief administrative officers recommended dropping the divestiture option, suggesting Holdco look at the other three: the status quo, a potential merger with a neighbouring local distribution company (LDC) or the acquisition by WNH of another LDC.

While Waterloo North Hydro could potentially afford to buy one of its smaller counterparts in the province, that option is essentially a non-starter, the report determines.

“Given the capital investment required, WNH would be limited to target utilities of a smaller size with a rate base less than $50 million. Of the 72 utilities in the province, 35 utilities are potential candidates for an acquisition. However, the reality is that most of them are not for sale, some are poor investment choices due to size, geography and their high cost of servicing and others that would be asking for too high a purchase price. It appears that acquisitions will not be a feasible strategy at this time,” it reads.

On the merger front, the most likely scenarios involve some combination of the neighbouring LDCs – Energy+ (formerly Cambridge North Dumfries Hydro and Brant County Power), Guelph Hydro

and Kitchener-Wilmot Hydro – in a two-, three- or four-way deal, the report finds.

Whatever the option, the benefits would be thoroughly weighed, particularly as it applies to impacts on electricity rates and customers, said Woolwich CAO David Brenneman.

“We’re getting healthy dividends that help with budgets and the services the township offers,” he said, noting nobody is eager to risk the golden goose.

It’s for that reason that officials dropped the idea of selling off their shares of the utility. Taking a one-time cash payout would see the municipalities lose an annual stream of revenue, on what collectively amounted to $5.5 million in 2016.

Waterloo North Hydro had been valued at between $285 million and $350 million, with a sale bringing an estimated dividend of $212 million to $277 million after the retiring of debts and other obligations, according to the consultant.

“We’re talking about an important and significant asset,” said Brenneman.

That’s the message officials are hearing from the public, agreed Richard Petherick, the township’s director of finance.

“They see it as a really valuable asset to the community.”

The financial aspects – particularly in a climate of rapidly rising hydro rates – are a key component in any deal, he added. A thorough vetting will be part of the process.

But it’s not a deal at any cost, or for a deal’s sake, added Brenneman.

“We’re going to look at the options, but a standalone utility is still on the table,” he said of maintaining the current arrangement.

The next step is to elicit feedback from the public. Each of the municipalities is hosting a public meeting later this month – in Waterloo on June 20, Woolwich on June 28 and in Wellesley on June 29. There’s also a website (talkhydro.ca), and officials will be taking input via email and post.

Brenneman acknowledges that community engagement is likely to be hard to come by, if past examples are any indication.

“It’s very difficult to get the public out for the type of subject.”

That said, the hydro file has been a high profile one given runaway rate increases and the provincial sell-off of public assets.

“We know how important it is to the public, the customers. We need input back from the public,” said Brenneman, noting feedback that “community ownership is critical” played a part in removing a sell-off from the list of options.

Waterloo North Hydro distributes electricity to more than 56,000 residential, commercial and industrial customers over an area of some 672 square kilometres. WNH is ranked the 13th largest LDC in the province based on customer count.

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