No shock as city plans power transfer
Sep 13, 2012 / 4:34 pm
Voters in Kelowna will soon be asked to approve the sale of the City's electrical assets to FortisBC.
On Monday, September 17, City Council will consider the Electrical Utility Restructuring Opportunity's Asset Purchase Agreement between the city and FortisBC.
Council will also consider initiating the alternative approval process to seek the approval of Kelowna's electors for the agreement.
The deal, if approved, will pave the way for Kelowna to shift from its current role as an electrical utility owner to a new role as electrical utility investor.
Known as the "Electrical Utility Restructuring Opportunity," it means the city would transfer its electrical utility assets to FortisBC for $55 million and use the proceeds from the transfer to purchase shares in FortisBC's parent company, Fortis Inc., subject to Inspector of Municipalities approval.
City officials say Kelowna's existing electrical utility business model is not sustainable and vulnerable to different pressures, in particular:
- Changes in the wholesale price of electricity that the city must acquire.
- Future capital spending on system infrastructure.
- Increases in operating and maintenance costs for the facility.
The transfer of the city's electrical assets to FortisBC, combined with an investment of the $55 million in Fortis Inc. shares, will provide taxpayers with long-term, annual returns that are expected to meet or exceed the earnings possible under the current model.
"Using conservative estimates, the investment of the city's proceeds in Fortis Inc. shares would be expected to generate annual earnings for taxpayers that would increase from $2.1 million to $4.5 million over 30 years,” says John Vos, General Manager of Community Services.
Previously, the city commissioned Deloitte & Touche LLP, an independent accounting firm, to review the deal. Their report concludes:
“Based upon and subject to the foregoing, Deloitte is of the opinion that, as at September 10, 2012, the Purchase Price is fair, from a financial point of view, to the existing City of Kelowna electricity customers and City of Kelowna taxpayers as a whole.”
The transfer of the city's electrical assets to FortisBC will require the approval of Kelowna's voters and they intend to use the alternative approval process.
If Council initiates this process on Monday, voters will be given 30 days, from September 26 to October 26, to object to the proposed transfer.
The transfer will be considered approved if fewer than 10 per cent of electors choose to object.
To get more information on the proposed transfer of assets and the full restructuring opportunity visit the City of Kelowna website.
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