Penticton city councillors say they were shocked to receive a $750,000 bill from FortisBC earlier this month.
According to Councillor Wes Hopkin, city staff learned the amount was being tagged on to the bill for the upgrade to the Westminster Avenue substation on Jan. 7.
It was further addressed by council at a special meeting earlier this week.
"I felt like we were being screwed with our pants on," he said. "It feels like they are using their power as a monopoly in the area to bully us into accepting this fee."
The city has been in negotiations with FortisBC regarding the upgrade to the substation for several months, said Hopkin. The mark up also comes at a time, when the budgeting has already been done for the project.
"We budgeted an amount of around $6 million spread out over 2013 and 2014," he said. "So this also has considerable impact on the budget."
The other issue is in October, FortisBC provided the city with an estimate on the cost without including the mark up, and the city provided them with a deposit of close to $1.9 million to facilitate the purchase of a voltage converter for the upgrade.
Hopkin said the city then felt they were on the way to going ahead with the work .
"Because this part is effectively custom designed and manufactured outside the area, it has to be ordered considerably in advance of when the work commences, which is why we gave them the deposit ahead of time to facilitate the speedy movement of the project," said Hopkin. "So effectively it could be delayed."
Neal Pobran, corporate communications manager for FortisBC, said they are in negotiations with the city regarding adding a transformer and upgrades to the Westminster substation.
The upgrades are required since the city is switching its power system for 8 KV to 12 KV and negotiations have been underway for approximately two years.
There have been numerous discussions with the city on the potential cost to complete this work.
Earlier this month, FortisBC brought forward the $750,000 fee, which is a 15 per cent fee for doing third party contract work, similar to what other local contractors charge to complete this sort of work.
The 15 per cent fee is a going industry rate and it also prevents us from undercutting other local contractors who perform this sort of work, said Pobran.
Another way to look at this, he added, is if they don't charge the fee, then their utility customers are effectively subsidizing Penticton customers by doing outside work at cost.
"The $750,000 fee does go back to customers by being factored into rates," he said. "We expect this project to cost about $5.75 million."
He noted that they do regret that they did not clearly communicate this fee to council earlier and would like to continue dialogue and work towards a resolution.
"The timing of this event is unfortunate," he said. "And ideally we would have notified council in the fall when the project was becoming more of a reality."
Hopkin said the issue was deferred at the special council meeting, as council considers its options at this time.
It will be discussed at an upcoming meeting in February.
"It is quite a conundrum for us," said Hopkin. "It blindsided us, and we feel they are taking advantage of us."