On April 16, 2015, the Government of Ontario announced that negotiations were underway with respect to a potential three-way merger of PowerStream Holdings Inc., Enersource Corporation and Horizon Utilities Corporation, and an opportunity to acquire Hydro One Brampton Networks Inc. from the Province to create the second largest local distribution company in Ontario.
The three PowerStream shareholders, Markham, Vaughan and Barrie (and their holding companies) partnered to evaluate the proposed merger transaction.
The City of Markham’s holding company is Markham Enterprises Corporation (MEC). The City of Markham owns 100% of MEC, which in turn owns 34.2% of PowerStream Holdings Inc. shares. MEC is governed by a Board of Directors, comprised of the 13 Markham Councillors.
Navigant Inc. and BDR North America were retained to provide independent advice and financial due diligence, and Gowlings LLP was retained to undertake legal due diligence and to support a decision on this important transaction.
The MEC Board held several meetings during 2015 to consider financial and legal due diligence updates.
On May 26, 2015, a report was received at Markham’s General Committee on the proposed transaction, including the expected timelines, as well as the negotiation and decision-making process. This report was also received by Council on June 15, 2015.
Developed By PowerStream
General
How will the new business be governed?
A Board of Directors, based on proportional representation of all shareholders – in our case, the Cities of Barrie, Markham and Vaughan – will provide governance and oversight of the new company.
Who is required to approve this proposal?
The proposal being considered requires the approval of all shareholders including the City Councils in Barrie, Markham and Vaughan. The company is currently developing the proposal which will demonstrate value to customers by reducing upward pressure on customer distribution rates as well as provide benefits to shareholders. Once this is complete, each Council will be in a position to deliberate on the merits of the proposal.
Any merger or acquisition of utilities requires Ontario Energy Board approval, as does this proposal. The Ontario Energy Board follows a formal process for review and approval. It also has prescribed rules for ensuring that efficiency savings are passed on to customers in the form of lowering the impact on future rates.
Is the business being sold or will the municipality continue to own it?
The transaction being considered is a merger of PowerStream with other municipal utilities. The new merged company will continue to be owned by the municipalities of Barrie, Markham and Vaughan along with municipalities of Hamilton, Mississauga and St.Catharines as well as Borealis, which is part of the Ontario Municipal Employees Retirement System (OMERS).
Does the proposed merger have anything to do with the partial sale of Hydro One?
Although previously announced by the Ontario government on the same day, the proposed merger is a separate initiative from the government’s partial sale of Hydro One Networks, the provincially-owned utility. Hydro One Brampton is a separate and distinct company from Hydro One Networks. It is the former Brampton municipal utility and has been run with a municipal focus like PowerStream.
Customer Impact
Will PowerStream customers be given an opportunity to comment on the merger?
Each of PowerStream’s shareholder municipalities will be allowing for deputations to be made by members of the public when the merger proposal is reviewed and considered by elected officials at their respective General Committee and/or Council meetings.
The proposal will also require Ontario Energy Board approval. The Ontario Energy Board has a formal process for review and approval that also includes public input.
Is this going to affect how customers pay their bill?
Customers will continue to pay their electricity bill in the same manner as they always have.
Will the bill increase if distribution rates are higher in one service territory than the others?
There are some differences in distribution rates between the service territories of the four utilities, but these are for the most part very small differences. Significant synergies exist that are expected to have a favourable impact on future customer distribution rates. Any change in rates would occur only through the approval of the Ontario Energy Board.
Will service be affected because it will now be this single, large company?
Each utility will continue to have its own local operations maintained and its unique requirements recognized. The new merged company will be dedicated to maintaining or improving service reliability and customer service in the future.
PowerStream has experience in maintaining or improving service reliability and customer service following previous consolidations. The current company is the product of: a) merger of Markham Hydro, Richmond Hill Hydro and Hydro Vaughan in in 2004; b) purchase of Aurora Hydro in 2005 c) merger with Barrie Hydro in 2009 and d) strategic partnership with the Town of Collingwood in the ownership of Collus PowerStream. Furthermore, prior to its merger with PowerStream, Barrie Hydro had previously purchased the utility distribution assets of Bradford West Gwillimbury, New Tecumseth, Penetanguishene and Thornton.
In all previous consolidations, PowerStream was able to improve customer service by having greater financial capabilities to invest in customer service oriented technologies and tools to improve the customer experience.
Operational Impact
Where is my emergency electricity service coming from? Will I have to wait for an emergency crew to come from another service territory? How long is that going to take?
Our emergency response times will not change. Maintaining or improving the level of service will continue to be necessary in the new merged company.
The new merged utility will be committed to maintaining and enhancing customer service in all of its locations.
Where will the service centres be located?
The existing service centres locations will remain the same post-merger.
Are you merging in order to make more profit?
The utilities are considering joining together because it is in the best interest of all their customers and shareholders.
PowerStream has a proven track record with regard to lowering costs for our customers through mergers and acquisitions. Even though utilities are responsible for only approximately 20 to 25 per cent of a customer's total bill, a combined entity can achieve even further efficiencies and help to keep future distribution rates lower on this portion of the bill. And that’s exactly what PowerStream was able to achieve as a result of its previous consolidations.
Is this essential for PowerStream? Why do you have to join with other utilities?
PowerStream, Horizon Utilities, Enersource, Hydro One Brampton are four of the leading and most well-established electricity distribution companies in Ontario. All are innovative, forward thinking and community-focused. By combining knowledge bases, resources and leveraging their size as a larger company, collectively they will be in a better position to implement emerging technologies to provide new and enhanced services to customers.
Also, as leading companies, they recognize that further efficiencies must be achieved in order to reduce the upward pressure on local electricity distribution rates paid by their respective customers. By giving consideration to joining together with other utilities, further efficiencies can be achieved through eliminating the duplication of services and realizing economies of scale.
The following comments were received by the City of Markham from residents through our online feedback form. They do not necessarily reflect the views of the City of Markham.
Anonymous
Very bad idea, too much risk and very little benefit to community. Loss of control of utility not worth the risk. Please don't merge, the savings are a joke.
Sylvia Smith
Keeping hydro costs down for low income seniors and families should be a top priority. I can't get over how expensive hydro is becoming. Utility companies need to become more financially prudent as I am not certain this is currently the case. Hence the consumer has to carry the mismanagement of utility companies.
C. Lige
DON'T DO IT!!!!! This will only bring higher salaries for the senior executives while regular staff get let go. The benefits they propose are whimsical and will not materialize..... Powerstream is already an efficient organization and has plateaued...further attempts at more efficiency will only mean grief in terms of more and longer outages, fewer staff, poorer service, and a lot of the capital money being sucked towards fixing Hamilton's failing electrical system....there will be fewer funds left to bring Markham's archaic electrical plant up to date which has always been the worst system in Powerstreams territory. What little influence Markham politicians have over Powerstream will be completely vaporized as the boardroom power will now shift to Mississauga and Hamilton.....leaving those in York Region underserved. the most high tech utility of all of the 3 is Powerstream and the utility will be taking a step backwards if this merge goes through. All of the effort Powerstream has made in smart grid will never materialize. Ultimately, they will want to sell it off to private interests and then watch the rate increases come! Maintaining ownership close to home ensures close scrutiny on the utility operations. Don't DO IT!!!!!
Mr. Rickesh Lakhani
Having been in the social services sector for over 10 years, and as a proud Markham resident, I believe that minimizing costs of household necessities such as food, housing costs and energy is vital to a successful community. Many families and households in Markham are living in poverty or close to the poverty line, and variances in their annual costs of living can have a significant impact, either positive or negative. If the proposed merger between PowerStream, Enersource and Horizon Utilities and the subsequent acquisition of Hydro One Brampton will result in reduced energy costs for households and families in the impacted regions, including Markham, that is definitely a positive and desirable outcome. In addition, reductions in operating costs for small businesses, which are owned and operated by residents of the region, will contribute to better financial success for these businesses that are an essential driver of our local economy, which will also positively impact all residents. In various roles, I have worked with PowerStream in their capacity as a corporate citizen, and they have demonstrated a genuine commitment and desire to see healthy and vibrant communities in the areas where they operate. As a Markham resident, I want to see our City on a path to continued success and keep gaining momentum on the provincial, national and world stages - for this to happen, it is essential that everyone in the community is given the best chance to succeed. Reducing the basic costs of living, including energy costs, is one important way in which to accomplish this.
