Our Options

Like most municipalities across Ontario, the City of Waterloo, Township of Woolwich and Township of Wellesley are reviewing options for their local hydro utility. In alphabetical order, here are some preliminary options that are being considered for Waterloo North Hydro.

  1. Acquisition: Grow Waterloo North Hydro by acquiring a utility.
  2. Merger: Merger with one or more hydro utilities in the southwestern Ontario region.
  3. Stand-Alone: Continuing to operate with ongoing municipal shareholder ownership.

At the joint Waterloo, Wellesley and Woolwich Council meeting on June 7, Council voted to reject sale as an option as per the joint Chief Administrative Officers’ Staff Report – Strategic Options Waterloo North Hydro. Based on expert recommendations and assessment of the local Evaluation Criteria, it was determined that a divestiture or sale of Waterloo North Hydro would not be in the best of interest of customers or the municipal shareholders. The expert review found that the growth in the asset value coupled with the interest payments we receive as shareholders are higher than what we could get ourselves in the private markets. Furthermore, we believe that Waterloo North Hydro customers would be at risk of higher rates in the long-term if shareholders sold the utility.

No matter the outcome, the Ontario Energy Board will continue to set electricity rates for Waterloo North Hydro customers.

Acquisition

We are interested in identifying the implications of continuing Waterloo North Hydro’s traditional electricity distribution operations, plus expanding operations through purchasing another hydro utility. This option is feasible if investing in a small to mid-sized utility. Value for money and service may make this option challenging.

+ Positive

  • Waterloo North Hydro would continue as a stand-alone utility.
  • Operating synergies and cost savings are retained by the municipal shareholders in the short-term and by customers in the long-term.
  • Larger regional footprint will position the utility for potential future growth through additional transactions.
  • Potential growth opportunities in acquired service area.
  • Customers stand to benefit over the long-term if Waterloo North Hydro can achieve lower rates through greater operational efficiencies.

– Negative

  • Completing an acquisition may constrain Waterloo North Hydro’s debt capacity and flexibility for future capital projects.
  • Injection of cash from shareholders to acquire a utility either alone or by partnering with one or more organizations.
  • Identification of willing sellers that are a good investment choice.
  • Achieving a fair purchase price.
  • The harmonization of distribution rates may not provide the same level of benefit to all customers of the merged utility.
  • One-time, front-loaded acquisition and integration costs.>

For more information review the KPMG Report Review of Strategic Options – Waterloo North Hydro Holding Corporation.

Merger

We are interested in identifying the implications of a merge of Waterloo North Hydro with one or more hydro utilities in the southwestern Ontario region. This option is feasible and would result in the three municipal shareholders having a smaller interest in a larger regional hydro company.

+ Positive

  • Maintain local ownership.
  • Continued annual dividend and interest payments to municipal shareholders.
  • Potential merger synergies should reduce customer rates over the long-term.
  • Potential for merged utility to expand through additional transactions.
  • Reduced cost pressures through larger economies of scale and scope.
  • Ontario regulatory incentives would allow municipal shareholders to retain merger synergies and cash savings for up to 10 years post-merger.

– Negative

  • Municipal shareholders will have less influence and reduced governance responsibilities.
  • Reduced control over the amount of distributions paid to municipal shareholders.
  • The harmonization of distribution rates may not provide the same level of benefit to all customers of the merged utility.
  • Risk of differing corporate cultures.
  • No guarantee for long-term customer growth in each respective utility’s service area.
  • One-time, front-loaded merger and integration costs.

Stand-alone

We are interested in identifying the implications of continuing to operate Waterloo North Hydro on a stand-alone basis with ongoing municipal shareholder ownership. Stand-alone does not mean status quo or standing still. Waterloo North Hydro continues to reinvest in its infrastructure and invest in Smart Grid components.

While stand-alone is considered to be a feasible option for the foreseeable future since Waterloo North Hydro has sufficient size, scale and management depth to operate successfully on an independent basis, industry pressure for consolidation will continue to increase over time.

+ Positive

  • Continued annual dividend and interest payments to municipal shareholders ($8.4 million net profit and $5.5 million in interest and dividend payments to municipal shareholders in 2016).
  • Local control over the quality and type of service provided to the community.
  • Ownership of electricity distribution assets may be aligned with local economic development goals.
  • Strong existing shareholder and employee relations.
  • Waterloo North Hydro is well managed and is a relatively low-cost utility with excellent Service Quality performance (92 per cent customer satisfaction score).
  • Diversified customer base and service territory that continues to experience customer growth.

– Negative

  • Regulatory burden – and the associated costs – are increasing.
  • Municipal election cycles can potentially politicize utility affairs and have an impact on Board composition.
  • Addressing management succession planning in a cost-effective manner.
  • Limited economies of scale and continued cost pressures could have an impact on future distribution rates.
  • Keeping pace with rapid technological change, resulting in possible higher costs per customer for future IT investments and compliance with future regulatory directives.
  • A lower financial return compared to other strategic options, such as a merger.

We want to hear what matters most to you! Please take our quick, three-question survey.

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Why Now?

See how many Ontario municipalities are making changes to their electricity distribution companies.

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Our Process

Everything you need to know about our goals, process, and timelines for exploring options for Waterloo North Hydro.

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Events & Reports

Everything you need to know about our asset review and events happening in your community.

Contact Us

letstalk@talkhydro.ca
+1 (519) 514-0227

Media Contact

Tony Iavarone
media@talkhydro.ca
+1 (519) 998-9777