The Ontario Energy Board (OEB) has approved the sale of the Orillia Power Distribution Corporation to Hydro One.
The City of Orillia and Orillia Power have been working on a deal since 2015. In August of 2016, a final deal was reached and submitted to the OEB for approval in September of 2016.
On April 12, 2018, the City of Orillia received notification that the OEB denied the application for the sale of Orillia Power Distribution Corporation to Hydro One Inc. (Hydro One).
The city decided to file a second application, addressing, especially, the 'no harm test' that the OEB had cited as its primary reasoning for nixing the deal.
Today, in a 51-page ruling, the OEB concluded:
The OEB has assessed the Application by applying the no harm test and has concluded that, subject to a number of conditions, the proposed transaction meets this test. The OEB therefore approves the Application subject to the conditions that are described later in this Decision. The OEB also grants the various related approvals requested by the Applicants, except for the ability to apply for an Incremental Capital Module (ICM). There will be no ICM available for the OPDC service area during the ten year deferred rebasing period.
The No Harm Test
The OEB applies the no harm test when assessing applications. The no harm test was first established by the OEB in 2005 through its decision in an adjudicative proceeding, and has been used to guide OEB decision-making on mergers, acquisitions, amalgamations and divestitures (MAADs) applications since then.
The OEB considers whether the no harm test is satisfied based on an assessment of the cumulative effect of the transaction on the attainment of its statutory objectives with respect to electricity:
The Board, in carrying out its responsibilities under this or any other Act in
relation to electricity, shall be guided by the following objectives:
- To protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service.
- To promote the education of consumers.
- To promote economic efficiency and cost effectiveness in the generation, transmission, distribution, sale and demand management of electricity and to facilitate the maintenance of a financially viable electricity industry.
- To promote electricity conservation and demand management in a manner consistent with the policies of the Government of Ontario, including having regard to the consumer’s economic circumstances.
- To facilitate the implementation of a smart grid in Ontario.
- To promote the use and generation of electricity from renewable energy sources in a manner consistent with the policies of the Government of Ontario, including the timely expansion or reinforcement of transmission systems and distribution systems to accommodate the connections of renewable energy generation facilities.
If the proposed transaction has a positive or neutral effect on the attainment of these objectives, the OEB will approve the consolidation.9 The OEB does not and cannot base its approval on considerations such as collateral benefits to the parties engaged in the consolidation or the possibility that a better deal might have been negotiated by those parties.
Unless it can be shown to have an impact on the attainment of these statutory objectives, the OEB also does not base its approval on considerations such as the desire for local control of a utility.
The OEB finds that the proposed Transaction offers the potential for cost savings for both acquired customers and legacy customers. These savings are forecast to be reflected in the cost structures that will be present in year 11 following the transaction.
The anticipated savings provides the basis for the Applicants’ case that both acquired and legacy customers will suffer no harm as a result of the transaction.
Watch for more on this story - including details about those conditions - later tonight or tomorrow.
Acccording to a news release from the city in April of 2018, the sale includes the purchase of all shares of Orillia Power Distribution Corporation for $26.4 million and the assumption of approximately $14.9 million of debt, for a total transaction of $41.3 million.
The deal includes the following:
- Economic Impact: Subject to regulatory approval, three new facilities on 36 acres of land: o A back-up Ontario Grid Control Centre/Integrated System Operation Centre (ISOC) o Provincial Warehouse o Regional Operations Centre
- Orillia Power Distribution sold: $26.4 million cash purchase.
- Horne Business Park land sale: Hydro One has purchased 16.41 acres of the land required for the ISOC portion of the development for approximately $3 million – validated as fair market value by a thirdparty valuator.
- Orillia consumers protected: Distribution charges will be reduced by 1 per cent and frozen for five years. The distribution portion of a utility bill accounts for approximately 20 per cent of the overall bill (the remaining portion is set based on market costs at the provincial level) and rates will continue to be regulated by the OEB.
- OPDC jobs protected: All OPDC employees are protected with comparable pay, benefits and pension, along with a one-year location guarantee.
- Orillia Power Generation Corporation: City retains complete ownership, along with annual dividend which accounts for approximately 78 per cent of the overall Orillia Power Corporation dividend.
- Orillia Legacy Fund: City to deposit all proceeds from the deal to the Fund, which will likely generate investment income in excess of the existing OPDC portion of the annual dividend.
- Philanthropic investment: Hydro One will provide $250,000 to the City toward a co-branded community project and has corporate programs in place to continue philanthropic support in the Orillia community.
- During the process, Mayor and Council members held three open house meetings and numerous meetings throughout the community to enable the public to provide comments on the opportunity. Council commenced negotiations based on a set of principles that they followed to ensure that the deal was in the best interests of the community. The economic impact of the sale and Hydro One's investment is estimated to be one of the largest in the City’s history.
