Potential hydro merger could be good for West Perth’s bottom line
West Perth – one of the eight current municipal shareholders of the ERTH Corp. (ERTH) – will vote at a special shareholders meeting Aug. 10 in Ingersoll whether to accept a proposed merger with West Coast Huron Energy Inc. (Goderich Hydro).
All indications suggest shareholders will approve the letter of intent to merge, protecting their investment, Coun. Nicholas Vink explained to council during its July 24 meeting.
“It is a few hundred thousand dollars in savings that we’ll be able to achieve by merging these two local distribution companies together,” said Vink, the municipality’s board member.
ERTH is a municipally owned parent company headquartered in Ingersoll that employs approximately 130 people from offices in Ingersoll, Aylmer, Mitchell, Thorndale, London and Toronto. ERTH’s core asset is the Erie Thames Powerlines Corp., a regulated local distribution company (LDC) distributing electricity through roughly 352 kilometres of power lines to 14 communities in southwestern Ontario: Aylmer, Beachville, Norwich, Otterville, Burgessville, Clinton, Mitchell, Dublin, Ingersoll, Thamesford, Embro, Tavistock, Belmont and Port Stanley.
Vink explained that ERTH is one of West Perth’s largest investments, as the municipality holds $2 million in promissory notes, which pays 7.5 per cent interest, and an estimated $1.7 million in shares.
“We always talk about this, whether ERTH has turned the corner in terms of profit making,” Vink said.
Based on 2016 financial statements, ERTH made a net profit of $1.17 million with all of its entities combined.
“It makes my job easier when ERTH is making money,” Vink said.
If and when the Goderich merger takes place, Goderich will be a 22.5 per cent owner of ERTH, which will reduce West Perth’s ownership from eight per cent by 1/16th, or 6.25 per cent total.
A few members of council wondered what this merger would mean for West Perth since ERTH owns property on Holmes Street in Mitchell. Some had hoped for a new building along the Highway 8 corridor.
“Does it make sense to service the Highway 8 corridor from a noncentral spot?” Vink said.
CAO Jeff Brick also updated council that Erie Thames rents space in the Hibbert shop in Staffa, which is currently up for rezoning for an eventual sale, and felt West Perth would know by its August council meeting whether it wished to extend the agreement.
“We can speculate with what they might do with property in West Perth but I don’t think there’s any value in that,” Brick said.
Coun. Bob Burtenshaw said during discussion that West Perth will have to decide “whether we’ll come out ahead on this” but Vink said the merger would be good news for all involved, giving them a chance to lock in electricity rates.
Since 2008, there has been a moratorium on the 33–per-cent transfer tax payable in connection with the transfer of municipally owned electricity assets. During this transfer tax holiday, which is scheduled to expire Dec. 31, 2018, Erie Thames has been actively looking to merge with like-minded community-based partners in accordance with a key goal of its strategic plan, namely to grow the company to 25,000 to 40,000 customers.
Merger and acquisition activity in the Ontario sector has reduced the number of LDCs from 330 in 2000 to approximately 70 today. LDC consolidation activity has picked up again recently as the province has incentivized the industry by allowing merged LDCs to recoup their transaction costs and recognize efficiencies and cost savings over a 10-year period. - Mitchell Advocate