Markham to hold key energy vote
Divided council to decide on the creation of new MergeCo that would serve one million
A multimillion-dollar deal involving six municipalities that would see the creation of one of the largest electrical distribution companies in Ontario hinges on the decision of a deeply divided Markham council.
Markham council will vote Thursday on whether to merge its local distribution company, PowerStream, with three others and invest up to $47.3 million in a new company to be called MergeCo that will serve almost a million customers in York Region, Peel Region, Hamilton, Simcoe County and St. Catharines.
In April, the province announced a plan to have PowerStream, Enersource and Horizon Utilities merge and acquire Hydro One Brampton for $607 million. Last month, Hamilton was one of the last cities to endorse the merger, leaving Markham as the holdout.
The deal requires support from all shareholders in order to proceed.
Since April, councillors have been participating in marathon meetings for the business arm of the city, Markham Enterprise Corp., discussing the pros and cons of the deal. At a recent meeting, a vote on the merger ended in a deadlock.
Markham Mayor Frank Scarpitti, who is vice-chairman of PowerStream’s board, called the merger a “win-win.
“The city of Markham will get increased shareholder value, and customers will have lower distribution rates as compared to the status quo,” he said Tuesday. But Jack Heath, the deputy mayor who also sits on the board, said he is against the deal.
“Our council is very close to (being) evenly divided on the matter. The deal is extremely complicated, and none of us are MBAs. We had dozens of meetings, asked for improvements, got some, but many of us are still not convinced. I trust my instincts when I feel uncomfortable at council. They tell me this is not for Markham.”
While much of the discussion has been behind closed doors, one of the main questions appears to be: is the investment worth it?
In a presentation at a special general committee meeting last week for the public, city staff outlined the deal’s risks and benefits:
Markham will give up its 34-percent stake in PowerStream for a 15per-cent stake in MergeCo, which will give it “less control and influence over projects and acquisitions.”
Markham currently gets $12 million from annual dividend and interest revenue earned from PowerStream, which goes into the city’s capital reserve. That’s estimated to increase by $8 million to $13 million after a merger.
The average resident is expected to save an estimated $24 to $30 a year in power costs, with the first significant savings in 2021. The savings would be much higher for city commercial and industrial companies.
Despite the staff recommendation to endorse the merger, there were warnings: “Staff negotiated significant amendments to the transaction to reduce risk, but it is still not financially compelling given the remaining risk,” the presentation reads. “The transaction cannot be recommended by city staff solely on an investment basis.”
Rather, the city’s staff endorsed the plan on the basis of savings to the customer, said Brian Bentz, the CEO of PowerStream, which is jointly owned by Barrie, Vaughan and Markham.
Bentz says the issues affecting Markham are the same as those affecting other municipalities (both Barrie and Vaughan voted unanimously for the deal), but the city is doing its own due diligence. The city retained independent consulting and legal services to help councillors wade through the complex deal.
“It’s a really difficult decision,” said Councillor Valerie Burke (Ward 1). “I have a lot of concerns with it. It appears to be not a lot of benefit for our residents. It may benefit us several years from now. That’s not very convincing.”
Regional councillor Nirmala Armstrong said she believes the deal is a good one for Markham.
“I have had an opportunity to gather information, research other mergers, speak with residents, ask questions during the meetings and I must say that 95 per cent of the residents I spoke to are in favour of this deal,” she said, adding she will vote for it.
The province is hoping the rest of council follows Armstrong’s lead.
“City councils in Vaughan, St. Catharines and Hamilton have already recognized that residents will benefit from the merger through improved efficiencies resulting in ratepayer savings, strengthened service and reliability and modernization of the local distribution system,” said a spokeswoman from the Ministry of Energy, adding that this deal is independent of the Hydro One sell-off.
“The government hopes that Markham’s council will recognize the positive impact that this merger will have for Markham residents.”