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Kelowna looking to pull plug on its electric utility

Kelowna is considering selling off its electric utility.

City council will be asked Monday to approve a memorandum of understanding with FortisBC to address the future structure of the city's electrical utility.  The MOU outlines what the city is calling the Kelowna Electrical Utility Restructuring Opportunity, a joint initiative that would see the city take on the role of electrical utility investor in place of its current status as electrical utility owner.

“The city's ability to function optimally under its current utility model will be tested in the coming years," said John Vos, general manager of community services. "Future long-term infrastructure needs, estimated at $70 million, combined with upward pressure on wholesale electricity prices, will continue to challenge the utility's annual earnings of $2.1 million.”

He said the deal is designed to achieve secure, long-term, financial returns for the city that would be equal or greater to the city’s current return.

Under the terms of the deal:

Kelowna would transfer ownership of its electrical utility assets to FortisBC. FortisBC would incorporate the assets into the company's existing operations, and would become responsible for providing electricity throughout the entire community.  FortisBC currently provides electrical services to two-thirds of Kelowna through its own utility and is contracted by the City to operate and maintain the City’s utility which serves the other one-third of Kelowna.

•  The city would invest the proceeds from its asset transfer—estimated at this point to be more than $50 million—into a future FortisBC publicly traded debt issuance.  The city's investment would be structured to provide taxpayers with secure, annual financial returns over an extended period of time.  Annual returns would be equal to or greater than the earnings the city could generate through continued municipal ownership of the utility.  Today the city earns about $2.1 million per year from the utility, after all expenses and contributions to electricity capital reserves have been deducted.

• Kelowna and FortisBC would identify and pursue new joint initiatives dealing with such projects as energy conservation and alternative energy projects.  These initiatives would support the community's efforts to achieve energy sustainability, and would promote Kelowna as a leader in energy innovation.

FortisBC owns and operates electrical utilities in BC's Southern Interior and Kootenays.  and since 2000, has served as the Kelowna's electrical utility contractor, responsible for planning, operating and maintaining Kelowna's electrical utility on behalf of the city.  FortisBC is also the electricity provider through its own utility to the two-thirds of the community not served by the city's system, and has its electricity operations headquarters in Kelowna.

The transfer would bring the City’s approximate 15,000 electricity customers under regulation of the British Columbia Utilities Commission.

The company runs its electrical utility using a regulated utility business model that is not available to the municipality.  Under this model, expenditures on system infrastructure, once approved by the British Columbia Utilities Commission, are treated as investments on which the company earns a regulated rate of return.  This feature of the model supports new capital investment required to meet the needs of future customers, and helps to make FortisBC ideally suited to take responsibility for the city's system, said City Hal in a news release Thursday afternoon.

Before any changes could be implemented, however, several steps must be taken.  If  council endorses the plan on Monday, both sides will have to finalize the details of the and complete their respective due diligence efforts.  For the city, that will involve working with the provincial government to ensure that all necessary authorities are in place and submitting the deal to an independent third party for review.  The City will then have to seek approval of the from voters. If it proceeds, the city plans to use the alternative approval process that puts the onus on opponents to gather enough signatures to stop it instead of holding a vote where an approval must gain a majority.

This process would be accompanied by an extensive public information program, and would take place in the fall.

 

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