Kelowna’s getting ready to offload its electrical system, but city staff say the move won’t leave taxpayers’ or rate-payers’ interests at risk.
The sale of the municipally-owned utility is expected to net the city an estimated $50 million, which would then be invested into a future FortisBC publicly traded debt issuance.
Returns on that investment should offer at least $2.1 million per year, which is basically the same profit it now earns from the utility, said John Vos, the city’s community services general manager, Monday.
While breaking even may not be incentive to offload an asset, he also explained that it’s the reduction of risk that’s most appealing.
“We had a comprehensive review about the capital needs and we have a lot of aging infrastructure,” Vos told city council, Monday.
“There are aging poles and wires that need to be replaced… we also need to make the system more robust.”
The estimated cost of getting the system up to snuff over the next 20 years is in the area of $70 million.
If the sale goes through, FortisBC will have to bear all those expenses.
As for the cost of electricity, the city inevitably bumps its rates up in conjunction with FortisBC raising the rates, now there will just be less of a delay.
That said, the move does mark a shift in risk.
“We’ll make a move from being utility operators, to being utility investors,” Vos said, noting not everyone will necessarily embrace that idea.
“The challenge will be explaining that you’ll continue getting the benefits from being an owner to being an investor,” echoed Coun. Robert Hobson, who said the transference of risk is hard to explain to the public.
“What guarantees that we’ll get the same level of return?
City staffer Derek Edstrom agreed that would be a challenge, but one that they intend to address through public consultation and an independent review is being conducted, to assess the city’s stand in the transfer of the asset.
That, however, may be secondary to just knowing when to step aside, Coun. Andre Blanleil implied.
“Down the road there is a movement for privatization and deregulation, we may not be able to compete in that realm,” he said.
Although council moved to approve the sale by entering a memorandum of understanding with Fortis, it would still have to be approved by the B.C. utilities commission, which regulates the industry. It will also be subject to the alternate approval process, which means 10 per cent of the community would have to sign a petition to bar its passing.
Kelowna is only one of six cities in B.C. that operates its own electrical system.