Electricity distribution utilities are facing an unprecedented
number of challenges. They are under significant cost pressures due
to the need to repair and replace aging infrastructure, and to
respond to provincial requirements to integrate renewable energy
sources into their systems. At the same time, they face declines in
their revenue due to, among other things, the effect of
conservation programs and the availability of alternative sources
of supply. Technological advances hold the promise of allowing
consumers, residential and commercial, to reduce their demand in
the short term and, in the long term, perhaps leave the grid
altogether. The ultimate risk for utilities is that the
traditional business model may no longer be viable, with the
attendant risk of stranding valuable assets.
The options available to the utilities to respond to these
challenges include broadening the range of services they offer (for
example, to become energy service companies) and to merge with or
acquire other utilities, in the hope that the economics of scale
will increase their ability to successfully respond to the
challenges. Some of the options available to the utilities require
changes to the existing regulatory structure and perhaps changes in
the governing legislation. That means that, to a considerable
degree, the ability of the utilities to respond successfully may be
out of their control.
All of these issues create dilemmas for the municipal owners of
utilities. The profit from the utilities' operations are a
reliable, predictable source of revenue for those municipalities.
In addition, the ownership of the utility provides a measure of
local control which has, historically, been important to the
municipalities' service to their residents. As the
pressures on utilities become more pronounced, their ability to
attract financing at favourable rates may become more
The sale or merger of a utility would mean partial or complete
loss of local control. A sale would mean the loss of a predictable
The pressure to sell or merge arises not just from the
challenges utilities face but from the Ontario government. In
response to the task force recommendations on utility
consolidation, the government opted for a voluntary approach.
However, elements of the Clark report suggested that the government
may be rethinking that voluntary approach, allowing Hydro One
Networks Inc. to be the driver for consolidation.
In all of these developments it is essential that utilities and
their municipal owners have the best advice available to them on
the challenges and on the options for responding to those
challenges. They need advice on the options available them to
finance the repair and replacement of aging infrastructure,
including the use of public/private partnerships to do so.
They need advice on the range of options available to them for
changes in the utilities' business model. They need advice on
the necessary regulatory options, including the required changes in
the existing regulatory model. They need legal, accounting, and
financial advice on the options for sale or merger. In the
event that the utility decides to sell or to merge, they need
advice on how to integrate the proceeds of the sale into their
ongoing financing arrangements.
The advice required by the utilities and their municipal owners
must be tailored to their individual circumstances. Advice cannot
be based on a one-size-fits-all model.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
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