The facts about the EPCOR Proposal
Like myself, many Edmontonians may have received the postcard pictured below. Unfortunately, the organizations involved in distributing the postcard did insufficient research into the terms of the proposed transfer. The postcard does not provide full details on the financial side of the proposal or a breakdown of the discussion to date, which is why I felt it was important to provide some clarity.
EPCOR, which is solely owned by the City of Edmonton, has proposed to transfer the Drainage systems from the City’s management to EPCOR. The following points highlight the terms of the offer:
- EPCOR forecasts an immediate increase of at least $20M to its dividend to the City in the first year following the proposed transfer.
- EPCOR assumes Drainage’s current balance sheet, including $609.3M in long-term debt, as well as $44.3M in cash.
- EPCOR has used Drainage’s 10-year revenue forecast that assumes the 3.0% annual increase in monthly rates. As part of its proposal, EPCOR has committed to holding this rate increase between 2017 to 2021 and then proposes to submit a Performance-Based Regulation (PBR) application for new rates over the 2022 to 2026 period.
- EPCOR projects it can achieve at least a 10% efficiency factor on Drainage capital (resulting in a savings of $193.4M over the 10 year forecast period), as well as 5.0% in operating efficiencies (increasing 1.0% per year in each of the first five years for a total of 5.0% by 2021, which results in $43.6M of savings over the forecast period).
- Realizing that there may be stranded costs as a result of the transfer, EPCOR has included a provision of up to $75M for any stranded costs the City may incur as a result of the proposed transfer of Drainage.
The proposal is far more complex than a simple $1 transaction. As I have stated before, I believe that the proposal is worth serious consideration if assessed against the following questions:
Can it hasten our flood mitigation work at the neighbourhood level?
Do we maintain governance oversight between the City, EPCOR and the public?
Can we ensure responsive and valued service is provided to citizens?
Since EPCOR already has our drinking water and wastewater systems, how does this improve efficiency and financial performance of the Utility?
Will we continue to have access to provincial and federal grants, helping us with storm water management in the face of flooding risks?
Based on these questions, I conclude confidently that the proposal has significant efficiencies, financial benefits, and merit. At the same time, Council will continue to regulate drainage through our Utility Committee, ensuring transparency as all Committee meetings are held in public. To emphasize this last point, City Council's Utility Committee, through something called a Performance-Based Rate Process, sets the rates, the policies and the capital plans for our municipal drinking water plants, the lines and our wastewater treatment plan at GoldBar. City Council through our Utility Committee will continue as the regulator of our drainage system because we are the sole owner of the company.
As equally important, EPCOR has committed clearly that all employees will maintain their current compensation and they will honour all collective bargaining agreements. All that said, the unions representing the workers have publically stated that EPCOR is an excellent employer.
On April 11, EPCOR will return to City Council with a draft letter of intent addressing Councils outlying concerns. The following motion outlines Councils concerns:
That the City Manager work with EPCOR Utilities Inc. to develop draft agreement(s) (or other instruments) with EPCOR for further consideration of Council regarding the transfer of the drainage utility assets and liabilities from the City to EPCOR as outlined in the EPCOR Proposal with due consideration of the following principles:
1. The public’s interests must be a top priority.
2. There must be value for the taxpayers and ratepayers.
3. Provide a net advantage to the City and maintain or enhance the City’s long-term financial sustainability EPCOR’s existing electricity, water and other business operations will be maintained.
4. City Council will remain as regulator of drainage rates through a Performance-Based Regulation, similar to water.
5. Utility customers must not be negatively impacted: EPCOR to maintain no more than the rate increases required to support the service and quality metrics in the current Drainage Services Utility plan.
6. Ensure ongoing effective asset management practices and continued commitment to current Council priorities for flood mitigation.
7. All staff impacted by the proposal will be treated respectfully and their employment statuses will be maintained.
8. Mechanisms to address and include:
- Transparency of operations
- Equivalent public involvement to current environment situation
- Public access to information
- City’s right to audit (or audit by City Auditor)
- Future divestment of assets requiring public hearing
- An inquiry process to ensure the regulator and public can stay involved outside the Performance-Based Rates process
All reports related to the EPCOR proposal, can be viewed by the public, on the City of Edmonton website:
EPCOR Proposal for Drainage Transfer - June 14, 2016 City Council
EPCOR Proposal - Results of Independent Assessment - January 24/25, 2016 City Council
You can read my past blogs on EPCOR below:
As always, please don’t hesitate to contact my office by calling (780) 469-8132, or by emailing me at email@example.com for further information or clarification.