A key objective of this potential merger is to strengthen our ability to deliver cost-effective, reliable energy services to the communities and the municipalities we serve. Our assessments to date show that, on average, customers of the merged company will experience approximately 3% lower rates than they otherwise would have as customers of Veridian or Whitby Hydro alone. Merging is also our best opportunity to mitigate against future rate increases as we can achieve greater economies of scale, find efficiencies, and develop competitive strength in a combined company.
Both Veridian and Whitby Hydro Boards of Directors have agreed that a merger would provide benefits to customers and shareholders and are recommending shareholders approve the proposed merger. Veridian and Whitby Hydro will seek the approval of the municipal councils in early 2018. Subject to those municipal shareholder approvals, an application would then be submitted to the Ontario Energy Board for regulatory review and approval. If approved, we anticipate completing the transaction by late 2018 or early 2019.
Questions on Merger Approval and Process
The MOU was executed as of July 17th, 2017 between Veridian Corporation and Whitby Hydro. The MOU has already been publicly posted. Communications is central to this process and we want to be as open and transparent as we can be with our customers. A copy of the MOU can be found here.
We had clear direction to only proceed if we could demonstrate significant value to all stakeholders. We completed a thorough review process to evaluate the benefits and risks of a potential merger. Based upon that review, both of our Boards of Directors have agreed that a merger would provide benefits to customers and shareholders and are recommending our municipal shareholders approve the proposed merger. From here, a merger will only move forward with the direct consent of municipal owners and the regulatory approval of the Ontario Energy Board (OEB). Additionally, any OEB application will be subject to a “no harm” test, which ensures the proposed merger will not have an adverse effect on price and quality of service to customers, among other factors.
If the merger proceeds, we expect it will result in greater efficiencies overall. We expect one of the significant benefits to be our ability to effectively mitigate against future potential rate increases on the cost of distribution of electricity. An increased scale of operations will also enable the merged company to expand and improve services for customers.
A merger will only move forward with the direct consent of municipal owners and the regulatory approval of the Ontario Energy Board (OEB). Additionally, any OEB application will be subject to a “no harm” test, which ensures the proposed merger will not have an adverse effect on price and quality of service to customers, among other factors.
Both the Veridian and Whitby Hydro Boards of Directors have agreed that a merger will provide benefits to our customers and other stakeholders and are recommending shareholder approvals. We will now seek the approval of our shareholder municipalities in the coming weeks, after which we would submit a MAADS (Mergers, Acquisitions, Amalgamations and Divestitures) application to the Ontario Energy Board for regulatory review and approval. We anticipate completing the transaction by late 2018 or early 2019.
Synergies are essentially the overall benefits that can be found when a company merges with another. These benefits are generated through finding efficiencies in several areas such as human resources, auditing, banking, insurance, maintenance programs and consulting costs. As part of the process we weighed the benefits as well as the downside risks before making a recommendation to our shareholders.
Consultation and Community Engagement
Our public engagement process is intended to educate and inform the communities we serve about the potential benefits of this merger and to collect feedback from these communities to help inform our business planning process. We have provided several opportunities for communities to provide input and ask questions to date and continue to welcome feedback. The timely sharing of information through our dedicated websites is central to the process. The presentations we expect to make to municipal council shareholders in early 2018 will also provide opportunity for further community input.
We have provided several opportunities for communities to provide input and ask questions to date and continue to welcome feedback. This microsite is one avenue where you can submit your questions. We will keep the site updated with frequently asked questions and responses on a regular basis. We also expect to make presentations to our municipal council shareholders, where there will be debate and opportunity for further community input.
This dedicated microsite is will be updated regularly with news and FAQs so that you have the most current, accurate information about this potential merger. You can sign up to receive an email alert whenever this website gets updated with new information here.
Following a thorough review process, both of our Boards of Directors have agreed that a merger would provide benefits to customers and shareholders and are recommending our municipal shareholders approve the proposed merger. From here, we will seek the approval of our shareholder municipalities through public presentations, followed by an application to the Ontario Energy Board for regulatory review and approval. Both of these next steps will provide opportunity for further community input.
Questions on Employment
Employees, like our community members, will stay informed via this microsite, and through our internal communication channels—memos, status updates and bulletin updates. Our employees are at the heart of our organizations and we are committed to keeping them apprised throughout this process.
We are looking to natural attrition and savings in our internal systems to make up the bulk of the synergy savings. Additionally, we will look at how to expand the new business opportunities of the new organization. In past mergers, Veridian has a strong track record of very fair treatment for all employees and many of them have taken advantage of new opportunities through the years.
Both merger partners participate in the OMERS pension plan, as will the merged entity. The merger will have no impact on the pensions of current retirees of Whitby Hydro and Veridian. It is also anticipated that there will be no negative impact on supplemental benefits in place for those already retired at the time of the merger.
Questions & Comments Related to Structure of New Proposed Entity
While no decisions have been made yet, it is expected that all current office and operations centre locations will be maintained. There would, of course, likely be changes in the business functions carried out at specific locations.
Decisions on the locations of the business functions of the merged entity have not yet been made. This will be dependent on a thorough integration planning process. However, for the foreseeable future there will be a continued significant presence in the current service areas of both merger partners. There are no plans to eliminate either of the current head office facilities of Whitby Hydro or Veridian. The two locations are necessary as neither facility is large enough to consolidate all staff members of the merged company.
There have been no discussions on this topic. Our priority is to ensure that there will be benefits for all stakeholders.
Decisions about leadership of the new company will take place later in the process. We know that an effective and clear leadership model is critical to the long-term success of a combined company. One of our goals for the early years is ensuring strong connectivity with our communities and including municipal representatives as part of a new Board of Directors structure.
Questions Related to Rates and Other Costs
We have explored the potential benefits of a merger, including assessment of how a merged energy company would impact consumers. One of our key goals is to ensure that we provide the same or better service to our customers while mitigating against potential increases to rates. Our assessments to date show that, on average, customers of the merged company will experience approximately 3% lower rates than they otherwise would have as customers of Veridian or Whitby Hydro alone. A combined company will also allow greater efficiencies and competitive strength that will help mitigate future rate increases.
There is no change to the businesses at this time, and no change to your relationship with your local utility.
Business expenses incurred to evaluate the potential merger will be fairly shared between the two parties and paid from retained corporate earnings. These business expenses have no impact on customer rates or planned shareholder dividends.
We have completed a thorough review of the proposed merger, which confirms a winning scenario for all stakeholders, including ratepayers. We expect to pass savings onto to our customers, with an average rate savings of 3% relative to the status quo. Municipal shareholders will receive increased and more sustainable dividends due to the increased scale and diversity of the combined utility.
Our assessments and review process indicate that a potential merger is a win-win for customers and shareholders. We have and will continue to use our internal resources to the best of our ability, but also need to prudently secure external expertise and support from time to time. Costs related to the merger form part of the business case that will be presented to shareholders during early 2018. Merger related costs will be more than offset by the merger synergies, thereby providing net benefits to shareholders and customers.
Shares of the new entity would be held by the current municipal shareholders of Whitby Hydro and Veridian. The shareholders would therefore be the Town of Whitby, the City of Pickering, the Town of Ajax, the Municipality of Clarington and the City of Belleville. Shares would be allocated based on valuations of the current business operations of Whitby Hydro and Veridian. Each of the potential merger partners hired an independent valuator to help establish respective ownership levels in the merged entity.
There are regulatory incentives that encourage distributor consolidation that result in cost savings that we can then pass on to our ratepayers and municipal shareholders.
The potential merger would allow us to become a larger, more efficient company. As a result, we will be able to identify efficiencies to the benefit of our customers and mitigate against future rate increases. As the new combined company would be municipally owned, dividends would continue to flow to the shareholder municipalities. We expect the merger to produce $90 million in savings over the next 17 years and customers, on average, will experience approximately 3% lower rates than they otherwise would have as customers of either utility alone. Additionally, the municipal shareholders will receive increased dividends, which helps mitigate the need for increased taxes.
It will continue to be 100% owned by the municipalities. One of our core principles is local ownership.
Our commitment is to ensure value for our shareholders, provide excellent customer service for our ratepayers, and to mitigate against future rate increases. That commitment will not change.
As we move through this process, it makes good business sense to bring experts on board who can help guide us. Through a competitive process, each respective utility identified experienced consultants that could deliver sound advice as we moved through the process, including legal, financial and communications. These partners are valuable assets to this process and their expertise will ensure that our communities receive fair and thorough analysis and transparent, timely, and accurate information on this potential merger.
General Merger Questions and Comments
There are many factors at play including the disruption in the industry that require us to evolve if we are to remain competitive. Additionally, our customers’ behaviours and opportunities are changing and we must find ways to continue to offer stable and affordable rates combined with greater efficiency and more valuable service offerings. Our best opportunity to mitigate against future rate increases and maximize new business opportunities is to achieve greater economies of scale, find efficiencies and develop our competitive strength in a combined company. There are also regulatory incentives in place that encourage distributor consolidation and the pursuit of cost efficiencies that benefit ratepayers and municipal shareholders. This makes it an opportune time for our shareholders to consider a merger.
There have been many successful mergers of electricity distributors in Ontario. There were more than 250 electricity distributors in the province as recently as 1999, and this number has been reduced to just 78 licensed distributors today. Veridian is a good example of the successful consolidation of nine local utilities that each operated as a standalone business in 1999.
A more recent example of distributor consolidation in the province is the amalgamation of Enersource, Horizon Utilities, and PowerStream on February 1, 2017, and their purchase of Hydro One Brampton on February 28, 2017. This consolidation was approved by municipal shareholders and the Ontario Energy Board, creating a new distributor named Alectra. Then, in December 2017, the City of Guelph decided to merge its local utility, Guelph Hydro, with Alectra. This was done in recognition of the need for scale and innovation in the distribution sector. In addition, Thunder Bay Hydro and Kenora Hydro recently received municipal approvals to merge into one company that serves both communities, while Entegrus Powerlines in Chatham-Kent and St. Thomas Energy in St. Thomas received municipal approvals in mid-2017 and are now awaiting OEB approval.
The momentum for utility consolidation is increasing as all utilities look to ensure their long-term sustainability to provide benefits to their customers and their shareholders.
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