Benefit of switching power distributors hazier as Hay River case drags on

A case that has implications for the cost and distribution of electricity in eight Northwest Territories communities, including Yellowknife, is now in the hands of a judge.

The N.W.T. Supreme Court case is part of an ongoing battle by the town of Hay River to transfer Northland Utilities' power distribution franchise for the town to the Northwest Territories Power Corporation.

The town made the decision to switch three years ago but, so far, breaking up with Northland has been complicated and costly.

And promises of rate reductions — the whole point of the switch — have softened since the town decided to go with NTPC.

In a joint press release issued that day, March 3, 2016, the corporation and town council stated unequivocally the switch would result in an overall reduction of 20 per cent on electricity bills.

A few months later, Louis Sebert, the minister responsible for the corporation, told CBC the price of power with NTPC as distributor was "somewhat of a moving target, but we're optimistic that once this process is concluded, rate payers in Hay River will see significantly lower power rates."

In an email last week, an NTPC official said the corporation "continues to believe it can provide lower overall rates in the town of Hay River than the current distributor."

The power corporation refused CBC's requests for an interview for this story, saying the town was in the best position to comment on the corporation's involvement and its ability to deliver on the 20 per cent reduction.

The town did not respond to CBC's requests for an interview.

Deal-breaker

The central issue Justice Andrew Mahar must decide in the case is how to set a price Hay River must pay to get out of its franchise agreement. Under the agreement, the town must buy all of the infrastructure (power poles, transformers, buildings, vehicles, etc.) that are part of Northland's distribution system.

Northland is challenging an arbitrator's decision to allow Hay River to pay market value, plus a 30 per cent premium to recognize the business revenue Northland would lose through the transfer.

"The decisions of the arbitrator are entirely inconsistent with what the case law says," said the company's lawyer in court last week. Loyola Keough said one example of that inconsistency was taking into account the cost impact on the town and its ratepayers, "which the courts have said is not relevant."

Northland argues the price the town should pay is how much it would cost to build a brand new system — including everything from constructing new buildings, transporting and installing generators, and the cost of setting power poles and stringing lines — less depreciation. That method yields a figure of about $40 million, almost three times what the arbitrator suggested.

The lawyer for Hay River said there is nothing in the court decisions Northland referred to that suggests the method it's proposing is the one that should be used.

Thomas Marriott said using Northland's formula would render the clause allowing the town to buy out of the agreement meaningless.

"Is it appropriate to say: 'you have the right to purchase those assets but, if you do, you have to use this methodology that requires you to pay three times book value?'" Said Marriott.

"Why would anybody exercise that right? That has no practical application."

The town has said if the court decides Northland's methodology must be used, it will not terminate the franchise agreement.

Whatever the judge decides, Northland will continue distributing power in Hay River for the foreseeable future. Each side has the right to appeal any decision to the N.W.T. Court of Appeal and, after that, the Supreme Court of Canada.

After the court case is decided, the public utilities board will have to approve the cost, the transfer of the franchise agreement and the setting of new rates, if any, for the town.

Hay River today, Yellowknife tomorrow?

In a presentation to Yellowknife city council earlier this year, NTPC said part of its three-year strategy is to complete the merger of its generation and distribution functions in Hay River and pursue more distribution franchise opportunities.

The only other power distributor in the N.W.T. is Northland, which delivers power to homes and businesses in Yellowknife, Ndilo, Enterprise, Fort Providence, Samba Ke, Wekweti and Kakisa, as well as Hay River.

Yellowknife is the biggest distribution franchise in the territory and one Northland has held for decades. It generates about $45 million in revenues annually.

The city's franchise agreement with Northland expires on Dec. 31, 2020. Reducing the cost of power (the N.W.T. has the highest in the country) was a campaign commitment of the top two candidates in last October's mayoral election.

In its own presentation to city council, Northland pointed out that the money it pays to NTPC to purchase the power it distributes in the city accounts for 77 per cent of the price Yellowknifers pay.

Another cost is the $1 million franchise fee Northland pays the Corporation of the City of Yellowknife annually, a cost that is passed on to residents and businesses in their monthly power bills.

Northland says the best system for Northerners is one in which it and the power corporation combine forces. It says that will reduce duplication and, ultimately, lower costs to customers.

Others, including previous ministers responsible for the power corporation, have suggested another way would be to eliminate Northland — and the need to return a profit to its shareholders.