City closer to utility corporation

By Geoff Lee

March 31, 2016 6:00 AM

Kirk Morrison the city's deputy CAO answered questions about the proposed Lloydminster Utility Corp. after his presentation to council Monday.

There are more questions than answers this week about the city’s proposed Lloydminster Utility Corporation in partnership with Epcor to fund a new wastewater treatment facility.
It would cost the city about $94 million to fund the project on its own.
Council unanimously voted on Monday to proceed with the next stage in the development of the LUC and how the partnership would operate to share costs and revenues.
“Council has instructed us today to move forward with the second phase of this project to bring further clarity to how those types of decisions get made and exactly what the ownership structure of a new corp would look like,” said deputy CAO Kirk Morrison.
The business case follows a case summary document presented to council on Feb. 22. outlining how the LUC would meet Lloydminster’s immediate and long term utility needs.
The partnership would support funding for a new mechanical wastewater treatment facility to ensure the city is able to comply with the Saskatchewan Water Security Agency’s effluent water-quality requirements.
The next steps in the creation of the LUC include the development of a detailed financial model, term sheets and definitive agreements.
“The decision council has to make is; is this the right model a co-owned utility and secondly, is Epcor the right partner to go forward,” said Coun. Leena Goodhand.
“Those are the two big questions — those will be answered in the next three months.”
She said council now moves on to Phase 2 which will help define what the relationship
will look like and what it will be mean for residents and the city.
“Epcor and the city will be drilling down financial relationships, legal relationships, contractual relationships – all the things that would make a corporation being contemplated workable,” said   Goodhand.
“There’s of work to do before it comes back to council for our approval, but we need to see this level of scrutiny before we decide whether it’s a good idea or not.”
In his presentation of the business case to council, Morrison stressed that it’s not a public private partnership or P3 model that designs, builds, finances and operates projects.
“That is not the path the city of Lloydminster is going on,” he said.
“We are pursuing a co-ownership model.”
He said with a strategic partner, the city will meet only this project’s needs, but all of its utility projects’ needs for the long term.
The city has in excess of $500 million worth of capital work to do on the books for the LUC noted Morrison.
“Certainly, when we look at that amount of infrastructure required to keep the growth of the community going, certainly the development of this corporation in partnership with Epcor meets those needs” he said.
The wastewater treatment facility would be funded by LUC with 40 per cent equity and 60 per cent debt financing.
“That’s the industry standard in Saskatchewan and Alberta,” said Morrison for utility models.
Under the co-ownership model, the city would generate revenues from corporate taxes on the LUC, a franchise fee and a percentage of future earnings of the corporation.
“What those revenues for the city will be are to be determined through future stages of the project,” said Morrison.
A shareholders agreement between the city and Epcor as the likely LUC partner is a detail to be worked out in the next phase.
Goodhand said it would be a 50/50 shareholders agreement with any profits to be shared equally.
“All the risks and liabilities would be shared between the two shareholders and it would be financed by the two shareholders,” she said.
Goodhand noted they are going from a city run wastewater utility to a company owned with
a partner like Epcor.
“We are still going to provide all the services that we have always provided and we’re going to do that within the existing rate increase structure that we have already contemplated,” she said.
When asked why the project was not tendered, Goodhand explained that is not required under the New West Partnership Agreement because of the type of services provided in question and the high cost.
“There are very few potential partners out there, maybe only one or two that could fulfill the role that Epcor is contemplating,” she said.
The city’s application to the Building Canada Fund was not successful in securing substantial funding to finance the wastewater treatment plant upgrades.
The city also cannot fund the construction on its own as the debt incurred would exceed the city’s borrowing limits.

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