We anticipate merging the two companies early in the second quarter of 2019.
A key objective of this 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 per cent 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.
We believe that significant benefits can be realized for our customers, communities, employees and other stakeholders. A combined company, through its larger size, will allow us to achieve savings for our customers and shareholders through greater efficiencies, innovations, and competitive strength. Our assessments to date show that customers will, on average, experience approximately 3 per cent lower rates than they otherwise would have as customers of Veridian or Whitby Hydro alone. A merger is our best opportunity to mitigate against future rate increases and maintain 100 per cent local ownership by the communities we serve.
Questions on Merger Approval and Process
A merger would only move forward with the direct consent of municipal owners and the regulatory approval of the Ontario Energy Board (OEB). Additionally, our OEB application was subject to a “no harm” test, which ensured the proposed merger would not have an adverse effect on price and quality of service to customers, among other factors.
We expect this merger to result in greater efficiencies overall. We also 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.
Both the Veridian and Whitby Hydro Boards of Directors had to agree that a merger would provide benefits to our customers and other stakeholders. We then seeked the approval of our shareholder municipalities, after which we submitted a MAADS (Mergers, Acquisitions, Amalgamations and Divestitures) application to the Ontario Energy Board for regulatory review and approval. The OEB approved the merger on December 20, 2018.
Consultation and Community Engagement
Our public engagement process was 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 provided several opportunities for communities to provide input and ask questions, and continue to welcome feedback. The timely sharing of information through our dedicated websites is central to the process.
We provided several opportunities for communities to provide input and ask questions, 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 invite all stakeholders to follow us on social media here.
This dedicated microsite is updated regularly with news and FAQs so that you have the most current, accurate information about this merger. You can sign up to receive an email alert whenever this website is updated with new information here.
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.
It is anticipated that Veridian’s Ajax office will become head office for the new merged company while Whitby Hydro’s office will house employees working for the holding company and its non-regulated business.
On January 17, 2019, Veridian and Whitby Hydro employees learned that Elexicon Energy will be the name of the new company when Veridian and Whitby Hydro merge their two companies early in the second quarter of 2019. The companies also unveiled their new tagline – “Our power is response – ability” – as well as the corporate structure. Elexicon Corp is the name for the holding company for all company businesses, and Elexicon Group for the non-regulated business.
Decisions about leadership of the new company are currently underway. 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 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 per cent 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.
There is no change to the businesses at this time, and no change to your relationship with your local utility.
It will continue to be 100 per cent 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.
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.
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 were 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.
Business expenses incurred to evaluate the potential merger were 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 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 per cent 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.
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.
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 per cent 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.
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.
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 under 80 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 merged to form Synergy North, while Entegrus Powerlines in Chatham-Kent and St. Thomas Energy in St. Thomas received OEB approval on April 1, 2018.
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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