Proposed amendments for 2024 would require Synergy North to pay interest annually on the debt note to the City of Thunder Bay.
THUNDER BAY — A proposed change to Synergy North’s pricing model would result in slightly higher electricity costs, but could be offset by municipal tax savings, executives say.
Moving from the current “rate minimization” model to a “rate of return” model would cost residential ratepayers about $9-10 more per year starting in 2024, City of Thunder Bay Treasurer Linda Evans, in a report to City Council. Monday.
However, the change could reduce municipal taxes for the median homeowner in the city by $12 to $21 a year, according to the report.
The city administration recommended the change, saying it would ultimately save residents money and benefit the city government. A vote on the recommendation is scheduled for October 18.
The rate of return model would see Synergy North begin paying interest to the city on a note payable created when Thunder Bay Hydro was incorporated in 2000, amid a provincial government restructuring of the provincial electricity system. .
An option recommended by Evans would see the company pay the city a lump sum of $10 million in 2023, and interest payments of $470,000 per year thereafter. These funds could be used to replace tax-funded capital expenditures, which could reduce tax bills, she suggested.
The city has a just over 90% stake in Synergy North, with the City of Kenora holding the rest of the shares after a merger in 2019. The rate changes will not impact customers in the Kenora area. Kenora, who are already paying similar charges on their bills.
Under the current shareholders’ agreement, the City of Thunder Bay does not receive any dividends or interest on long-term debt in the form of a note payable. The note has a current balance of approximately $26.5 million, after Synergy North repaid $7 million of debt in 2012 and another $1.4 million in 2017.
The rate minimization model has helped maintain slightly lower rates for local customers, Synergy North CEO Tim Wilson said Monday, but it also deprived the city of potential revenue.
Evans’ report indicates that Synergy North’s rates, with an average annual cost of $1,437, rank fifth among Ontario’s 75 utilities, which have an average annual cost of $1,479.00, based on usage of 800 kWh per month.
A $10 annual increase in costs would equate to an increase of approximately 0.7%. Rates would still remain among the lowest in the province, Wilson said.
Of the 55 Ontario municipalities eligible to receive interest from local distribution companies, only Thunder Bay and Fort Frances are now refusing to do so, the report notes.
It was initially hoped that the rate minimization model would boost business investment, Mayor Bill Mauro said, but he said that benefit has not materialized.
“It was well intentioned, but here we are 20 years later,” he said. “I don’t think we can point to … the low rates charged as having necessarily encouraged any economic development in the City of Thunder Bay or in the region.
He said the current arrangement amounts to municipal ratepayers subsidizing Synergy North ratepayers, while acknowledging that many residents find themselves on both sides.
Com. Andrew Foulds raised some concerns about the change.
“People in Canada in the 21st century cannot survive without electricity,” he said. “I really struggle to move away from the price minimization model. I think we should be very proud to have the fourth or fifth lowest distribution costs. »
Com. Brian Hamilton disagreed, saying there was an overall benefit for residents.
“Rates will increase slightly, but…taxes will decrease significantly” under the options, he said. “It’s important to recognize that there is a significant financial benefit to the average person.”
The new model would require approval from the Ontario Energy Board (OEB).
Synergy North said it needed guidance from the city by the end of 2021, for changes to take effect in 2024.
The company’s next cost-of-service application to the OEB is not expected until summer 2023, but she said preparing the application is complex and takes up to two years.