Rural electrification associations face buyouts from big operators

Contentious Members have a number of options, including contract management or outright sale

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The rural electrification associations (REA) that brought power to rural Alberta in the 1950s after the province said it couldn’t afford to, may soon become an endangered species.

Citing high maintenance and operating costs as well as onerous safety regulations, REAs across the province are being purchased by ATCO.

The Peace Country REA (PCREA) is now on the block and members will be voting on ATCO’s offer of about $20,000 for each site. Total purchase price would be $66 million.

It’s been likened to “selling the farm and then being forced to buy back the crop each year,” says a consultant hired by the PCREA Board to provide recommendations. The report recommends the association move to a self-operating business that would manage its own operations, and the board is supporting that recommendation.

The offer to purchase is a contentious issue across the wide geographical area covered by PCREA. Aside from the self-operating entity, the two other options include to continue to contract with ATCO for most operations, maintenance and new construction or to sell the REA to ATCO and go forward under ATCO electric tariffs.

PCREA president Clarence Gabert says research indicates that the self-operating model is the best, lowest-cost way to provide energy.

There are seven other self-operating REAs representing 37,000 members in the province. These organizations have been able to offer lower contract and Regulated Rate Option (RRO) rates and have done so consistently over the five years, said Gabert. In a letter to his members, he said the organization “can finance the necessary capital additions, their replacements over time, and replenish and grow the deposit reserve to more than $2 million.”

Information distributed to members said PCREA assets are increasing in value every year based on ATCO’s own formula for valuation, and questions selling an asset increasing in value.

If members vote to move to a self-operating status, the board said it would use North Parkland Power as a model. PCREA indicates that the RRO for all sizes of transformers would be lower using this model, estimating annual savings between $600-$1,900.

Only options

There wasn’t much of a question a couple of years ago when ATCO came calling to the Peace Grove-Worsley REA. By March 2011, 98 per cent of members voted to accept the $13-million deal which paid $19,492 for each site.

President Nick Hudak said selling was the only viable option, and the sale was “the best business decision” given the ever-increasing set of what he called “onerous rules and regulations.”

“All of the responsibility lies with the REA and its board as the prime contractor,” said Hudak. “It was almost getting where you couldn’t make a move without breaking a law.”

ATCO had been pursuing the REA for some time. “There was a time I never thought we’d ever sell,” said Hudak. “But when the day comes that you can’t save your members a dollar, you have to ask yourself what you’re doing.”

The Peace Grove-Worsley REA looked at other options as well, including contracting out all its maintenance and operations, but Hudak said “it wasn’t cost favourable at all.”

At the time, ATCO told members it expected to recover less than half of the sale price from electricity costs paid by members over the next 25 years, he said. The time was ripe for selling, Hudak said, since the REA was in good shape financially, the lines were in good condition and a sale would be prudent before lines and other materials had the chance to depreciate.

Some 17 months on, Hudak said members seem to be mostly happy with the sale. “The only jolt was that as an REA member you paid discounted rates for idle taps, about $12 a month. Once ATCO took over, that figure came to around $33.”

If the REA hadn’t sold, the rates would still have had to be raised, Hudak said. As part of the deal, ATCO also footed the bill for a $240,000 ground rod replacement project, he said. “We really had no choice given the sheer amounts of rules and regulations required now, it was the only way to go.”

Still, larger REAs like Central Alberta and South Alta are crying foul. “The multinational is eliminating their competition without risk to stockholders and making an additional profit while spending their Alberta customer money — not their own money,” says a press release. Where else, asks the REAs, can a company “that has a monopoly within a defined, protected service area be permitted to systematically buy out the competition… without risk to stockholders, include the cost of those buyouts in their approved customer rates and then receive a guaranteed return on the investment expense to buy out their competition?”

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