Oakville hydro seeks extension on generating station lease with township

Township of Billings

KAGAWONG – With aging generating station equipment that will require significant additional investment in refurbishment, the Oakville Enterprises Corporation (OEC) is requesting the Township of Billings negotiate a lease extension to cover a further 20 years. This would allow OEC to recoup costs and earn a reasonable profit over a longer period of time. The extension would benefit Billings by both lengthening the timeframe and increasing the likelihood (and probably the amounts) of rent revenue at no cost or risk to the township. 

OEC also indicated its willingness to work collaboratively with the township to determine whether there are federal or provincial programs that could be accessed to fund a portion of the necessary refurbishment costs or other joint projects, said Bill Touzel on behalf of the OEC, in his presentation to Billings council on July 19. 

Mr. Touzel has been an independent advisor to OEC for the past two and a half years. He presented points from a letter previously sent to council by Patrick Gillette, vice president of OEC Generation. “OEC leases the generating station from Billings Township,” he said. “The lease forms the basis of the relationship between Billings and OEC and specifies that Billings receives rent of 23.5 percent of gross revenue. OEC is responsible for all aspects of operation and maintenance. The lease ends December 31, 2029 and has a provision for a one year extension.”

“The station is aging and in the last few years the costs of maintenance have been increasing dramatically,” said Mr. Touzel. “It is apparent that significant investments in refurbishment will likely be required to extend the service life of the station. It will likely require a significant investment in the future. These types of hydro stations usually last 40 to 50 years. This station has been in place since the 1980s.”

Since OEC became the tenant in 2013, Billings has received rents of $464,000, an average of $58,000 per year. OEC has netted less than $50,000 in total, an average of approximately $6,000 per year (this is after interest costs of the purchase financing but before any recovery of the purchase price). Mr. Touzel noted that OEC is prepared to share detailed financial information with council in a confidential setting. “Given the financial realities,” he said, “to justify spending significant amounts on maintenance and refurbishment, OEC needs increased certainty that the relationship will continue past 2030.”

He estimated the cost of maintenance over a decade would be roughly $750,000. “Why would we do that if the lease is going to end at the end of 2029?” he asked. “OEC is requesting that we negotiate a lease extension to cover a further 20 years. OEC can negotiate with council directly, with a sub-committee of council or with township staff, pending council’s final approval.”

“The dollar values were an eye opener for me,” stated Billings Mayor Ian Anderson. “My first thoughts were why you wanted to continue but you’re obviously looking long term.”

“I’ve had a close relationship with the Lake Kagawong Resource Committee (LKRC) since my term on council began,” Councillor Bryan Barker told Mr. Touzel. “I wanted to educate myself on how hydro generation impacts them and OEC has been very fantastic in sharing data and information. We were planning a public open house but then COVID hit.”

Councillor Barker had questions for Mr. Touzel. “If the township wanted to take over the operation, could it be sold back to the community? If that is a plausible option, what would the township have to do for infrastructure, etc.? There’s a lot of miscommunication.”

“It is legally possible to have a local distribution company,” Mr. Touzel said. “The most popular is Hydro One. Ottawa, Bracebridge and Renfrew own theirs. Generation is only half the scenario though. You would have to buy energy from your own station and apply for the right to send over the wires into homes. Small municipalities that have owned small stations have decided they should not be in this business. Costs (in the millions) were beyond the fiscal realities. So yes, legally it is possible but it is not practical.” He also noted the municipality would need a way to collect the hydro payment from its residents. 

Councillor Barker also asked how many third-party private owners there were in Ontario and how many would be willing to take over ownership of this plant. “Not many,” replied Mr. Touzel. “I know of a couple municipalities. South River owns a station on South River and on private land. They pay for that, right? I’m not aware of any situations identical to Billings where the municipality owns the station and had someone else operate it.” 

Mr. Touzel said he would advise clients to, at the very least, bid low to justify spending the amount that it would cost to make a go of it. “I don’t want to present just doom and gloom. The generating station will last a long time if it is maintained and Billings is receiving almost one quarter of the revenues from the plant. It’s kind of an unusual situation. This is an opportunity to extend the lifetime of our assets and Billings will continue to get rent for many more years which means keeping tax rates down.”

“We have the Community Emissions and Energy Plan (CEEP) on the agenda. You talked about a partnership with the company you represent to work with us in making ours a greener township?” asked Councillor Sharon Alkenbrack. 

“Absolutely,” Mr. Touzel said. “OEC is municipally owned. For new infrastructure buildings they want solar, landfill, gas stations, etc. Patrick has said many times that a relationship with Billings would help both to access programs in a meaningful way.”

Councillor Michael Hunt wants more open meetings with residents over their concerns with OEC. Mr. Touzel confirmed he would be happy to participate.

“Our municipality has a lot of interest in green power,” Mayor Anderson said. “Regardless of who is running the station, it is producing green power. As a council we are committed to exploring all options. As Councillor Hunt mentioned, we should probably explore an open house. We will look at the costs and perhaps realities of what it takes to run a hydro generating plant. Perhaps three quarters of a million dollars for upgrades requires more thought and we’ll do that.” 

“We’ll have discussion at a later date,” the mayor told Mr. Touzel.