SOMBA K'E/YELLOWKNIFE - City council will be seeking community support to borrow up to $49 million to fund the proposed Con Mine community energy system.

Carl Bird, director of corporate services for the city, points to what he says is the most important message about the Con Mine community energy system – the project is funded by energy sales not taxes. - Nicole Veerman/NNSL photo

A plebiscite will be held March 14 asking residents whether they support the city borrowing the funds for the $60-million energy project designed to heat 39 downtown buildings with warmth recovered from the geothermal heat below the now defunct mine.

The plebiscite question will include the $49 million figure, but it's important for Yellowknifers to know that number is a worst case scenario, said Mark Henry, energy co-ordinator for the city, at a public meeting Monday.

"Right now we're going through a process of establishing a relationship with a private sector investor, so the financial framework at this point isn't completely clear," he said.

There are two scenarios for the project, said Henry. The first is that the city undertakes the project without a private sector partner, resulting in the need to borrow up to $49 million.

The second scenario includes a private partner, reducing the loan to between $15.1 million and $23.5 million.

The numbers vary depending on the ownership structure. Henry said the city can either share ownership and operations with a private sector partner or it can sell the resource to a private company that will own and operate the system. The city received four proposals from the private sector before Friday's deadline.

"Our preferred option: the city would be the owner of the distribution assets - the pipes in the ground - and the partner would be responsible for the generation (of energy)," Henry said.

If a private sector partner is chosen, it won't be until after the vote on March 14.

Carl Bird, director of corporate services for the city, said the city hasn't yet reviewed the investor proposals, so it won't be releasing who they are from.

The city currently has about $3 million in long-term debt, down from nearly $30 million in 1995.

Bird said despite a substantial debt increase, the community energy system will be revenue funded and not paid for by taxpayers.

"The confidence we have in the business case makes us believe it won't be costing us anything, so it's not scary at all."

Revenue funded means any interest and principal on a potential loan as well as possible administration costs will be repaid with revenues generated from the energy sales associated with the project.

The city's borrowing limit is two times the previous year's revenue, approximately $103 million for 2011. A $49 million loan would be the most the city has borrowed at once, said Bird, who added he wasn't sure of the previous high.

The city is in talks with different financial institutions, and eventually it will go with whoever gives the best interest rate, he said.

In the business case, which was created by Compass Resource Management in Vancouver, the rate was set at 6 per cent. The city's initial inquiries with financial institutions have produced rates ranging from 4.75 per cent to 5.35 per cent, according to Bird.

"It's very good compared to the business case," he said.

During the public meeting at Northern United Place Monday evening, Taylor Zeeg, an associate for Compass Resource Management, said Yellowknife is perfectly set up for this project.

There is a long heating season, heating costs follow a business-as-usual format, the city has a dense downtown core and there is already a grant of between $10 million and $20 million in place from the federal government, Zeeg said.

A second public meeting at St. Joseph School will be held tonight at 7 p.m.

We welcome your opinions. Click here to e-mail a letter to the editor.