Power struggle
Prospective legal battle adds to cost of potential takeover

by Richard Gleeson
Northern News Services

NNSL (Mar 21/97) - The next step toward pushing Northland Utilities out of the Yellowknife power business will cost the city as much as $250,000.

City council will decide Monday if it is prepared to add that cost to the $55,600 already spent on a valuation of Northland's assets.

"The cost of going ahead is high," Mayor Dave Lovell said Tuesday at a meeting of the city's financial legislative and administrative committee.

"But I don't think we can stop at this point, because there is a potential savings...to not do it is just unacceptable," he added.

The mayor and majority of council has maintained the city has an ethical obligation to determine if the high cost of removing Northland from the power equation would be offset by middle and long term savings.

Lovell said the $250,000 accounts for a worst case scenario of Northland and the city battling it out in court. If the utility wanted to get out of the business, the cost of proceeding would be a fifth of that.

But city lawyer Leo Burgess said accurately estimating the cost of a protracted legal battle is almost impossible.

"Really, what you're doing is speculating on a number of alternatives," said Burgess.

To further investigate that possibility of taking control of power distribution, in January the city invited input from the NWT Power Corporation.

The corporation presented a preliminary analysis Monday that looked at five new scenarios, three in which it acted as owner/operator and two with it as operator and the city as owner. The study projected cost savings on distribution at 3.5-6.5 per cent over five years.

Among the assumptions the projections are based on is that the purchase price of Northland will be the same as or less than $15.7 million, the value a recent appraisal assigned to Northland's assets.

The city believes that's the price it should pay for the utility.

Shareholder Jack Walker told the committee that was too big an assumption.

"It seems to me to be a strange thing to be putting this together when there isn't an established price," said Walker.

"If the city can save money by doing it, that's fine," he added. "But to do it for the sake of a power grab or empire building doesn't make sense."

By a vote of 2-1, the committee recommended council approve the funding. Chairman Blake Lyons broke the tie created when Ald. Dick Peplow voted against the move, offsetting the mayor's support.

In a Jan. 15 letter to the city, Northland stated the move toward purchasing the utility is seriously flawed in several ways, among them:

  • The independent appraisal that pegged Northland's assets at $15.7 million did not take into account the cost of doing business in the North. A more realistic price is $18-21 million.

  • The valuation was never meant to determine a purchase price but only a starting point to negotiating a price.

  • The evaluation and purchase process provided for in the franchise agreement Northland is operating under may be invalid.

In other words, Northland believes it may not have to sell, but if it does, a final price would be determined through negotiations.

Though it disagrees with the outcome, Northland approved of the methodology and the company that conducted the appraisal of its assets. The utility is currently conducting a pole-by-pole audit of its assets.

Under the franchise agreement, the city has until May 11 to decide if it will purchase Northland. If it does not attempt to exercise the option, the company will remain the city's power distributor at least until 2001.