The issues are complex. And anyone without an accounting background may find the financial aspects of the deal hard to understand. But City Hall wants to make sure people understand what is at stake in its proposed agreement with Terasen Gas.
That is why they have called for public questions and input. Before the residents of Prince George answer ‘yes’ or ‘no’ to the revamped agreement at an April 19 referendum, the city wants people to be informed about its contents.
The old agreement, sent back to the city’s drawing board after 4,000 people signed a counter petition, was presented in its new form at last Monday’s council meeting.
The main difference between this draft agreement, and the last one, said Kathleen Soltis, Director of Corporate Services, is annual pay outs to the city for an estimated $550,000 building up to a Legacy Fund of $15 million.
While the overall value of the deal is down from previous figures, the amount to be borrowed for the venture is less, thereby freeing up the city’s money for other projects.
Previously, there was only a lump sum payment at the end of the 17 year lease.
When they opposed the last agreement, people cited the long wait for financial reward as one of their main objections.
Soltis stressed the $550,000 “is not a final figure. It is just the figure we are using for now. The numbers have to be finalized by [an accounting firm],” she said.
With the new proposal, the city will be looking to borrow $10 million less to finance the deal with the overall borrowed amount set around $65 million, she said. At council Monday night, Mayor Colin Kinsley pointed out the city has a borrowing limit of $220 million and a debt load of $55 million.
Under the present arrangement, BC Gas (now Terasen Gas) distributes and delivers natural gas to the city through its natural gas distribution system. The agreement, in place since 1958 and renewed in October 1979 for 21 years, was extended several times by mutual agreement between the city and BC Gas.
A key provision of the agreement provided an option for the city to “buy-out” the existing natural gas distribution system within city boundaries. That provision became a contentious issue when Terasen sought to remove the clause and the City of Prince George opposed it.
“The buy-out provision and the desire of Terasen to remove it from a renewed agreement gave rise to the City of Prince George considering its options prior to signing an extension of the Franchise Agreement,” Manager of Financial Planning and Systems Trevor Smith said this week.
“The city was advised that the “buy-out” clause might have significant future value to the city if the opportunity were developed with Terasen.”
Smith said the city then undertook to determine this value and develop an option to realize any benefits from the removal of the buy-out provision. This led the city to examine “several options with respect to how it might approach this situation.”
The option chosen was the lease option.
It is expected the transaction will cost the city $600,000 including developing concepts and formalizing them into legal agreements. The city is recommending costs be financed through the Municipal Finance Authority and shared “in direct proportion to the benefits received” from the transaction. Both Terasen and the city would then be reimbursed for costs.
Other municipalities that have chosen the “buy-out” route are Kelowna and Vernon.
Smith said that “although the completion of this transaction will result in a significant expenditure of taxpayer funds, the potential benefits to taxpayers in the future has been a considerable motivator in bringing the transaction to this point.”
It also represents an investment in the ongoing business of “attempting to find new, better and more creative ways to increase value to our taxpayers,” he said.