To rationalize is to “structure and run according to rational or scientific principles in order to achieve desired results,” according to one dictionary.
But Premier Dennis Fentie’s use of this management consulting cliche to justify whatever he has planned for Yukon Energy reminds this columnist more of George Orwell’s observation that “Political language … is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind.”
Rationalizing is the word Fentie is using to describe his secret scheme-up for Yukon Energy, which seems to involve some kind of backroom deal with ATCO, the Alberta-based owner of Yukon Electrical.
Other people, including the four Yukon Energy directors who resigned over the plan, and staff who wrote an unprecedented letter to the media, have been using different words, such as “privatization.”
Apparently the project has been going on for months.
Rationalizing (whatever it means) the Yukon’s most important government-owned corporation is a big deal, and couldn’t be happening without the support of senior cabinet ministers such as Elaine Taylor, Archie Lang and Brad Cathers.
But neither Fentie nor these ministers have been open with Yukoners.
So this columnist will try to describe what rationalization might mean for Yukon Energy. It is not hard to find examples in the hundreds of mergers that happen every year, or in the recent news from the banking and automotive sectors.
Given the lack of transparency from our elected leaders, what follows is just a guess at what cabinet has planned. But it might not be far off.
The first thing cold-blooded restructuring experts would do is lay the profit and loss statements of Yukon Energy and Yukon Electrical beside each other. Then they would go through them line by line and estimate the opportunities. “Rationalizing” has a language of its own, and they would call this part “sizing the prize.”
The revenue line wouldn’t be very interesting. Unlike when Pepsi bought Pizza Hut in the hopes of selling more sugary drinks, we don’t expect Yukoners to buy more electricity because Yukon Energy and Yukon Electrical have teamed up somehow.
But the cost line would be juicy. According to its 2007 financials, Yukon Energy has about $7.4 million in “administrative expenses” and $5.6 million in “operations and maintenance.” The experts would go through each sub-category assigning a potential “synergy” to each one, based on how much duplication there was between the two companies.
Line items like “insurance” and “substation maintenance” might yield just five per cent savings, or even less. Unless there’s a chance to buy from sub-contractors in bulk or the two companies have similar facilities near each other.
But other line items would be bigger. You have two CEOs. Now you just need one. Two finance departments. Two contact centres taking calls from clients. Two office buildings. Two computer systems. Both companies send bills to clients. And so on.
There are also other opportunities not related to a merger.
The new bosses might just decide they need less training, less long-term engineering planning, fewer community donations and so on.
Savings ranges vary widely and depend heavily on how much overlap there is between two companies and how aggressive the cost targets are. But savings in the 20-40 per cent range are common. If they got 20 per cent from the combined administration and operations budgets of Yukon Energy Corp., and the size of the prize could be bigger, that would be $2.5 million in savings.
Unfortunately, the tax line would be a problem.
If Yukon Energy were privately owned, Yukoners might end up paying millions extra in GST.
The solution would be a management contract as in the 1990s, with Yukon Energy maintained as a separate legal entity with Yukon Electrical “extracting value” through management fees.
Finally, before our rationalization experts went to the Cellar on expenses to wind down, they would divide the savings by the average salary to identify how many full-time equivalent employees could be rationalized. And they would “bucket” the dozens of staff to be laid off into “Day 1,”“First One Hundred Days,” and so on.
A big question would be how to divide the savings among ATCO and the Yukon government.
In unregulated industries, the purchasing company usually pays a premium to the shareholders selling out, in effect sharing some of the benefits.
Our case is more complicated, because profits at both companies are regulated.
A big question is why Fentie is suddenly so keen on saving a few million dollars. He has been called many things since taking power, but “focused on efficiency” is not one of them.
As mentioned in a previous column, he may be more interested in sweetening a deal to get ATCO to contribute some of the $71 million needed for the Mayo B dam project.
With $36 million tied up in dubious asset-backed commercial paper, a cash deficit of $29 million planned for this year, and tens of millions needed in Mayo, the government risks going into the next territorial election without enough cash for a flurry of feel-good pre-election spending announcements.
Which might explain why the rest of the cabinet is supporting Fentie’s secret rationalization agenda.
ATCO is a well-run company and has been a good corporate citizen in the Yukon. And we should not fault them for trying to negotiate a clever deal.
But we should watch the Yukon government closely and do our best to make sure they cut a deal that is in the interest of Yukoners in the long run.
And we should remember what the word “rationalize” could mean for the employees of Yukon Energy.
While enjoying a nice Oregon pinot at the Cellar, our restructuring experts would use words like fire, sack, lay off, terminate, make redundant, headcount reduction, purge, downsize, rightsize, resize and cull.
Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels. His next book Game On Yukon! appears shortly.