The destruction of Collus

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Council wrecking our townThere’s a story in the online Connection that highlights how much this council has spent on lawyers and consultants to further its vendetta against Collus-Powerstream: more than $400,000 so far. Half of it was spent in 2015 (I have seen a document that shows more than $249,000 spent in 2015) and the cash register is still ringing. By the end of this year it may well top $750,000-$1 million.

That’s $400,000 of your tax dollars already spent for nothing. Not in town, not on local companies or services. We got absolutely no benefit from that expense. It wasn’t spent on anything for the greater good, but to pursue a very personal vendetta.

Remember that promised savings of $500,000-$750,000 the CAO bragged about back in March? It seems it’s all going to lawyers and consultants. And they’ll be getting more, too. The bills just keep rolling in.

This week, we got the news that Collus Powerstream is one of the top-performing utilities in the province. The Ontario Energy Board released its 2015 Benchmarking Report. in it, Collus Powerstream moved from the third tier (of five) up to second. It’s quite an accomplishment – and owed entirely to the efforts of our great, hardworking utility staff (including the former CEO, Ed Houghton).

It’s ironic that Hydro One remains in tier five – the lowest-performing category. Yet this is who The Block has been secretly trying to sell our utility to: the least efficient utility in the province. Powerstream is, by the way, the second largest municipal utility in this province, with more customers than Toronto Hydro. Powerstream has even more urban customers than Hydro One.

Why do I say costs could top $1 million? Because the Block’s aggressive drive to destroy Collus-Powerstream is about to come to an explosive head. I expect that before the end of summer, Powerstream will be so fed up with the harassment from town hall they will make an offer to buy our share of the utility. And then it will be gone.

We will have lost control over our own hydro rates and services. It will relocate out of town, maybe even out of the region. We will also lose the more than $200,000 a year we get for rent from the building. And any future cash dividends. But we will have the inevitable bills from lawyers to close the deal. Ka-ching!

Now while that purchase is likely the best thing for the staff at Collus – it will get them away from the toxic relationship created by this council and administration – and it will probably benefit the consumer too* – it means we lose a valuable public asset: our electrical utility.

And you, the public haven’t been able to even hear the discussions, let alone provide your input. It’s all been done behind closed doors. Screwed again by The Most Secretive Council Ever.

Cloak of secrecyAs you know, the former council sold half our share in our public utility following lengthy open discussions and public meetings in which input was sought. It was all done openly, above board, with help from one of the world’s largest and most reputable consulting firms: KPMG. The details and process were overseen and approved by the Ontario Energy Board (OEB). Quite the opposite of what this council is doing behind our backs, using little one and two-person consulting firms to justify the destruction.

And last term we chose to sell only half so as not to lose control over rates and service. This council wants to get rid of both.

Why? Because a few rich folk didn’t get the Taj Mahal rec facility for the YMCA that they demanded we build last term. And plus a few on this council hate the former Acting CAO who was also CEO of Collus. It’s all been dirty politics from the very start.

We got approximately $14 million for the sale last term. That was based on a multiplier of 1.56 times the book value – an exceptionally high assessment (most are at around 1.5 times). But it came in three components: $8 million cash from Powerstream, $1.7 million as a promissory note from Collus (since paid to the town) and the rest, approx. $4.6 million, from the recapitalization of Collus.

Clearly the Block doesn’t understand this financing because at least one less-than-astute member of council has told residents she expects a sale of our portion to net the town “$14-$20 million.” That’s absurd codswallop. Here’s why:

In its wisdom, the OEB decided electrical utilities should be in debt: the optimum amount being a 60/40 ratio of debt to asset value. Collus had always worked on the business model of having little or no debt (approved by many former councils). How much the OEB allows a utility to charge its customers is directly related to being in debt. With a low debt, Collus had low rates. But in order to have the sale approved, Collus had to have more debt. The solution: recapitalization, or in simpler terms: borrowing money.

I know, it sounds crazy and counter-intuitive, but that’s what the OEB dictates.

KPMG advised the strategic task force managing the sale that the more profitable option was for Collus to recapitalize before the sale because then the town would get 100% of the money. Powerstream also wanted it done before. If done after the sale, the town would only get 50% of it. Hydro One wanted it done afterwards. So Collus borrowed $4.6 million and gave it all to the town. Had we done it later, with another purchaser, the town would have received half that amount.

But recapitalization can’t be done twice. Collus is already at the 60/40 ratio approved by the OEB. A few utilities in the province have been allowed to temporarily go to 70/30, but basically, there’s no money from recapitalization in the pot. Besides, any money from borrowing will go to the buyer, not the seller.

So take out the $4.6 million from the total. And remove the $1.7 M promissory note, too, because that was dividend to the town for previous services, not a regular payment. You’re left with the $8 million. That was what half the utility was really worth, back then when it was strong and healthy. Last term.

A far cry from the head-in-the-clouds dreamlike figure of $14 to $20 million of our flighty councillor.**

Anyone looking to buy the town’s share of the utility now has to look at the value of the asset as it stands today. The Block and administration have deliberately devalued the asset by cancelling the shared services agreement, splitting water services from the mix, thus reducing the utility’s revenue stream considerably (and, I’m led to believe, the town hasn’t paid for shared services as it was obligated to, aside from some late payments for IT, since the term began).

Anyone buying the utility will have to take over billing and integrate it with their own system, plus shoulder the costs of moving operations to a new location (and possibly building a facility outside town). These costs will have to be factored in with any offer.

Estimates suggest anywhere from 25 to 33% reduction in base value this term due to The Block’s actions, so what we have left to sell might be worth as much as $6 million. Maybe less. And we’re not going to get an offer of 1.56 times the book value from anyone, so that diminishes the total.

Now the fly in the ointment is the shotgun clause in the partnership agreement. It basically says that either side can make an offer to buy the other’s share. And if that gets rejected, then the one who rejected it has to buy the other’s share for that amount plus $1.

So if Powerstream offers $6 million and the town says no, Powerstream can demand the town pay them $6,000,001. And we have to do so.

But it could be more – it depends on how eager the buyer is to own us. If Powerstream is canny, they will ignore the devaluation and offer between $8 and $10 million just to take it over. I hope they do. Our utility staff deserve better than what they’ve received at the town’s hands.

If the town says no to the offer, that’s a bit of a sticky wicket, since this council passed a bylaw saying it couldn’t borrow any more money until more of the debt was paid down. It’s illegal (although The Block has shown callous disregard for laws, code, policies and provincial legislation in the past…). So where would money that come from?

Why, from Hydro One, with whom some of our sneaky council and staff have been in secret negotiations with the past year. Hydro One lends us the cash, then snaps up the whole utility at a bargain price. And they can start jacking your rates up as soon as they can. The Block wins, Collingwood loses. And you pay for it.

All done without any public discussion, let alone public input. So much for accountability and openness.

If you’re concerned about this process – about the secrecy, the lack of public input, about the costs to taxpayers, about the potential for significant rate increases, the costs, about the sheer malevolence behind the process, I suggest you contact the Ontario Energy Board to file a complaint. And maybe the Ombudsman’s office, too. Or perhaps the OPP.

Collingwood deserves better.

~~~~~
* Once our utility is fully owned by Powerstream, the utility will harmonize our rates in line with those in the rest of the parent utility’s service area. That could mean a 5% drop in our electric bills. Compare this to what would happen if Hydro One took over: a 10% or higher INCREASE in our electric bill! This is, of course, exactly what The Block wants to do because they intend to screw local residents in their war on business,  low-income earners and seniors. But you already knew that.

** While $6 or even $8 million is still a lot of money, it’s not enough to build the $35 million Taj Mahal demanded last term. So that’s why the Block wants Hydro to buy the whole thing: to get at least $15 million. Still less than half what they need, so The Block is trying to sell our airport, too. In secret, again, of course. That might net around $6 million, although probably closer to $5 million (airports are not much in demand these days and lose, rather than make, money). So The Block might end up with $15-$20 million to start building the Y’s dream home for them. The rest, well, they’ll just go into debt for it, and put the burden on you, the taxpayer. Of course, you can afford ANOTHER tax increase, can’t you?

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3 Replies to “The destruction of Collus”

  1. What I failed to emphasize in the above is that any buyer today is also purchasing the debt that Collus Powerstream has. When it was sold, last term, it had almost no debt: it had liquidity. Hard assets were purchased for that money.

    Today, any buyer has to also assume the $4.6-$5M debt it has right now. That will certainly impact the value and the amount received.