Timeline of the original Collus share sale

With the pending yet pointlessly vindictive Saunderson judicial inquiry – a punitive, self-serving exercise expected to cost local taxpayers of between $2 and $6 million (and potentially much more!) – I thought it might be useful to reprint in one post the timeline of the sale of half the share of Collus to PowerStream in 2011-12. I’ve posted much of this previously, in separate posts, but I also spent several days combing through online sources and archived documents to ensure I had a comprehensive timeline.

There are a few related notes included that underscore the electricity market in flux in 2011, the reasons for the sale (and for a strategic partnership versus a full sale) and the criteria used to determine the best partner. Some of the links in the timeline may no longer be valid (the Enterprise Bulletin, for example, folded, although some pages are archived on the Internet Wayback Archive), but the majority remain active.

This is a long read, because it is very detaiiled. Keep in mind a few things as you read this:

The process last term was fully open, and included public consultation and considerable media coverage and our neighbours in Clearview kept informed – the very opposite of this term’s secretive and deceptive privatization of our once-publicly-owned electricity utility;
During the process last term, the public was made aware that the town intended to sell up to but no more than 50% of the utility in order not to lose local control over rates and service. There was no public outcry or comments in the media opposed to this, no demands to sell 100%. None of the bids came in at lower than 50%. There was no opposition to the sale filed through the Ontario Energy Board (OEB) over the sale or the process, even after the winning bid of 50% was announced. This term there have been numerous complaints filed to the OEB over the sale and the secretive process;
No sole-sourced consultants or lawyers were hired by council last term; quite the opposite of this term where sole-source contracts have been handed out like party favours to buddies without even the pretense of an RFP;
Our two utilities (electricity and water) were both active and respected partners in the process; consulted, but never once harassed, confronted or bullied by the council or the administration; quite the opposite of the way they have been treated this term;
The goal of the sale last term was to engage a PARTNER who would work cooperatively and collaboratively with the town and the utility for the benefit of our residents, not just to grab the cash; quite the opposite of the backroom cash deal arranged this term with a for-profit, out-of-province corporation that benefits only the sole-sourced lawyer who arranged it (the same sole-sourced lawyer who was hired to provide the ‘market analysis’ and then recommended the sale of the utility);
The entire process, including all financials and agreements, was overseen and approved by dozens of people, including the lawyers, accountants, auditors, CAOs, clerks, treasurers, mayors, councillors, board members, CEOs, CFOs and managers of four municipalities, two utilities, KPMG, PLUS those at the Ontario Energy Board and Energy Probe. The process to privatize the utility this term was all done behind closed-door using one sole-sourced lawyer, without anything close to that level of scrutiny;
The administration and some council members have said publicly that they don’t have all the documents about the sale. Yet I was able to find all of this documentation with no problem. Did any of them even look? As for SPTT meetings – those were the TOWN’s responsibility, not the utility’s. If those minutes are missing, ask the clerk where they got to: it was her job to record the minutes and store them.

2010:

In the May, 2010 issue of the Canadian Business Journal, Collus utility is profiled as,

…a community-owned utility, which affords Collingwood and its regional residents several benefits. The first is COLLUS’ ability to control their own prices, which means they are some of the lowest in Ontario. In doing so, COLLUS is committed to the local community—including the advancement of community goals, the local environment and citizens’ ability to have a “voice” in utility decisions.
Ed Houghton, President and CEO of COLLUS, has been with the utility for 33 years, and is a third-generation Collingwood resident—and Houghton is proud to call the community home. Because of COLLUS’ community focus, it is imperative that the utility remain transparent, accountable and communicative. This is not a problem for COLLUS, according to Houghton.

2011:

Early 2011: In the leadup to the Oct. 2011 provincial election, all three main political parties made statements about reducing the number of local distribution corporations (LDCs, or local electrical utilities) once elected. These varied from 30 to one. These platforms all included promises of legislation to force the sale of LDCs if they could not be achieved otherwise.

Feb. 2011: In light of political party pronouncements on the future of Ontario LDCs prior to the provincial election, the Collus utility board (Councillor Mike Edwards, Dean Muncaster (chair), Mayor Sandra Cooper, Joan A Pajunen, Doug Garbutt and David McFadden) hired world-renowned consulting firm KPMG (one of the world’s top four consulting firms in terms of employees, with offices across the globe) to comment on the value of our electrical utility as a sellable commodity, examine the options for its future, explore opportunities in the current political climate, and return to the board with a report that spring.

April 18, 2011: At a special meeting of council:

CAO Wingrove reviewed the rationale as to why Collus Power salaries are not disclosed under the Public Sector Salary Disclosure Act, advising Council that that Collus Power is incorporated under the Business Incorporation Act. In order to be a public sector employee there are several tests that must be passed. One of which relates to funding received from the Province which is not the case for Collus Power. Another relates to the disclosure of salaries and the regulations of the Municipal Freedom of Information and Protection of Privacy Act as it would be considered personal information.

May 13, 2011: The Collus board met and discussed its presentation to council later that month (included under “action items” in the agenda).

May 20, 2011: KPMG prepared a report for Collus Power Corporation titled “Calculation of Value” (aka the “Value Report”). KPMG provided a calculation of the fair market value of all the common shares of Collus Power as at December 31, 2010.

In May 30, 2011: The Collus utility board presented its annual business plan to council in public session. In its public presentation, the board also discussed the changes in the province’s electricity sector, the KPMG study and the three options the consultant had presented:

total sale,
strategic partnership, and
do nothing.

The board chair (Dean Muncaster) told council the board preferred the partnership option, which was recommended in the business plan.* He also noted the board did not want to sell more than 50% of the utility because it did not want to lose local control of service and rates (50% was represented as a “non-controlling interest” in the later sale application to the OEB). He recommended Collingwood should act while it was still a “seller’s market” before consolidation became forced (legislated).

In general discussion, Council agreed that it, too, did not want to lose control of the utility (confirmed in later conversation with the former deputy mayor and other council members, and Collus staff and board members. Council approved the business plan and the preferred option in an open vote. The utility board was told to further examine partnership opportunities on the basis of the KPMG report.

Local media reported on the meeting, on the KPMG report, and listed the three options.

One of the strengths of our electrical utility noted during the business plan presentation was the efficient and mutually-beneficial sharing of services and staff between Collus, the town and our water utility (the “shared services” agreement).

June, 27, 2011: the Collus board openly presented its plans to council again. The board publicly received council’s approval to move forward and create a task force authorized to evaluate the KPMG report and examine the possibilities presented, and report back to council in public with its recommendations.

A report on the options presented to council at this time, titled, “Confidential Review of Options” was was presented in camera to council and staff. It was later included in the appendix of a public 2013 report by the Public Interest Advocacy Centre. That report***** included the points:

The Province remains concerned about the continued operation of approximately 80 municipally-owned Local Distribution Companies (“LDCs”).
It believes that this results in additional costs through economies of scale. Many observers expect the Province to take steps to encourage additional LDC consolidation.
These measures are likely to include a time-limited Transfer Tax holiday for mergers and acquisitions involving publicly-owned utilities.
The Province is also concerned that hard-to-service rural areas will be left out of voluntary transactions. Hence, initiatives to encourage municipal consolidation may be tied to specific measures to create a number of large, regional utilities.

The report concludes with a section that recommends a “strategic partnership” (P. 21-23) as the best option, noting,

“A Strategic Partner would value the expertise and reputation of Collus, as well as its strategic geographic location as the foundation for the development of a regional electrical utility based in Collingwood to serve the Georgian Bay area and beyond.”

July 7, 20, 26, 2011: Collus board and staff met with five “strategic partners”- the LDCs identified as potential partners – to gauge their initial interest in participating if the town proceeded.

July 8, 2011: Collus board meeting.

Aug. 3, 2011: The first meeting of the nine-person Strategic Partnership Task Team (SPTT) created by the town and the Collus board. This committee was recommended in the report presented June 27 (p. 24) and approved by council:

Establish a Team comprised of the Collus Power Board (Dean Muncaster, Mayor Sandra Cooper & Independent Director David McFadden), Ed Houghton, Tim Fryer, CAO Kim Wingrove and a Council Representative to meet with all interested Strategic Partners to outline the needs, wants and desires.

This team created in response to this recommendation included:

Collingwood’s CAO Kim Wingrove;
Mayor Sandra Cooper;
Deputy Mayor Rick Lloyd;
John Herhalt of KPMG;
Dean Muncaster, chair of the Collus board;
the CEO of Collus (Ed Houghton);
the CFO of Collus (the latter is now Councillor Tim Fryer);
David McFadden, (another former Collus/Powerstream board chair and now chair of Toronto Hydro), and
Doug Garbutt, former mayor and public utility board chair.

The town’s legal firm, Aird and Berlis, was asked to participate and to review and comment on the documents and the process.

Aug. 11, 2011: Collus partnered with four other utility providers,

…on an initiative that will test the effectiveness of using solar powered attic vents in helping to reduce the electricity consumption required to cool homes. The announcement was made today at a project launch event on Davis Street in Collingwood where representatives from Collus Power, PowerStream, Orangeville Hydro, St Thomas Energy, Wasaga Beach Distribution, other key stakeholders, members of the media as well as County Warden and Mayor of Wasaga Beach, Cal Patterson, witnessed the unveiling, on the roof of a new home, two fully-installed solar powered attic vent units that were provided by the project’s supplier, International Solar Solutions.

During the summer of 2011, the SPTT met again (Aug 29), and also met with the town’s potential strategic partners again (four meetings, Sept. 12 and 19) to keep them informed. At every step of the process, every potential partner was kept up to date of the goals and the discussions.

The SPTT met again Sept. 28, and on Sept. 29, 2011. They consulted with Collus staff about the progress of their discussions, and on the future direction.

Oct. 3, 2011: The SPTT provided an update to council in public session, and asked for approval to release an RFP to discover if any of the identified utilities was interested in partnering with Collus.

The task force identified five potential utility partners, but later eliminated one as too small. Working with the town staff, KPMG, and the town’s lawyers, the task force helped craft an RFP to send to each of the four large utilities they had recommended. This was sent out Oct. 4, 2011.

The RFP asked for bids up to, but not more than, 50% of the utility’s value. In previous discussions and presentations at open council meetings there was no interest expressed by either council or the board in selling more (see May 30, 2011).

Nov. 15, 2011: the SPTT provided another update to Collus staff and asked for continued input on the process.

All four utilities responded by the Nov. 16, 2011 deadline. The names of the potential partners were not revealed to the public, although Hydro One and PowerStream were later (2012) identified in the media. None of the respondents offered to buy less than 50% (revealed later by individuals involved in the process).

On Nov. 17, 2011 at a special meeting of council, the SPTT updated the public on the process and the RFP. Collingwood council publicly approved sending out a media release about holding a public information meeting Nov. 22, to discuss negotiating a potential partnership with one of these respondents.

Council also approved Collus hosting a public information session to explain its search for a partner, outline the results of KPMG’s report, and get public input. This council meeting and the subsequent public information session were well covered in the media and the decisions publicized.

Nov. 18, 2011: Bayshore media reported:

COLLUS — the utility that provides water and electricity to the town of Collingwood — is looking for what it calls a ‘strategic partner’.
COLLUS is currently looking over proposals for a buyer of 50 per cent of the utility.
The utility provides water and electricity service for Collingwood, Thornbury, Stayner and Clearview township.
The chair of the COLLUS board says the utility is looking over the proposals it’s received so far and will make a recommendation on a buyer the first week of December.
A public meeting about the sale will be held on Tuesday November 22nd at the Leisure Time Club.

Nov. 22, 2011: Collus, Council and the SPTT held an open, public information session at the Leisure Time Centre, explaining the process, explaining what had been done to date and why, and asking for public comment and questions. The presentation included the contents and wording of the RFP sent to the potential partners, the list of choices, the reasons a partnership worked better, and the weighting of the decision process.

Roughly 200 people attended (other numbers have been reported); four people from the audience asked questions. No one at that meeting publicly opposed the sale of 50% of the utility and there were no letters to the editor or editorials in local media afterwards opposing it. Bayshore media broadcast this story about the event:

Collus — which has just over 15 thousand customers in Collingwood, Stayner, Creemore and Thornbury — is looking for a larger distribution company to invest in up to 50 per cent of the company. Right now the sole shareholder or owner is the town.
Collus President and CEO, Ed Houghton, adamantly says this is not a sale.
He says it’s a partnership because they want Collus to stay in Collingwood and want to keep all of the company’s 48 employees.

On Nov. 24, the Collingwood Connection had a story that noted:

“The town is currently evaluating four proposals – all are from other distribution companies. Collus president and CEO Ed Houghton says he can’t reveal the names of the groups who have put in bids.
“Each group has submitted two envelopes. The first envelope has the financial proposal, which will account for 30 points on the rating system. The next envelope will be what they can bring to the table such as strategic resources, keeping current employees, supporting the community, competitive rates and values.
“The Collus board will review the proposals on Dec. 2. Council will receive an in-camera update on Dec. 5 and a resolution will be put to council at either the Dec. 12 or 19 council meetings.”

The Connection story noted:

Shortly after the last municipal election the Collus board looked at three options for the future of the company – a total sale, partial sale, or the option they are considering, a strategic partnership.
They hired KPMG to assist them. John Rockx of KPMG said the electricity industry is changing and the province wants to reduce the number of Local Distribution Companies (LDC). There are currently 80, some legislators want to see that reduced to a handful and forced amalgamation could be required in the next several years.

Also of interest is the comment about the potential money to be received from the sale, and the response from Mayor Cooper, included in the story:

There was no amount discussed, but any payment from Collus would be put into a reserve account and would not be used until the community had a chance to have input as to what the money should be used for.
“This represents one of the most exciting and positive opportunities for the residents of Collingwood,” said Mayor Sandra Cooper. “During our first budget process, department heads were requested to maximize value for the residents of Collingwood while recognizing our very difficult current financial environment. A result of this directive was the strategic partnership initiative.”

Nov. 23 and 28: 2011; The SPTT met again to review results and analyze the received RFPs.

Nov. 25, 2011: Collus submitted its report on rates and customer impact EB-2011-0161 to the Ontario Energy Board.

Dec. 2, 2011, the SPTT met in camera with the Collus board to propose a recommendation to council.

Dec. 5, 2011; Bids were presented in two sealed envelopes (a common practice with some types of bid where bid quality and money are considered separately): one for the money, the other for the service/culture/customer relations component. Collingwood Council and the utility board, SPTT, and the board’s and town’s lawyers, plus the KPMG consultant (who led the process of opening the envelopes), met in camera to discuss the responses, and to decide whether to go ahead with any of them. The responses were weighted on 70% for the corporate culture and customer service, and 30% on the money offered.**

Each part was analyzed independently and the envelopes opened separately for analysis. The two-envelope process and the weighting was reported in the local media. This was done in camera with the utility board and eight of nine council members present

Councillor Chadwick declared a potential conflict of interest:

Councillor Chadwick declared a pecuniary interest with respect to the in camera discussion, as he provides consulting services for electricity sector clients. Councillor Chadwick indicated that he will not be participating in the in-camera discussion until it is known whether his client has submitted an RFP for the COLLUS Partnership discussion.

(NB: I did not provide services directly to energy sector clients, rather to a company that provided them. I had no direct contact with any energy sector companies, and my short-term work contract ended later that December. Since there was no way to know who was involved in the bidding, it was a cautionary declaration.)

Dec. 12, 2011: The Collus CEO Ed Houghton made a public presentation to Clearview Council with a 17-page PowerPoint presentation outlining the process and results of the RFP, bringing council and the local residents up to date on the process although not identifying the winning bidder. Houghton’s presentation noted:

Some of the key requirements from a Strategic Partner include the following:

An investment of up to 50% in Collus Power shares
Provision of strategic and specialized resources to Collus Power through Service Agreements
Support in growing the Collus Power business, both organically and through acquisition
Continued and enhanced support for the interests of the communities we serve and our employees
Continued and substantial presence in the communities we serve
Continued focus on maintaining and enhancing the competitive distribution rate and cost structure of Collus Power

Clearview Township’s website noted:

Houghton explained that, foreseeing a time in the near future when the provincial government would decide to cut down on the number of local distribution companies, the company decided that it needed to merge with someone to become bigger.
He also noted that part of the criteria in the company’s Request for Proposal was that the new investing company would have a similar culture as Collus.

2012:

Jan 16, 2012: Collus board met in camera with council at a special meeting to provide an update on the partnership and shareholders’ agreement.

Jan 20, 2012: Collus board meeting and resolution.

Jan. 23, 2012: Council made a public notice about accepting the pending sale of 50% of the Collus utility to PowerStream, which ranked highest in the RFP scoring system. A public presentation during that meeting by Collus CEO, Ed Houghton, explained the reason for the sale, and the process. The town’s media release later noted:

Collingwood Council unanimously supported the strategic partnership proposal following a presentation by Ed Houghton, President and CEO of Collingwood Utility Services. Houghton provided background information on the electricity industry, outlined the steps taken by Collingwood’s Strategic Partnership Task Force to investigate various ownership options and described the process used to select PowerStream as the strategic partner.
The selection of PowerStream followed a comprehensive request for proposal process in which four proponents submitted responses. PowerStream was chosen based on many important and planned considerations including the ability to provide strategic and specialized resources, competitive distribution rates and cost structure, customer experience and satisfaction, community involvement, support for employees and their careers as well as the correct cultural and synergistic fit.

Council unanimously and publicly passed a bylaw with a recorded vote to start the process of the share sale and to enter into discussions with the OEB about the sale. The bylaw noted,

“THAT the Town enter into the Share Purchase Agreement and the Unanimous Shareholders Agreement with PowerStream, once those agreements are in a form and content to the satisfaction of the Mayor.”

A media release about the sale was sent out and made public online.

That release noted:

In a vote held Monday evening, Council approved selling a 50 percent interest in Collingwood Utility Services Corp., the holding company for Collus Power Corp., Collus Solutions Corp. and Collus Energy Corp., to PowerStream, a community-owned electricity distribution company serving residential and commercial customers in several municipalities located in Simcoe County and York Region. The transaction will enable the Town of Collingwood to realize proceeds of approximately $14-15 million as a result of the sale of a 50 percent share purchase, re-capitalization and the redemption of a promissory note.

There was no opposition to the sale or to the 50% interest expressed either in local media or in letters sent to the town or council. There were no complaints filed to the Ontario Energy Board opposing the sale.

The presentation to council is attached as Appendix A in the report from the Public Interest Advocacy Centre, dated Sept. 2013.

The meeting and the vote were covered extensively in the local media.

In one piece, CEO Ed Houghton underscores the importance of keeping local jobs in the decision:

Houghton said with questions surrounding local distribution companies, this will ensure Collus will remain in Collingwood and its employees will be secure. He said everyone at Collus will keep their jobs.

The weighting of the responses based on the respondents’ answers (70% given to corporate culture, 30% to money) was also mentioned in the local media as the reason PowerStream was chosen.**

Also on Jan. 23, 2012, Powerstream itself blogged about the partnership and the process, noting:

Collingwood Council unanimously supported the strategic partnership proposal following a presentation by Ed Houghton, President and CEO of Collingwood Utility Services. Houghton provided background information on the electricity industry, outlined the steps taken by Collingwood’s Strategic Partnership Task Force to investigate various ownership options and described the process used to select PowerStream as the strategic partner.
The selection of PowerStream followed a comprehensive request for proposal process in which four proponents submitted responses. PowerStream was chosen based on many important and planned considerations including the ability to provide strategic and specialized resources, competitive distribution rates and cost structure, customer experience and satisfaction, community involvement, support for employees and their careers as well as the correct cultural and synergistic fit.

Feb. 15, 2012: The Ontario government releases the “Drummond Report” which the Energy Regulation Quarterly said (in 2015),

…highlighted the potential cost savings of further consolidation of Ontario’s LDCs. Since then discussion about LDCs has focused on how to undertake such consolidation, with recommendations including a loosening of the transfer tax system to encourage consolidation similar to the late 1990s, as well as forced consolidation into regional distributors with a minimum of 400,000 customers. In addition, more recently, the Premier’s Advisory Council on Government Assets released a report (hereby known as the “Ed Clark Report”) recommending the consolidation of Hydro One Brampton with other GTHA distributors to produce an entity comparable in size to Toronto Hydro. The hope of the Advisory Council was that such a merger would trigger additional consolidation eventually resulting in only three to four provincial electricity distribution companies.

March 9, 2012: Lawyer Scott Stoll, working for Aird & Berlis on behalf of the town, sent a five-page letter to the OEB outlining the proposed sale of 50% of the Collus share. PowerStream posted that letter and the complete 610-page application online for public access.

The entire documentation for the application is available on the OEB website. In its decision, the OEB noted,

After considering the responses to interrogatories, Board staff filed a submission on the application and stated it had no issues with the Proposed Transaction. The Town responded to the submission and submitted that the Proposed Transaction meets the “no harm” test and should be approved by the Board.

In one of these application documents, it notes:

Each Director will be obligated to fulfill their fiduciary duty to the corporation — not the shareholder.

This would become an issue only when the current council fired its members of the utility board in mid-2016 because they showed loyalty to the corporation, and then illegally (according to town bylaws) appointed three administration staff members in their place. Two of these staff members lived out of town and were not customers of Collus Powerstream. Town bylaws require all appointees to be eligible voters in the municipality.

That response also notes that the shareholders’ agreement has a formal dispute resolution process:

A formal dispute resolution system, such as arbitration, would be very unusual for a Board of Directors and would not be considered good governance.
In the unlikely event the Board of Directors are unable to resolve a dispute, the Board of Directors could refer the matter to the shareholders for resolution using the process established by the Unanimous Shareholder Agreement, Article 13.

Near the end of March, 2012, CAO Kim Wingrove left Collingwood when her contract was terminated by the town.

Mid-March, 2012: Collus chair, Dean Muncaster, 78, died while on vacation in Mexico.

Apr. 12, 2012: Council met in camera to discuss Collus promissory note.

In April 2012, the Ontario Minister of Energy established the Ontario Distribution Sector Review Panel to provide expert advice to the government on how to improve efficiencies in the sector with the aim of reducing the financial cost of electricity distribution for electricity consumers.

In its report, titled Renewing Ontario’s Electricity Distribution Sector: Putting the Consumer First, the province’s Distribution Sector Review Panel recommended reducing the 73 LDCs in Ontario into 8 to 12 regional distributors, and that the remaining 6 to 10 regional distributors serving southern Ontario should have at least 400,000 customers each.

This put further pressure on LDCS to explore consolidation while it was still a “seller’s market.” (other panel recommendations about LDCS are explained here). The report concluded:

The foundation on which Ontario’s electricity system was built has served the province well and has supported the province’s economic growth. It is not suitable, however, for the challenges and the opportunities of the future. This province needs a stronger, more innovative distribution system that can meet the changing needs of the consumer and the province.

The energy industry was aware that the province and all political parties were interested in making significant changes to the LDCs as noted in the Globe and Mail, April 11, 2012:

The Ontario government is considering a significant overhaul of the province’s energy sector, including a selloff of municipally owned distribution utilities and a merger of two provincially owned planning agencies.
The politically sensitive reforms were debated internally before this spring’s budget, and remain in play – albeit at a slower pace than Finance Minister Dwight Duncan would have preferred.

(This consolidation continued to be a concern for utilities for several years, as this 2014 presentation shows; Collingwood was just ahead of the curve).

Also in April, 2012, four months after the deal had been approved, council asked Collus CEO Ed Houghton to act as interim CAO for the town while the recruitment process looked for a permanent CAO. Houghton took the job without any financial compensation and held it for just over a year, until mid-April, 2013.

Houghton is quoted in the Connection about the creation of an Executive Management Team to work on collaboratively managing town issues:

Houghton said the town will put together an executive management team who will oversee the day to day. “I think we can do a good job,” he said. “It’s truly going to be a team effort.”

After Houghton left, the town began a search for a new CAO, in May, 2013.

The OEB examined the sale application during the spring and summer of 2012. The application was also shared with the NGO, Energy Probe, for comment. Energy Probe also approved the application.

June 13, 2012: In the council agenda package, p. 65, in a report on town’s finances, it states,

(Collus) has the ability to repay the promissory note to the municipality at its discretion. To the extent that the note is not repaid, the interest rate on the note will remain 7.25% in 2012 and will be reduced to 5.58% per annum in 2013. Following 2013, the interest rate on the note shall be determined based on Ontario Energy Board (“OEB”) regulations.

Interest payments on the promissory note were approx. $124,000 per year. On Nov. 16, 2015 the town demanded repayment of the note despite the above statement abut discretion. The promissory note to the Town of Collingwood was repaid on December 31, 2015 as the 2015 Collus PowerStream annual report notes.

On July 12, 2012, the OEB published a letter approving the transaction and giving leave to PowerStream and Collingwood Utility to proceed with the sale under Board file number EB-2012-0056. In that letter, it noted,

“On March 9, 2012, the Corporation of the Town of Collingwood and Collingwood Utility Services Corporation (respectively referred to as “the Town”, and “Holdco”) filed an application with the Board under section 86 (2)(b) of the Act, seeking a Board order granting leave for the Town to sell, and for PowerStream Inc. (“PowerStream”), to purchase a 50% interest in Holdco (the “Proposed Transaction”)…
“Based on the evidence in this proceeding, the Board concludes that the Proposed Transaction is not likely to have an overall adverse effect in terms of the factors identified in the Board’s objectives in section 1 of the Act. Accordingly, the Board finds that the Proposed Transaction reasonably meets the “no harm” test.”

July 30, 2012: Council passes a motion to allow Collus to borrow funds:

BE IT RESOLVED THAT in accordance with the Shareholder Direction between the Town of Collingwood and Collingwood Utility Services Corp., Council approves the borrowing of funds by COLLUS Power Corp. from Ontario Infrastructure and Lands Corporation up to a maximum of $7,000,000 and the granting by COLLUS Power Corp. of a security interest in all of its present and future property and assets as per the OILC requirement to secure such borrowing.

Aug. 13, 2012: Council met in camera to discuss appointing directors to the Collus board. . In open meeting, David McFadden was appointed to a 2-year term and David Garner to a 3-year term.

Aug. 16, 2012: The official signing of the deal was held in public, in Collingwood, and the name was changed to Collus/Powerstream. At that event, Barrie Mayor Jeff Lehman said,

“You’ve come up with a model that is truly innovative, and in every sense of the word, a true partnership. We’re in a time of great change in the power business in Ontario, and what that means is there is strength in numbers. This will give you the resources to deal with a complex and challenging environment, and the chance to look to the future with a great deal of optimism.”

The same story also noted:

As part of the agreement, the town will receive about $14 million for the 50 per cent stake in Collus. The board of Collus Powerstream will feature three members from the Town of Collingwood, three members from Powerstream with two of the six selected as co-chairs.

August 21, 2012: At the Association of Municipalities Ontario’s (AMO) Annual Conference in Ottawa (which is usually attended by many members of Collingwood Council), Rene Gatien, EDA Vice Chair, hosted a panel on municipal LDCs and their consolidation. He opened his remarks with,

And the answer some of you may have come up with is yet another question — should we consider the sale or merger of our LDC?

He added, “There are indeed efficiencies to be found through consolidation, but only solid business analysis and decisions will make them a reality.”

In Sept. 2012, the EDA Magazine – a respected industry journal – carried an article about the Collus-PowerStream partnership and its strategic goals. It further explained the timeline and objectives:

Weighing the Options: The Town of Collingwood engaged KPMG in February 2011 to do a complete evaluation of the utility and examine possible options for its utility going forward, including:
Status Quo: ownership and operation of the utility under its current structure
Sale: full or partial sale. If the latter, retaining either a minority or majority share
Strategic Partnership: Securing financial and/or technical partners

Oct. 15, 2012: Council met in camera to discuss appointments to the new Collus-PowerStream board.

Dec. 1, 2012 Council held a public meeting to get ideas and suggestions from ratepayers and local organizations about how to spend the money received from the sale. A five-page PowerPoint presentation provided the details of the sale and the amount received ($14,458,559). This presentation also explained the purpose of the re-capitalization of the utility:

The point was to Restructure the company’s debt and equity mixture. Previously we had very low debt and high equity in the company.
The aim was to make the company’s capital structure 60% debt and 40% equity (OEB deemed capital structure)
Town of Collingwood benefits by receiving a large cash distribution from the company

See Feb., 2013, below.

The audited financial statements for Powerstream itself, for 2012 (Dec. 31, 2011-Dec. 31, 2012), note:

PowerStream Inc. (the “Corporation”) was amalgamated on January 1, 2009, under the Business Corporations Act (Ontario) and is owned by the Corporation of the City of Vaughan (the “City of Vaughan”), through its wholly owned subsidiary, Vaughan Holdings Inc.; the Corporation of the City of Markham (the “City of Markham”), through its wholly owned subsidiary, Markham Enterprises Corporation; and the Corporation of the City of Barrie (the “City of Barrie”), through its wholly owned subsidiary, Barrie Hydro Holdings Inc. The Corporation is jointly controlled by these three municipalities… Collingwood PowerStream Utility Services (“Collus”) which 50% of the shares were purchased by the Corporation in 2012 distributes electricity in Collingwood, Thornbury, Stayner and Creemore.

Meanwhile, the consolidation of LDCS was still on the provincial horizon in Dec. 2012, according to a story in the Sun, titled, “Merging Ontario power distributors will save $1.2B over 10 years: Panel”. It noted:

Getting rid of the patchwork of small electricity distributing companies across Ontario and merging them into regional powerhouses will make things better for consumers, a panel of former MPPs says.
And while the panel wouldn’t guarantee the cost of delivering power to people’s homes would go down, they said merging the 73 local distribution companies (LDCs) into eight to 12 regional bodies would keep prices from rising as much if nothing was changed.

2013:

The comments and suggestions from the public meeting about the share sale money were tabled in a report from the treasurer, and first presented to council and the public in Feb. 2013 as staff report T2013-04. Council asked for further discussion on the options and clarification of some of the financial details. This report would be re-tabled in June, 2013 (see below). ***

Jan. 7, 2013: As requested by Councillor Hull, Acting CAO Houghton addressed the next steps for the allocation of the COLLUS Funds.

Jan. 18, 2013: Collus-PowerStream requests from the OEB an amendment to its licence to reflect the name change.

Jan. 28, 2013: The motion presented by Coun. Hull at that meeting read:

THEREFORE BE IT RESOLVED as these COLLUS shares were owned by the taxpayers and residents of Collingwood that the total proceeds as they are received be held in an interest bearing account until the following is completed by the Municipality:
1. Identify a minimum of three strategic opportunities for the use of the proceeds on behalf of the taxpayers;
2. The preparation of Staff Reports for each of the identified opportunities outlining the economic and social benefits and financial investment of each opportunity;
3. And lastly, hold further public dialogue to engage the citizens of the Town of Collingwood for their input and comments on the various opportunities identified by Council and Staff to ensure that the proceeds of this public sale are being used in the best interest of the taxpayers and residents of the Town of Collingwood.

This, however, was deferred to the Feb. 25, 2013 meeting, when it was defeated.

On June 5, 2013, the Collingwood Connection reported:

The Town of Collingwood has about $12.1 million in the bank.
However, they haven’t decided what to do with it.
Months after a public meeting was held on what should be done with the proceeds from the sale of Collus that was finalized last year, Council still needs to make a decision on what to do with the money… The town currently has $12.1 million in cash and a promissory note worth another $1.7 million.

June 10, 2013: The staff report T2013-04 was again presented to council, with updates and amendments. As reported in the local media, Council decided to use a portion of the funds received to build its new recreational facilities, with the remaining portion to be used to upgrade and widen Hume Street.

The staff report documented the responses from the public on the uses of these funds, and included comment on some of them. The treasurer explained in her report that if the money was used to pay down the municipal debt (a suggestion from the public), there would be a penalty attached:

The cost to retire this debt on the next payment due date (May 1st, 2013) is $12,639,610 as at January 17th, 2013. The actual payout will be dependent on the lending rates in existence at the time of payout. The Penalty for early repayment at January 17th is $1,585,521.

The report noted that the total amount of money available from that sale was approximately $14.45 million. The town has on hand $12.28 million in cash and $1.71 in a promissory note ($13.99M total).

Council voted 8-1 to use the funds to pay for the new recreational facilities (approx. $9.8 M) and put the rest into a reserve to upgrade Hume Street (the latter vote was also 8-1).

Sept. 20, 2013: In a presentation to Owen Sound council about a potential merger of that city’s electrical utility with Horizon, Collingwood (Collus-PowerStream) was used as a comparator for rates, service and costs. On page 26, it notes:

Monthly total bills in Owen Sound and Collingwood were comparable in 1998. Owen Sound residential customers now pay $24 more per month and $288 more per year than customers in Collingwood.

And on p. 27:

Meaford residential customers of Hydro One now pay $41 more per month and $492 more per year than Thornbury customers pay to COLLUS.

Sept. 30, 2012: Collus-PowerStream CFO Tim Fryer retired after being absent from work for a time. In a response to questions from Energy Probe, the utility noted this cost them extra expenses $77,923.50:

In addition, there was a short-term absence by the CFO during early 2012. Shortly, after returning to work the CFO announced his retirement which occurred September 30, 2012. In order to meet the on-going and extra obligations involved during the process of the sale of the shares, outside professional accounting services were necessary.

Sept. 2013: The Public Interest Advocacy Centre published a report that included questions to Collus PowerStream from the Vulnerable Energy Consumers Coalition (VECC). This report included in Appendix A the presentation made to Collingwood Council, Jan. 23, 2012, outlining the process of the sale, as well as the people in the SPTT who contributed to the process.

In the 2013 Collus-PowerStream Annual Report, the company announced its, “First ever regular annual cash dividend of $367,000 paid to the shareholders.” Of that, $185,500 was paid to the Town of Collingwood.

CPS board chair David McFadden wrote,

“The Board of Directors has benefited from the expertise which PowerStream’s nominees have brought to Board’s discussions and decisions… In addition … our company has benefited greatly from services provided by PowerStream in such areas as conservation and demand management, training, regulatory compliance and the provision of a 24/7 control room capability.”

Co-chair Brian Bentz added,

“This innovative strategic partnership approach to serving customers is not only unprecedented in Ontario’s electricity distribution sector but also continues to serve as a viable alternative to the traditional merger and acquisition consolidation model for other utilities and their municipal shareholders to consider. “

CPS CEO Ed Houghton added,

“…since the formation of our strategic partnership, each and every staff person at Collus-PowerStream believes we are now in a much better place and now able to better serve our customers for many years to come. We believed this and we knew this to be the case but we felt compelled to prove this. So at the end of 2013, we contracted the services of Consol Asset Group Inc. to perform a “Third Party Review” of the Strategic Partnership and in practical terms identify and quantify the benefits and successes that we have been able to experience. We are also pleased to provide to you this very comprehensive study, simply titled, “Delivering Value to the Customer”. Please read Appendix A and see how our unique partnership will allow Collus PowerStream to face the difficult challenges of the near future.”

That report also included the following:

KPMG LLP was retained by Collus to provide a calculation of the fair market value of all the common shares of Collus Power Corp as at December 31, 2010 based on the available audited financial statements as well as other internal and market information.
The valuation was used as a basis to discuss and negotiate terms and conditions for the Town to sell 50% of the Collus common shares to PowerStream. In addition to the cash consideration to be paid by the acquirer of the 50% of common shares, what was unique regarding PowerStream’s proposal was that PowerStream agreed to allow the Town to receive a dividend from Collus without the purchase price valuation to be impacted with the reduction in rate base post dividend. In all the other proposals received, any dividend re-capitalization paid to the Town would include in the purchase price valuation as a reduction in the rate base.

The “Third Party Review of The Collus Powerstream Strategic Partnership” (mentioned above, conducted at the end of 2013****), noted:

Continuing its track record of realizing benefits from the strategic partnership with PowerStream, Collus PowerStream earned its highest annual net income in 2013. As a consequence, Collus PowerStream will be able to issue a material cash dividend payment to the Town of Collingwood and PowerStream which it has previously not been able to do in recent history, not including the strategic partnership dividend recapitalization.

In the 2013 report to the Ontario Energy Board about its financial position, Collus noted (emphasis added)…

In accordance with the Share Purchase Agreement a Final Recapitalization dividend and an Additional Closing Dividend were required to be calculated and paid to the Town of Collingwood… As a result of the Recapitalization Dividend, financing was required. Collus PowerStream borrowed $6.3m from Infrastructure Ontario.

And it’s reiterated in the auditor’s report for 2012:

The 2012 recapitalization and closing dividend of $4,598,389 was excluded from the debt service coverage ratio calculation because it was extraordinary in nature and related to the sale of shares and corporate restructuring of debt and equity. The loan received from Infrastructure Ontario was for the purpose of this dividend.

And in the 2013 Annual Report from Collus, it states:

As part of the transaction with PowerStream, the Town of Collingwood received cash proceeds as consideration for 50% of the common shares of the company and a further cash injection of millions as a unique dividend recapitalization that only PowerStream included as part of their response to the RFP.

In the responses to Energy Probe questions (Sept. 2013), it notes the recapitalization cost the utility $16,775.19 in legal fees:

As a result of the Recapitalization Dividend, financing was required. Collus PowerStream borrowed $6.3m from Infrastructure Ontario. Legal fees were required during the borrowing process in order to obtain a legal opinion on the loan agreement. Such fees meet the definition of a qualifying expense as they were incurred in the corporation’s ordinary revenue generating or service delivery activities.

The “Third Party Review of The Collus Powerstream Strategic Partnership” (conducted in 2013), noted:

As the Ministry of Energy and the OEB continue to review, contemplate and debate the next steps as it pertains to achieving cost savings within the electricity distribution market, each LDC will need to determine which options to prepare for LDC 2.0 are best suited for their customers, their community, their employees and their shareholders. The options have to be reviewed and challenged and it is encouraged that the Collus PowerStream unique strategic partnership be a viable option that can be adopted by other LDCs in the industry.

2014:

In the Collus-PowerStream annual report for 2014, board chair David McFadden wrote:

…in the recently completed province-wide Electricity Utility Customer Satisfaction survey that CollusPowerStream was above the Ontario average in every category from customer satisfaction and the resolution of billing problems to providing reliable electricity and leading in the promotion of energy conservation. Our goal is to maintain and build upon this level of customer satisfaction.

2015:

Jan. 28, 2015: Collus CEO Ed Houghton made a presentation to the newly-elected council to explain how the Collus-PowerStream utility operated and the benefits of the partnership. In that presentation he explained,

Why a Strategic Partnership – Simply stated, the changing needs of our customer and to provide maximum value to our Shareholders.

And dedicated two more pages to outlining the benefits in greater detail. He also extended an invitation to council to attend one of two orientation sessions at the PowerStream headquarters, on either Tuesday, February 10th or Wednesday, February 11^th. Several members of council did not attend either event.

Sept. 2015: The Ontario Energy Board published a scorecard for Collus Power that covers the years 2010-2014. Of interest is the note that (emphasis added),

The leverage ratio in 2012 and 2013 significantly increased over 2010 and 2011 as a result of the re-structuring of the debt and equity proportions when fifty percent of the shares of the company were sold on July 31, 2012. A recapitalization dividend was paid to the Town of Collingwood to remove their accumulated retained earnings before the shares were sold and the debt was increased to the OEB’s expected structure.

This is also of interest from the scorecard (emphasis added):

Collus PowerStream achieved a ROE of 11.21% in 2014, which is within the 8.98% +/-3% range allowed by the OEB (see above paragraph). This is indicative of a healthy financial organization. This trend is expected to continue into the foreseeable future.
The return on equity greatly improved in 2013 to 8.40% from 2.26% in 2011. This was the result of the changes mentioned above in the leverage ratio discussion and a strong net income for the 2013 year. The 0.10% result for 2012 was an anomaly year with a low net income, which was the result of the additional expenses incurred during the sale of 50% of the company’s shares to PowerStream.

2016:

June 16, 2016: Collus-PowerStream board chair David McFadden resigns, citing a, “…a “dysfunctional” relationship between town administration and the company.” Council replaces the board with three members of the administrative staff, two of whom live out of town.

July 4, 2016: CEO Ed Houghton “retired” from the utility after 39 years’ service to the community.

Aug. 2016: The Ontario Energy Board released its 2015 Benchmarking Report. in it, Collus Powerstream moved up from the third tier (of five) up to second. It was a remarkable accomplishment, entirely due to the hard work of staff and the excellent, cooperative partnership. However, the current council and town administration ignored it.

Notes:

* The strategic partnership option was preferred over a 100% sale because of these factors (as noted at the public meeting on Nov. 22, 2011):

Reduced Risk. The Town will reduce/mitigate itself from the risks of being in the electricity distribution business.
Retains an Income Stream. The Town will earn a future dividend stream based on equity ownership in the new partner’s LDC.
Operating Synergies with the Shareholder. The Town retains the ability to obtain operating cost synergies through the integration of support functions with the water utility and IT.
Control: The Town retains joint-control of the utility and its decisions with respect to levels of customer service, promotion of economic development, rates, subject to OEB oversight.
Provides Additional Funding to Town: The funds that are received as a result of this partnership transaction will allow the Municipality to reduce debt or to be available for valuable community projects.

** The weighting was based on a 100-point system:

Investment for up to 50% of shares: 30 points
Provision of strategic and specialized resources, support in growing the Collus business: 30 points
Support for employees and their careers: 10 points
Customer experience and satisfaction, supporting the interests of the communities we serve: 10 points
Competitive distribution rate and cost structure of Collus: 10 points
Cultural and synergistic fit: 10 points

*** The 2013 decision how to spend the money was not, of course, part of the sale process. I wrote about this myself back in June, 2013. Back then, the CFO for COLLUS/PowerStream Corporation (now Coun. Tim Fryer) provided the following details of the money received:

Promissory Note $1,710,170
Cash Dividend $11,598,389
Funds held in Escrow $1,000,000
Future Dividend $150,000
Total $14,458,559

The $8 million cash from PowerStream was accompanied by a recapitalization ($4,598,389) and a promissory note ($1.710,170) totalling more than $6 million, also paid to the town. The initial purchase value was based in large part on the shared service agreement that council and the administration subsequently gutted.

The promissory note was paying the town approx. $124,000 interest per year, but was called for repayment by the town in Nov. 2015. It was repaid in Dec., 2015.

The recapitalization was required by the OEB to achieve the recommended debt-equity ratio. Of the original bidders, only PowerStream suggested the town undertake that process BEFORE the sale agreement was finalized, to the full amount was available to the town. The others all wanted it done after the sale, so the other partner would received 50% of the recapitalization money, thus even with a higher cash component, the town would have received a lower total amount for the sale.

**** The “Third Party Review of The Collus Powerstream Strategic Partnership” also noted (p. 132):

By having PowerStream as a 50% owner, Collus PowerStream has effectively partnered with a LDC that employs over 550 people, has the financial strength that earned stable and consistent cash flows of $28 million in net income in 2012, and a strong balance sheet with over $345 million in shareholders’ equity.

***** Listed under the section “Evaluation of a full sale option” of this report are the following advantages:

Cash Payment. Town will achieve an immediate cash payment that can be used for municipal purposes.
Reduced Risk. The Town mitigates the risks of being in the electricity distribution business.
Policy Challenges. This option does address the expected push for additional consolidation of LDCs in the province.

Then it adds these disadvantages:

Transfer Tax Payable. In the absence of an exemption, the Town will pay a Transfer Tax equal to 33% of the proceeds from a sale, less any corporate income taxes or PILS that have been paid since market restructuring. This will reduce the net proceeds received.
Loss of Income Stream. The Town will eliminate the potential to earn a future dividend stream. The foregone dividend stream may be higher than the potential to earn interest income if the proceeds from sale are invested in interest-bearing instruments.
Operating Synergies with the Town. The Town may lose the ability to obtain operating cost synergies through the integration of support functions with the water utility and IT.
Control. The Town loses direct control of the utility and its decisions with respect to levels of customer service, local employment, promotion of economic development, and rate levels, subject to OEB oversight.

Under the section “Evaluation of a partial sale option” of this report are the following advantages:

Cash Payment. Town will achieve an immediate cash payment that can be used for municipal purposes.
Reduced Risk. The Town distances itself from the risks of being in the electricity distribution business.
Retains an Income Stream. The Town continues the potential to earn a future dividend stream based on the equity ownership in the new owner’s LDC.
Policy Challenges. This option does address the expected push for additional consolidation of LDCs in the province.

Then it lists these disadvantages:

- Transfer Tax Payable. In the absence of an exemption, the Town will pay a Transfer Tax equal to 33% of the proceeds from a sale transaction, less any corporate income taxes or PILS that have been paid since market restructuring. This will reduce the net proceeds received.
- Loss of Control. The Town loses partial control of the utility and its decisions with respect to levels of customer service, promotion of economic development, and rate setting (although these remain constrained by OEB oversight.
- Operating Synergies with the Town. The Town may lose the ability to obtain operating cost synergies through the integration of support functions with the water utility and IT.
- Loss of Local Employment. The Town may lose some local employment if a buyer reduces costs by centralizing some functions at its head office.
- Loss of Partial Income Stream. The Town will receive a smaller future dividend stream based on the equity ownership in the new owner’s LDC.