Deception, The Block, and EPCOR


Spy stuffThe Ontario Energy Board (OEB) is currently conducting hearings about the proposed sale of our publicly-owned electrical utility, Collus, to the for-profit, out-of-province corporation, EPCOR. Several documents have already been entered into the record and you can read them here.

Most of them are fairly technical and steeped in opaque legalese, but download and read this one: EPCOR_IRR_SEC_EPCOR Collingwood MAADs_20180503.pdf. There’s some interesting content here and I think it’s stuff that The Block, the town and maybe even EPCOR don’t want you – the public – to know about. After all, The Block and town administration conducted this whole process in secret for three years – why would they want to be open about it now?

To start, turn to page 3. You’ll find a report on the profitability of Collus-PowerStream and its return on equity (ROE). Remember when we were assured by the Blockheads that it was a bad deal, it wasn’t successful, that the “status quo couldn’t continue”? Well look at the REAL numbers:

Please provide the achieved ROE (Return on Equity), calculated on a regulatory basis, for each year from 2013-2017, and file any forecasts of the Applicants that include ROE forecasts for 2018 and beyond.

Year/ Deemed Profitability/ROE:
2012: 8.01% /0.10%
2013: 8.98% /8.40%
2014: 8.98% /11.21%
2015: 8.98% /10.86%
2016: 8.98% /10.03%

Every year they operated as Collus-PowerStream, the utility had an ROE GREATER than 8% and almost 9% for most of those years. The ROE (which was understandably low the first year because it was partial) grew to more than 11% per year! That’s almost as high as the OEB will legally allow a utility’s profits to grow.

Here is what the actual OEB Scorecard for Collus PowerStream says:

Profitability: Regulatory Return on Equity – Deemed (included in rates)
Return on equity (ROE) measures the rate of return on shareholder equity. ROE demonstrates an organization’s profitability or how well a company uses its investments to generate earnings growth. Collus PowerStream’s current distribution rates were approved by the OEB and include an expected (deemed) regulatory return on equity of 8.98%. The OEB allows a distributor to earn within +/- 3% of the expected return on equity. If a distributor performs outside of this range, it may trigger a regulatory review of the distributor’s financial structure by the OEB.
Profitability: Regulatory Return on Equity – Achieved
Collus PowerStream achieved a ROE of 10.03% in 2016, 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 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.

Not profitable? Not successful? Even the sale application document says otherwise:

The 2017 deemed ROE is 8.98% and the 2017 achieved ROE, as filed with the Board in Collus PowerStream Corp.’s April 30, 2018 RRR filing, is 11.65% and remains subject to the Board’s review. The ROE forecast for 2018 and beyond approximates the OEB’s most recently approved ROE.

Would that my sad little RRSP returned half that percentage annually! The financial performance was raised again and again by The Block as a reason for the sale yet here it shows the utility was flourishing. Someone lied to the public about the financial situation. The judicial inquiry has to look into who it was.

Remember that lame excuse The Block gave after promising public input for years then at the very end claiming that the public couldn’t be consulted because of a confidentiality agreement? Another lie (Which I wrote about last October). Look at page 17. The applicants (EPCOR and the town are co-applicants) REFUSED to provide the agreement to the OEB!

Please provide a copy of the Confidentiality Agreement referred to.
The Applicants refuse to produce the Confidentiality Agreement given it is not relevant to the matters considered by the Board in a MAAD application process.

Imagine refusing to provide a document that is key to your decision not to engage the public in a sale of their own asset. It’s fairly easy to guess why not: there was NO SUCH CLAUSE in the shareholders agreement. It would embarrass the town, the council and EPCOR to have to show there was no such requirement in any agreement that said the town and council could not say why it wanted to sell the utility or its share, nor any clause that said it could not hold public hearings and consult the public on the sale.

The Cult of Secrecy that has infected town hall this term is being reinforced through this application. I suspect the town is behind the refusal here because The Block desperately don’t want this document to be made public and expose their deception.

Turn to page 30. EPCOR is asked about the relevance of the judicial inquiry to the sale, and they blithely shrug it off:

Ref: General
Attached to these interrogatories is a copy of an article dated February 27, 2018 at the CBC News website describing a judicial inquiry into the sale of 50% of the distributor to Powerstream. Please describe the status of this inquiry, and the implications of this inquiry, if any, on the proposed transactions.
The Town of Collingwood has requested that a judge of the Ontario Superior Court of Justice inquire into the sale of 50% of the distributor to PowerStream in 2012. The Town awaits direction from the office of the Ontario Superior Court of Justice on next steps. The judicial enquiry has no implications on the proposed transactions given that the focus on the review is restricted to the 2012 transaction.

How cavalier of them to slough off a potentially $6 million judicial inquiry as irrelevant when it should be seen as VERY relevant to all parties. The current sale was predicated on The Block’s belief in a wild conspiracy theory that people were on the take and there were underhand deals, and it calls into question both the ethics and the credibility of everyone involved, including the OEB which approved the 2012 deal. And one of our own councillors – Tim Fryer – was the CFO at Collus at the time of that sale and allegedly opposed it then, so it calls into question a conflict of interest and ethics in this council’s decisions to sell.

The OEB should postpone any decision on these applications until the judicial inquiry releases its findings. But I suspect The Block’s secrecy and deception over the privatization of our utility will trigger its own judicial inquiry next term.

Page 95: under the description of the nature of its operations, the application responded:

Nature of operations
EPCOR Utilities Inc. (the Company or EPCOR) builds, owns and operates electrical, natural gas and water transmission and distribution networks, water and wastewater treatment facilities and sanitary and stormwater systems. The Company also provides electricity, natural gas and water products and services to residential and commercial customers.

The water side is what EPCOR really wants, and they’ve been trying unsuccessfully to get into the Ontario water market for decades. They already have considerable investments in water elsewhere (including: p. 107: construction work in progress of $108 million and land of $238 million, plus the Blue Water Pipeline at $82 million – p.111 – with $13 million in assets for the right to receive groundwater in Texas, and the the Willow Valley Water Company for $3 million, p. 112, plus agreements to operate and build water and wastewater facilities in Alberta and Saskatchewan, and some worth $78 million in Regina alone p. 116).

EPCOR and the town were in secret negotiations for EPCOR to also take over the town’s water and wastewater utility services when they got the electrical utility. The former CAO, John Brown, made closed-door presentations to utility employees about how wonderful the deal would be for everyone – while EPCOR representatives were in attendance, able to note the names and questions of anyone who either spoke out against it or raised uncomfortable questions. That part of the deal got temporarily shelved when the employees made the presentation public and the deception became well known enough to embarrass the parties. But who’s to say it still isn’t in one of the secret documents that the public isn’t allowed to see? Or that it wasn’t part of a handshake deal kept off the books until the electrical purchase is closed?

Our utility will no longer be Collus – which is an abbreviation of Collingwood Utility Services – but will be renamed to reflect the privatized nature of the new utility with no local reference left (page 5):

EPCOR intends to seek an amendment to the name on the distribution licence to EPCOR Collingwood Local Distribution Corp. (EPCOR LDC). This name change will be sought in a separate process, subject to Board approval of the current Application.

After all, why should they want to retain any reference to Collingwood in the utility’s name once it joins the corporate Borg?

On page 9, the OEB asks EPCOR to provide assurances that the service will continue to be reliable under their management for a mere five years. EPCOR basically tells them to bugger off:

Please advise whether the Applicants agree that the obligation “to meet or exceed current reliability standards for the next five years” should be made a condition of the Board’s approval of the Applications
The obligation to meet or exceed current reliability standards for the next five years should not be made a condition of the Board’s approval of the Applications… directly tying EPCOR’s approval to operate CollusLDC to meeting these standards is, to EPCOR’s knowledge, a more onerous condition than that which any other LDC within Ontario operates… imposing this condition would be unreasonable and therefore not a condition that the approval should be tied to.

In order words, Collingwood residents get no guarantees for quality of service under EPCOR. We’ve been flipped the bird by this corporation. But I warned you about this a long time ago: when a utility is privatized, the public gets shafted.

On page 11, the OEB asks,

Please explain why no cost efficiencies are expected in capital spending. In particular, please explain whether any of the OM&A efficiencies will include expenditures that are currently capitalized in part, and whether any of the General Plant expenditures in the DSP can be avoided if the transactions are approved by the Board.

Once again, EPCOR flips the OEB the bird and offers no explanations:

EPCOR’s assessment is that the capital plans described in the DSP are reasonable. None of the OM&A efficiencies identified include expenditures that are currently capitalized in part.

The DSP is the Distribution Service Plan that Collus PowerStream – not EPCOR – presented to residents in public last year.

And that promised rate reduction of 1% in electricity bills? Commercial and industrial customers get the bird this time because their rates are not going anywhere but up (p. 12). And as you might expect from a secretive process like this, those business owners never got a chance to comment on it because this has all been done behind closed doors:

Please explain why the 1% negative rate rider is only proposed for residential customers.
The 1% negative rate rider that is proposed for residential customers is the result of a commercial negotiation between EPCOR and the Town.

What negotiation was that? Was a reduction included as a requirement in the RFP or was it just another backroom deal?

Commercial and industrial customers don’t vote in municipal elections. Only residents do. This is just another lame ploy by The Block to bamboozle the electorate. One percent of a typical monthly electrical bill won’t buy an hour’s parking in a downtown meter. But without viable commercial and industrial electric rates, what company can afford to operate here? Who is going to employ the residents and their families if business can’t operate profitably here?

And come on – we’re being asked to sell our souls and accept a distasteful, unethical, secretive deal for a lousy 1%? For most residents; that won’t even buy one cup of coffee a month.*

The 1% reduction has NOT been approved by the OEB, and wasn’t in the DSP that Collus wrote but EPCOR is utilizing as its own five-year plan. The DSP doesn’t have any reductions in it. As I understand it, EPCOR will still need to go through an OEB hearing to get approval for a rate reduction, and there’s no guarantee it will be approved. It’ll probably end up like one of Trump’s promises: just more bullshit.

What about local control? Gone. What about putting local members on the utility board? Gone. The board used to be appointed by out own council from public applicants in a democratic process (before this term, that is – this term The Block illegally appointed who they were told to by the administration). No such process will exist in future (p. 15). At least some of the directors will be from out-of-province, and none are guaranteed to be (or even likely to be) from Collingwood:

EPCOR intends to appoint directors for each of the referenced companies, noting that in the case of EPCOR Holdings East Inc. and CollusHoldco, such appointments will be undertaken with a focus on meeting requirements of corporate law… It is confirmed that none of the current directors of the distributor will be retained… The non-independent board members are not expected to be based in Ontario. EPCOR’s preference for the independent board member is that they be based in Ontario and EPCOR is presently reviewing experienced candidates who are based in Ontario.

But more to the point, all major decision making for our local utility will take place in Alberta:

It is intended that major decisions affecting the distributor will be approved at the EPCOR LDC. level, with general oversight and guidance provided from the parent level, as is customary.

What about their capital plans for future maintenance and growth? Well, they’re relying on what Collus did in their strategic planning (the DSP I wrote about last year). While Collus did a great job, EPCOR seems disinclined to pony up and do their own work on it (p. 29):

The DSP was prepared directly by Collus PowerStream staff and consultants with no involvement from EPCOR.

In fact, EPCOR used the Collus data and estimates in their application. I suppose that’s flattering – the DSP was well conceived by our own people – rather than simply lazy a cost-saving measure. We should be happy that it’s the one good thing in a sea of secretive shit.

The billing issue with the excess electricity billing for the water distribution was also raised (p. 31). The mistake happened because two meters were accidentally installed on the new water treatment plant and no one in the Collus or the town’s accounting department – Tim Fryer was the CFO of Collus during most of the time – noticed that the town was paying double for all those years. It was only after Fryer retired that the error was identified (and he wants to be our deputy mayor?) and reported to the town by Collus. Money was paid back to the town for the mistake. Here’s what’s in this document:

Attached to these interrogatories is a news release dated February 21, 2018 on the Town of Collingwood website describing a material billing problem between the distributor and the Town. Please describe the status of this matter, and any implications on the proposed transactions.
As the news release indicates, recently the Town was advised that it had been overcharged by Collus PowerStream for electricity for many years. To date, the Town has received a refund from Collus PowerStream in the amount of $410,747.42. The Town continues to consider its options for the recovery of further amounts but no decision has been made by Council at this time other than to request that Measurement Canada investigate the billing error. At this time Collus’ overcharging error is not expected to have material implications on the proposed transactions given the matter involves only Collus and its customer, the Town of Collingwood.

What’s the rush to approve the deal BEFORE the town decides how to proceed with cost recovery? If the town launches legal action to regain some or all of the money they believe is owed, won’t that affect both the utility and the deal? It would seem commonsense to delay any decision until the town has made its own.

But why Measurement Canada? They don’t deal with legal issues or overbilling squabbles. They are, “…responsible for ensuring accuracy in the selling of measured goods, developing and enforcing the laws related to measurement accuracy, approving and inspecting measuring devices and investigating complaints of suspected inaccurate measurement.” In other words: they make sure the measuring devices are accurate and properly calibrated. That’s all. On the website its mandate and mission are noted:

Our mandate is to ensure the integrity and accuracy of trade measurement in Canada through the administration and enforcement of the Weights and Measures Act and Regulations and the Electricity and Gas Inspection Act and Regulations.
Measurement Canada has sole jurisdiction with respect to the administration and enforcement of the statutes that regulate trade measurement. There is no overlap, duplication or shared responsibility with any other federal, provincial or municipal department or agency.
Our mission is to ensure equity and accuracy where goods and services are bought and sold on the basis of measurement, in order to contribute to a fair and competitive marketplace for Canadians.

Whoever told the town to send their complaints to Measurement Canada appears to have been ill-informed about what the agency does. It would be like asking Measurement Canada – which oversees the accuracy of your local gas pump – to explain your poor gas mileage. Pointless (yes, I know, I know: using the term pointless in any discussion of The Block is a redundancy…). I’ll have more to say on this – and the Block’s bullshit about it – in another post.

There may be – there likely is – more to comment on in this and the other documents, but they’re long, complicated and much of the content is outside my own ken. I plan to write more, but need to consult with people in the industry and former utility board members on the process and on the data. Stay tuned for more.

Keep in mind that this isn’t just about whether the deal is good or bad – it’s about the secretive, deceptive process. It’s about the public being shut out from the sale of the asset WE own to a private corporation, and never being consulted or even informed. It’s about the greater good versus The Block’s vendettas and private agendas.

And as always: Collingwood deserves better – a lot better than having its public utilities privatized in secret by a corrupt bunch on council.
* Since 2009, the OEB has defined a typical Ontario electricity customer as using 800kW per month. That seems rather high, because I checked my own bill on the Collus site and here we always use less than half that; many months only about a third of that amount. Our monthly bill is generally $40-$45 a month. A 1% savings would thus be $0.40-$0.45 a month, for up to $5.40 a year. Whoopee. That’s so generous I hardly have the energy to cheer.

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