Last week I spent some time reading E.V. Buchanan’s history of London Hydro. It was not just a recreational pastime; I had volunteered to do some research for the London Historic Sites Committee of which I am a member. But it reminded me of the run on London Hydro that that occurred shortly after I joined council in 2006 when council was asked to approve a Shareholder’s Agreement which would encourage our utility to look for opportunities to “grow the asset” through mergers and acquisitions or realize some ready cash by selling off Hydro. Despite my best efforts, I was not able to get the word “sale” stricken from that agreement. Eventually there were offers, and a public meeting on the whole concept was undertaken.
The public response was clear: keep your hands off our utility. Despite grumbles from one controller that “we were set up” at the public meeting, there was no more talk of partnerships, mergers, acquisitions or sales.
But that was three years ago, before council committed to tax freezes or had visions of $800M projects dancing in their heads. Where to find some money?
London Hydro is one of two businesses owned by the City of London- the other is the Western Fair- and the only one that makes money. Every year without fail, London Hydro pays the city $4.2M in interest on a promissory note. That’s 6 per cent, a pretty good investment. It also pays another $2.5M in dividends and from time to time even more. Over 2009 and 2010 London Hydro put an additional $20M into the city coffers to help us come up with enough cash to take advantage of the stimulus package offered by the federal and provincial governments.
Even before the new council took office, there were rumblings about cashing in on the promissory note in order to raise some ready cash. With the new council that option pretty much became a mantra. When you want to build a new city hall with a beach and a lake and a performing arts centre, when you want to extend services well beyond the urban growth boundary, when you want to spend $500K per year to subsidize people’s parking, you need a source of ready cash.
So I shouldn’t have been surprised when a delegation came before the Finance and Administration Committee last Wednesday to express interest in the very successful utility that is owned by the ratepayers of London. But I was. And so, I discerned from the audio tape of the meeting, were some members of our administration and our council. You may say they were blind-sided.
With no report on the agenda to give members of the committee any heads up or background, a delegation from Edmonton’s independent municipal utility, EPCOR, offered to enter into a “confidential cooperation agreement” for a period of six months with the objective of letting EPCOR take over the management of our hydro company. And maybe our water, wastewater, parking and garbage collection as well. Well, probably not; after all, EPCOR is really interested in only electrical distribution and water. It hopes to expand those businesses by taking over some utilities in south western Ontario, and, like the good business it is, save some money from economies of scale and send the profits to its sole shareholder, the City of Edmonton. It too would like to keep down taxes.
So EPCOR came a-courting, with blandishments and assurances galore. We could keep London Hydro; it only wanted to look after it for us, manage the assets for us. We were doing a good job, but maybe they could help us to be even better. And nobody would lose a job; that could be handled by attrition. But they really couldn’t discuss this in public, under the watchful eye of council. To really find out if EPCOR and London Hydro were compatible, they needed to go somewhere private and confidential for six months or so. They needed a “cooperation” agreement.
The mayor was enthusiastic. It’s not like EPCOR was a private company; it’s owned lock, stock and barrel, by a municipality. Not our municipality, mind you. But a municipality nonetheless. It has the interest of the ratepayers at heart. Not London’s ratepayers, mind you, but still, ratepayers.
Some others were not as enthusiastic. Judy Bryant didn’t like having something come forward with no warning and no background report to peruse in advance. Surely London Hydro, including the mayor who sits on the London Hydro board, knew about this. Surely the delegates from EPCOR didn’t just happen to drop in without an invitation. The mayor threw the question to London Hydro board chairman Peter Johnson.
Johnson was apologetic. He should have provided a report. But the offer could make a “compelling contribution to the tax base”.
And EPCOR wanted to move forward. It wanted to work with the city and hydro on “an exclusive and confidential basis to determine if it makes sense to move forward together”. Agreements would be brought back to council for review and final approval.
All this was moving too fast for Nancy Branscombe, who argued that it would be premature to jump to the next step. “What’s in it for EPCOR? What’s in it for us?” she wanted to know.
She was assured by EPCOR that “we are not after your assets; we just want to invest. We are looking for growth.”
Johnson argued that EPCOR’s experience could come in handy since the city was looking at expanding the utility model to water, wastewater, garbage collection and parking. And EPCOR pointed out that it “frees up your balance sheet” for other projects and activities. London Hydro CAO Vinay Sharma, when put on the spot, agreed that it “will facilitate the financial balance sheet”.
Dale Henderson was intrigued. He wondered if EPCOR might show London how to take over St. Thomas's utilities.
Joni Baechler didn’t like any of it. She sits on a joint water board and has experienced the problems of getting compliance with safety standards from an outside contractor. She was not convinced of the merits of a “corporatized model”.
“These guys are going to tell us that their model is best,” she pointed out. “But what is best in their minds is what will work for EPCOR.” In fact, utility rates account for 20% of Edmonton’s budget, a matter helped by a 60% water rate increase in 2009. In London, council sets the water rates. If EPCOR took over, it could set the rates.
Bryant and Branscombe moved to receive the EPCOR report and that it be separate from the city’s report on a combined utility corporate model requested previously by council. They wanted to see that independent report before any consideration of EPCOR’s overtures. The city engineer, Pat McNally, protested that the report would take some time to complete. You don't restructure all your services overnight, not even theoretically.
Henderson wanted to hurry things along. If the city couldn’t finish its own report by the end of December maybe they should hire a consultant. No one supported him on that suggestion.
Paul Hubert thought that Bryant and Branscombe had asked some really good questions but the way to get answers would be to enter into the agreement, subject to a review by the legal department. After all, it wasn’t a partnering agreement, it was a cooperation agreement. Then he noticed city solicitor Jim Barber waving his arm.
“I haven’t seen a cooperation agreement,” Barber pointed out. “It would be desirable to see what one would look like.”
However, despite such red flags being raised, Hubert and Henderson moved the next steps, to enter into an exclusive and confidential cooperation agreement which, after being reviewed by the city solicitor, would be brought back to the committee and council for approval.
The motion passed, with Hubert, Henderson and Fontana supporting it and Branscombe and Bryant voting against it.
Subsequently we learned in the London Free Press that EPCOR had obtained the consulting services of Stratford mayor Dan Mathieson who just happens to be the chair of the South West Economic Alliance which is attended by Joe Fontana on behalf of the City of London.
It’s a small world after all.