We took a pass on a casino but agreed to spend $100,000 on lawyers to protect our interest on Burlington Hydro.

By Pepper Parr

BURLINGTON, ON  July 19, 2012  We never really were heavy hitters.  We aren’t a slick, fast community.  Pretty sensible people who prefer not to take risks.   Back in 1983, the city got itself twisted into knots to keep the Playboy Channel off cable as a pay per view feature,  so when  the Ontario Lottery and Gaming Corporation (OLG) sent the city a letter asking if we were interested in being on a list of possible locations for slot machines or a Casino – the city council didn’t even bother to ask its citizens how they felt about it.

City took a pass on slot machines – we could have put a dozen in the Seniors’ centre and solved a lot of the problems over there and then another dozen at the Legion – opportunities missed

They instructed the city manager to write back and say thanks,  but no thanks – which may have reflected the views of most of the people in Burlington.  We will never know.  A casino could have been built beside the Pier – that would have been one way to pay for the thing.

On the Pier by the way – steel beams are expected to be trucked into the city next week.

There was a bit of an opportunity missed in the communication with the OLG.  The rural part of Burlington does have a couple of farms that raise and train trotters for racing tracks in the western part of the province.  We might have said no to the slot machines but we could have put in a plug for the racing people to have the province restore the funding they used to get from slot machine revenues.

Perhaps we can now add “Slot machine free and the second best city in the country to live in” to some of the literature the economic development people send out.

There were less than five words of discussion on the letter being sent to the lottery people.

There was even less than that on the Burlington Hydro item that was on the agenda.  Council approved an amount of not more than $100,000 to be spent on legal counsel and or financial expertise to assist in reviewing significant Burlington Hydro Electric Incorporated matters as needed.

$100,000 is not exactly chump change.  The public transit advocates would love  to have seen that much money put into transit service.  There was no discussion on the  “significant” matters  – which turn out to be pretty good stewardship on the part of the finance people.

Burlington Hydro is owned by the city and it pays a very substantial amount in dividends to the city which reduces the tax levy.

All that raw power has to be transformed into electricity, homes and office buildings can use. Transformers are not cheap – so Burlington Hydro has to borrow some money to pay for the transformer that will get placed along Tremaine Road.

Burlington Hydro created a major mess with the way they failed to adequately inform the city on just what the issues were with feeding wind turbine energy into the electrical grid.  Hydro certainly gave Director of Engineering Tom Eichenbaum heart burn, if not ulcers, in the way they jerked him around on the differences between net metering and the Feed in Tariff related to the plans for a wind turbine on the pier.

Given that the city owns the hydro operation one would like to think they would provide the city with excellent technical service and support.  Instead they told the city so little that we came away looking like fools.  Will $100,000 in legal fees fix that kind of problem?

In a report to council staff said: In order to accommodate growth in Burlington, Burlington Hydro Inc. (BHI) has entered into a capital agreement with Hydro One for a new Hydro One owned transformer station on Tremaine Road. The additional energy capacity made available through this facility will accommodate Burlington’s growth for the next 20 to 25 years. BHI is financing the capital contribution through a 25 year loan of $8 million from Infrastructure Ontario.

Infrastructure Ontario has requested that the City sign a subordination agreement for the $8 million. The purpose of the agreement is to recognize the “subordination” of the City’s position as a debt holder to that of Infrastructure Ontario.

If BHI were to default on the loan payments, Infrastructure Ontario could stop the payment of dividends to the shareholder. Interest payments on the existing promissory note that the City has with BHI could also be stopped if BHI defaults.

Hydro produces significant dividends for the city. Few people fully realize the relationship between Burlington Hydro and the city. If they knew they might want some of that dividend to come to them in the way of lower hydro rates.

Dividends and interest payments received by the City over the past ten years, including proceeds from the sale of the FibreWired division in 2008, total $74.4 million as illustrated in the above chart:

Through the Hydro Liaison team, City and Hydro staff have continued an excellent working relationship, identifying and discussing complex issues important to both the City and the Utility. However, City staff feel that in the interest of protecting the shareholder’s investment it may be prudent for the City as shareholder to have financial and legal expertise available to assist them in dealing with Hydro matters.

And so the city has asked for $100,000 to have our lawyers in the room when they work out loan agreements and possible acquisitions in the future.  As can be seen from the bar chart Hydro throws off a lot of cash and the city depends on that money.  The agreement to pay for the construction of a new transformer on Tremaine Road means that if Burlington Hydro defaults on that loan the dividends the city has been enjoying can be taken and applied to the loan.

It`s sort of like getting your Mother-in-Law to co-sign your loan, which she does but then puts a lien on the car.

The people who do the deep financial thinking for the city realize that the days of fat revenue flows from development charges on new housing developments are very close to ending for Burlington. We are very close to being built out.    New revenue sources are going to have to be found and with an aging population on fixed incomes tax increases aren`t going to be possible – not if you want to stay in office.

Using wholly owned subsidiaries that are not bound quite the way a municipality is when it comes to borrowing and taking financial risks is one possible way of developing new revenue streams.  Burlington Hydro could become something of an economic engine for the city.

Some suggest the selling of the fibre optic cable – Fibre Wired – that the city once owned  to Cogeco Cable back in 2008 was an opportunity lost.  To own the cable that is going to send most if not all the data and information into Burlington homes is a better long range bet than a Casino.

It will be interesting to learn who gets the legal business for papering the agreements Burlington Hydro gets into – will it go to a local firm or to pricier talent out of Toronto?

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