HomeMy WebLinkAboutTR-79-95 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON
Report #2
REPORT
Meeting: COUNCIL MEETING File# �' '�L
Date: Res. #
December 11, 1995 By-Law#
Report#: File #:
Subject:
TR-79-95
CLARINGTON HYDRO ELECTRIC COMMISSION EXPANSION
Recommendations:
It is respectfully recommended that the General Purpose and Administration Committee
recommend to Council the following:
1. THAT Report TR-79-95 be received,
2. THAT, if Council endorses the request by Clarington Hydro to proceed with the
boundary expansion, the approval be conditional on the following:
a) Ontario Hydro's written confirmation to absolve the Municipality of
Clarington from any debt obligation related to the Clarington Hydro Electric
Commission boundary expansion.
b) The Solicitor for the Municipality be requested to review the release of
obligation by Ontario Hydro for potential legal complications and compliance
with appropriate Legislation.
c) The Clarington Hydro Electric Commission provide the Municipality of
Clarington evidence of an independent audit, preferably the Municipality's
Auditors, confirming the reasonableness of the assumptions made and
projections used in the study.
d) The finalized audit and valuation of all inventory and assets to be transferred.
e) The successful resolution by the Clarington Hydro Electric Commission of all
labour/contract issues.
f) Clarington Hydro be requested to undertake an operating study prior to
making any final commitment.
g) Appropriate by-laws be forwarded to Council for approval.
h) Applicable public notices and advertisement as required under the legislation
be undertaken by the Clerk's Office, and
3. THAT the Clarington Hydro Electric Commission, the Central Ontario Electric, and
the Region of Durham be notified of Council's decision.
I
I
P PAPELPC ECY'CLE
Tii51S PRIRTEO M PECYCLEG PAPER
TR-79-95 Pa e 2
BACKGROUND:
1.0 Mandate
1.1 At the Council Meeting of October 30, 1995 the following Resolution#C-776-95 was
passed:
"THAT the presentation of Roger White, E.C.M.I. and the delegation of
Chris Bieber, Central Ontario Electric, be referred to staff to undertake the
appropriate procedures outlined in the Power Corporation Act for the holding
of a public meeting of Council;
THAT the Treasurer review the submission and report to Council on the
debenturing issue; and
THAT the Chief Administrative Officer clarify the position of both the
Clarington Hydro-Electric Commission and Central Ontario Electric."
2.0 Debt Capacity
2.1 The question of the Municipality's obligation respecting debt of the Hydro Electric
Commission was reviewed with the Ministry of Municipal Affairs and the Municipal
Solicitor over the past year.
2.2 The Solicitor and the Ministry of Municipal Affairs advise that the Municipality is
not required to include in its debt capacity calculation, the debt of the Hydro Electric
Commission. However the Power Corporations Act dictates that in a situation of
default, the Municipality is responsible for the debt obligations of the Hydro Electric
Commission. The Region of Durham and the Municipality are named on the
debenture issue, and the debt is registered in these names, and this is of concern to
Staff.
2.3 Staff are concerned that the Region of Durham will still require, under the revised
Regulations of the Municipal Act, the Treasurer to sign a statement indicating that
the debt obligations of the Hydro Electric Commission have been included in the
annual review of the Municipality's debt capacity. Although the Ministry of
Municipal Affairs has indicated that there is no impact on the Municipal debt
because the debt value is removed as being "absorbed by others". Staff are
concerned that there is a conflict because the `potential' obligation remains with the
Municipality. This has been discussed with Region staff and they too have some
concern in this regard because of the significance of a small utility absorbing a debt
which exceeds the entire Municipality debt limits. The Region has referred this issue j
I
I
I
TR-79-95 Page 3
of the signing requirement to their fiscal solicitor for follow up and will be reporting
back to Municipal staff.
2.4 The current debt capacity of the Municipality of Clarington at December 31, 1995
is as follows:
Total Outstanding Municipal Debentures (Princ. & Int.) $5,832,046
(Municipal Admin. Centre - $2,650,930)
(Rickard Recreation Complex - $3,181,116)
Annual Debt Payment -Principle approx. $ 440,000
-Interest approx. $ 300,000
Final Payment Year 2003
Debt Capacity used up 22%
Borrowing Capacity $15,175,229
2.5 The Municipality's debt capacity is based on 25% of operating expenses net of debt
charges, and is confirmed annually by the Ministry of Municipal affairs. The 1995
debt analysis is attached as Attachment #1 for Council's information.
2.6 The request by the Clarington Hydro Electric Commission puts the Municipality in
a position of potentially absorbing the responsibility for debt repayment which is
beyond the current debt limits of the Municipality. It is for this reason that Staff is
recommending the Municipality be absolved of any debt obligation by Ontario
Hydro.
3.0 Debenture
I
3.1 The Municipal Staff have been asked to comment on the debenture and the interest
factor identified in the report. The report has used 8.65% interest rate throughout
the report as the rate applicable to a 20 year debenture.
3.2 The Region of Durham was asked to provide guidance on the rate of interest used
in the study. They confirm that the rate of 8.65% for 20 year borrowing is
reasonable. However they do caution that the interest rate is relevant in todays
market and is subject to change. They have also advised that 20 year serial
debentures are not available, and the most likely form of financing through the
Region would be through a sinking fund arrangement or a 10 year debenture with
a refinancing option at the end of the 10 years. The appropriate method of financing
would be decided at the time of the request depending on the interest factor
applicable.
i
i
i
TR-79-95 Page 4
4.0 The Hydro Electric Commission Study - General Comments
4.1 The report by the Clarington Hydro Electric Commission appears to contain a
number of cautions regarding some of the assumptions used. Staff have reviewed the
report and although not specifically required to comment on aspects other than the
debt issue, the comments made here are of a general nature. Staff does not have the
background of the study nor the expertise in the field and as such can not question
the integrity of the analysis other than in a general way. The comments are offered
because the Municipality is being asked to approve a study which,if undertaken,has
the potential to leave the Municipality with a critical debt obligation.
4.2 Staff have five major areas of concern,which from discussion with Mr. D. Clark from
Clarington Hydro Electric Commission, are not as much of a concern to Clarington
Hydro perhaps because they have had the benefit of full details and complete
analysis including historical data and support documentation for the numbers
presented. The following comments have been mentioned to the Clarington Hydro
Electric Commission:
i) The Municipality of Clarington Hydro Electric Utility Boundary Adjustment
Study does not have an accompanying detailed operational plan or an
implementation plan. This study which is being used to make a significant
long term commitment, suggests that"a love cost overview of potential service
areas" is sufficient basis on which to make the commitment. It also suggests
that any operational study could "proceed in parallel with transfer
arrangements." Staff question whether it would not be practical to prepare
a detailed operational study in advance of making any firm commitment to
the project in light of the fact that so much of the success relates to
operational issues;i.e.revenue projections,labour costs,controllable expenses
and transfer costs.
i
ii) The value and state of the inventory and assets to be transferred has not been
assessed or quantified. The study suggests that the inventory would be taken
after the commitment has been made but there is an unanswered question
regarding the impact on the study numbers if the inventory status is not as
expected. Had the inventory been independently done prior to the
completion of the study there would perhaps be a greater comfort level with
the numbers presented.
iii) The issue of labour costs and successor rights has been mentioned as an
outstanding issue. If the labour costs are a significant proportion of operating
expenses, any changes to the assumptions could have a dramatic affect on the
numbers presented. Absorbing more staff and the costs related to contract
I
I
TR-79-95 Page 5
blending over time could be so costly as to affect the numbers in the study,
and staff are concerned that these costs may not have been fully
explored.
iv) The potential for third party competition was also raised by the consultants
at the presentation to Council. This option which could provide a choice of
suppliers of electricity, similar to gas and telephone service, may not be
unrealistic within the study timeframe and perhaps should be included in the
analysis to the extent that it could affect projections and demand.
v) Demand seems to be identified as reducing over the actual 1995/1994 period.
(kwh/customer) If this is a trend, staff are concerned that the revenue
projected may be affected. This may have been accommodated in the
projections, however that is not clear in the text of the study. Clarington
Hydro states that it is comfortable with the projected increase in demand.
4.3 The study states that it is based on 1994 actual data and projected 1995 data, and it
would be interesting at this point in the year to compare the projected 1995 to the
actual 1995 data to ensure the study is still on track.
5.0 Comparative Municipality - Lincoln
5.1 The Manager of Clarington Hydro Electric Commission provided the Lincoln Hydro
Boundary Expansion as a reference. Both the Municipal Clerk and the Hydro
Manager were contacted.
5.2 The Town of Lincoln has a population of 18,500 and is part of the Region of
Niagara. The commissioners are not elected at large but are appointed by Council.
Their study was performed by Roger White & Associates, similar to Clarington
Hydro's study. The Municipality considered the request in December 1994 and
passed a by-law (copy attached as Attachment #2) which approved the expansion
conditional on confirmation of the final acquisition costs. The costs were arrived at
by an audit undertaken by the local Utility and Ontario Hydro and they are to be
presented to Council for final decision in December 1995.
i
i
5.3 The finalized debt value to be assumed by the Lincoln Hydro electric Commission
is approximately seven million dollars which is within the estimates provided in the
boundary expansion study. The interest rate anticipated is 8.65%through debentures
to be issued by the Niagara Region. Their expansion is proposed to go forward
January 1, 1996.
i
i
i
i
i
TR-79-95 Pam
5.4 The Town of Lincoln has not addressed the concerns raised in this report ie.
successor rights and other labour issues, and the potential for future direct retail
access. In addition, the Clerk of the Municipality has advised that there is a
challenge to the by-law put forward by the Power Workers Union. The Status of this
challenge is yet to be determined. According to the Lincoln Hydro Manager the
challenge was based on the fact that the study did not address successor rights issues
and did not have a business plan. The Ontario Municipal Board apparently ruled
that the Municipality could proceed under Bill 185 without addressing these issues.
The Union is continuing with their challenge and there is a Divisional Court Hearing
on Friday, December 1, 1995 to determine if the union will be granted leave to
appeal the decision of the Ontario Municipal Board. At this date the hearing has
taken place but a judgement will not be rendered for a few weeks.
6.0 Conclusion
6.1 Staff have had at least two calls from individuals who do not wish their names to be
reported but have expressed concern over the study and do not support the
expansion.
6.2 Staff recommend that, should Council decide to approve the Boundary expansion
request, the Municipality's interest be protected by adopting the conditions outlined
in recommendation #2 of this report.
6.3 The Chief Administrative Officer was asked by Council to investigate and clarify the
concerns raised by both parties, on this issue. He has advised that his concerns
would be addressed by the recommendations contained in this report,particularly the
recommendation of an independent audit of the study to verify the validity of the
assumptions and projections used.
Respectively Submitted, Reviewed by,
i
Marie A. Marano, H.BSc.,A.M.C.T. W.H. Stockwell,
Treasurer. Chief Administrative Officer
I
MAM/pp
Attach: j
i
I
I
ATTACHMENT #1
DETERMINATION OF ANNUAL DEBT REPAYMENT LIMIT
29-DEC-94
MUNICIPALITY: Clarington T MMA CODE: 10402
CALCULATION OF ANNUAL REPAYMENT LIMIT
11. TOTAL REVENUE FUND REVENUES P1 03 51 04 23,442,964
12. FEES FOR REPAYING THE PROVINCE FOR DOWNTOW7;
REVITILIZATION LOANS ?l 08 81 :9 0
13. FEES FOR TILE DRAINAGE AND SHORELINE ASSIS-:NCE ?1 07 45 C4 45,264
14. GRANTS FROM GOVERNMENT OF ONTARIO, GCVERW-=T OF
CANADA AND OTHER MUNICIPALITIES
14.1 Ontario Grants PL 03 28 04 + PL 03 29 %, 2,251,221
14.2 Canada Grants ?1 03 30 5,103
14.3 Other Municipalities ?l 03 31 4,500
14.4 SUBTOTAL Add Lines 14.1 th_-- 14.3 2,260,824
15. REVENUE FROM SALE OF LAND ?l 03 49 :4
1_. CONTRIBUTIONS FROM CAPITAL FUND ?' 03 43 := 0
i -
17. CONTRIBUTIONS FROM RESERVES AND ===Sc V FUNDS ?l 03 44 C= 1,363,171
18. NET REVENUE FUND REVENUES Line 11 less Lines
12,13,14.4,15,16,17 19,773,705
19. 25% OF NET REVENUE FUND REVENUES 4,943,426
20. ANNUAL REPAYMENT LIMIT 4,054,449
25% of Net Revenue Fund Revenues
less Net Debt Charges
FOR ILLUSTRATION PURPOSES ONLY
If the municipality could 'r_rrow at 10.SV annually, the annual re=a-rnent
limit shown in 20 above would allot: it to undo take additional lo.-'=-term
borrowing as follows:
(a) 20 years @ 10 S`s p.a.
53:,371,802
(b) 15 years @ 10.5§ p.a. $29,977,887
(c) 10 years e 10.51 p.a. $24,386,591
(d) 5 years ® 10.51 p.a. 515,175,229
3 -
I
P.02
ATTACHMENT # 2
IXE C
BY-LAW NO. 194-2206
A BY-LAW OF THE CORPORATION C T*H `_WN OF
LjW_-OLN SETTING,OUT ADDITIONAL AREA Z OF THE
TOWN OF LINCOLN TO BE SERVED U'11H
EUC MiC POWER BY THE LINCOLN VIYDt -ZLECTRIlk",
COMMISSION
I. The Rnk-ml t,4tr�c4_mfffy of Nlogota Ad.R,S,0.199(,),Chcc-ller R.13 c:mlirujas the
GS14 cb4,VV7t0N a a Hydra Electric Corirun!sslon for the Rewn c�`�oln to be kno�n, 0-$
IN)ur-,cdn Ryciru_-'iactoc commjsslort(-,he Comnrtss n'3
I The COMM!Z provides hydro electric power to on crec tree Tcx*,n of Uncok)
Ctt t0 Town)mvlousty k,-oqn m the Town of BeGnIsvi1(3.
GnI060.44M MO CorP0(lcdtm*)conitnues to dlelrl!�-iie In&orr,3
D<t13 of the Town that the Corporation served bq,orq It)q e.s: 1ment of ff i
Amer?dmem'A.-I,1994,provides that the To,,s-n p=a by-L-,y sttttr-Q
Out cre----of that mun,,;.lpd c - (:rjl�oj)(00,-I.fig
OqXX I �_;I o an e i rx�cue Q)So
be $- ed yft Pc'*vf by the Municipal CorporaticA I(x c C;.7,-L-neon of I hat
Ccq>orctk)o.
& 0 P rO PCsd 10 ft C(Yx.Y_`.7 of 4:- Town w1 F_-h
rat arm ; eXpQr!S:--<)Of areas sewed by ibe Ccr-nm�_,-, c,l ,,cry t r)
th(} of"ID4_ Town,whip-i wu-dd L,�Qn C�`N`quv_j*to ifile pry-ter::
by 1'o_
The C-04 1 of the Tc , hcn�;deto,;I;.
Potert�-_4,;;roWtCnd C�qyejo-
"T,C
A
C7
(c) the tvPPY of k-<)"Vqr to or fm, ocloconI MuNdpd co c JQ(-L;
(d et$l�rnOfes Of cart PiC-O peryqt4e t�y COm (�CA nrar-,llorrad czsets,
brid-wc4c Crltd hi afe4ft reload to ithe dLIrbLqlon of-owe-, the E)r000*ed
e.,q)crr;Ied aTe-o ixet-,njty$t by the Copwat
with c}dcrljojd CCSljj
'Nil may be provided in VjblectL-x)63.8(8)
Of the =--llq9llolD0MVon Act,
R.S,O.1990.C-4Kp-ter P,1 B,(3S aqww<jed by tho Powor Ccrp<x=i_on Amer*cimeN ilct,
NOW TH ERE FORS,T1 C-C 0 LIN Cl Of 7M C 0 R PQ RATI C:. 0 F rt.;2 TOWN OF U Nc W4
ENACTS AS FOLLOWS:
3. 4)thls by-Law.
r /
rd ecl b, lhe Power
Ccq>orct;ori Amendment Act. 1994.
the Lk-rcoln Hydro Electric Commission �Onsflluied by the
Provisions ot the Reclor< Muni_-0QTy QfNagara Act,U.O.*,;Y3,Chcojqr p_13.
'C,xPorciton'tnecm ff,,a body coWctte referred to In 2 of the p,-,qet
CcqDo'rctkx)Act.P-S.0.1990.Chopterp.16.wN-,,)L Or.1 C610 dro.
-
'TWff' r (date*mecu'o the dale as defined In Subsecilcn cl the Act a I
I I and is, he
data on which the o:s:,,et5.3ab(glles.land works and to the cjLt+rjWk_ of
"I
Power\,At*)the ex-,-,Mdgd area vesenity SuPPried by the CorPorafion br,,r_o(ne the
sporaftAty Of 14h*cclr��
'Town me=tt,�e Corporation of lt�e Town of Ljry--Oim
m
11-1,9-1995 =. rf r<Qf LIIJCC� I•,' HYDRC-i T.
ATTACHMENT #2 +
_z. t
2 The-reo of tie Town snapped with Hydro Electric Power by the Com—nE lion&•gall be
exparKied DUMUant 10 the rxmU=of Section 83.2 of the Act to lncit�de an area
CbntknxxB to the exfsfhV area suppiled with Hyaro Electric Power by fne Comml$slo�, 1
and tt*9xponded area shoo Include the whole 00013Tap111c area of fha Town.
•3. The trarufet date shall t e the fast of July, 1998.or al such other dale as may be
a9raed upon by t,'-t6 Caporatlon and the Commission pursuant to the pr,)v9slons of
&Ax-, ctlon 813(2)(W of the Act and such transfer date shall not occur prior to the
estob4shment of on oVreement between the CoAporatlon and the Co nmtWon and the
aGQui9sG6rtCe of the CouncR of the town theretO GS evidenced by CG`ncR Reso,,rflon
therefor to estab'�a p6ce peryyabie by the Commission for oll tronsfe nr d sots,
eat lies,k)nd,worts and trferests related to the distributloo of power wtrtti the
exPo+nded area Sued by the Corparatton and for any casts estabas;-�ed thereto h
ocMdOr�ce w,ih the expresssd provlsions of Subsecticrz 4 and 8 of S-a;fton 53.3 of the
Act.
BY-LAW read a P,R7 tk-(e tri+ 24th day of Deceml:>9r, 1494
BY-LAW toed a SECOND tea tt'ds nh day of December, 7494
BY-LAW te<)d a TKrRD ftne and Ps1ALLY PASSED tk'is 29th day of Decem,tier. 1994
MAY OfR RAY A.KOt VL.E-
C'IRK: KYLE S.KRUrs-"ER
1
- I
r'
li •
i i