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City taking another stab at seeking OEB approval for Hydro One deal

Original decision in 2016 committed city to pursue 'best efforts' for deal; tempers flared at four-hour-long meeting
Power line
Power line

The city is not giving up on its efforts to sell the distribution arm of Orillia Power to Hydro One.

Tempers flared, sparks flew and allegations were tossed around like grenades as city council met Tuesday for more than four hours – including about 75 minutes behind closed doors – to debate the fate of the proposed agreement that the Ontario Energy Board (OEB) rejected in April.

Last week, the OEB ruled it would not hear an appeal of that controversial decision. Many thought that ruling might spell the end of the process and signal a death knell for the deal.

However, despite all the emotionally-charged discussion and pointed questions, councillors, in essence, learned there was no decision to make this week.

Lawyer Mark Rodger, who has been the city’s legal point man throughout the process and has negotiated about 30 similar deals with other municipalities, reminded politicians that the decision they made in August of 2016 dictates that they exhaust “best efforts” to consummate a deal.

In his opinion, that means it’s incumbent on the city, Orillia Power and Hydro One to refile its original Mergers, Acquisitions, Amalgamations and Divestitures (MAAD) application to the OEB. And that, essentially, is what will happen in the days and weeks to come.

In a detailed presentation to council, Rodger recapped the process to date, explained the process to come and stressed that nothing from the original deal has changed. He also stressed that the OEB had, in essence, agreed that the deal met its no-harm test – with one important and surprising exception.

That exception, which formed the crux of the OEB’s decision to reject the deal, said the proposed agreement did not provide cost certainty in the 11th year of the deal – in 2030. That caveat, Rodger said, was not considered in other similar acquisitions.

Rodger said it is his hope that, through discussions with the OEB, a new MADD application can zero in on their concerns about Year 11 and not revisit all the other issues.

Refiling the MADD application didn’t sit well with the three councillors who originally voted against the decision: Sarah Valiquette-Thompson, Mason Ainsworth and Rob Kloostra. They, along with Coun. Tim Lauer, expressed concerns about the process and about not having an opportunity to make a decision on next steps to take.

“I have a major issue with that,” said Valiquette-Thompson. “As a councillor, I’d like to weigh in on the process. Since (the deal was denied), we haven’t had the opportunity to weigh in and make a decision as to how we want this decision to unfold. We’re continuously being told this is what we have to do … It’s already plotted out for us,” she said.

Rodger said “the die was set and cast” in 2016. Council agreed at that time to exercise its “best efforts” to ensure a deal is made.

But several councillors pointed out that during those discussions in 2016, they were told it was “very unlikely” the OEB would reject a deal. Valiquette-Thompson said, as a result, she feels the playing field has changed.

Rodger conceded he told councillors it would be unlikely for the OEB to reject the pact, but he also stressed that he told them, at the time, that if a deal was rejected, it would be incumbent upon them to address the OEB concerns and try again.

“We’re obligated to pursue best efforts” which the court defines as reasonableness, said Rodger. “In this case, we have the lion’s share of the no-harm test approved, we know what the missing piece is, although after the fact from the OEB. We know the evidence has been prepared (to address that) and we know a pathway to get resolution. And, the transaction hasn’t changed at all. So, when you look at all those circumstances, if the City of Orillia did not go ahead and refile, the city would be acting in bad faith and would be contravening the agreement.”

Greg Gee, the chair of the Orillia Power board of directors, echoed those sentiments.

“For what it’s worth, the Orillia Power board is very much aware of this ‘best efforts’ clause and considers itself bound by it and considers Hydro One and the City also bound by it,” said Gee, intimating the city could face legal action if it chose to breech the deal.

Gee also said the process should not come as a surprise to council. “There is no surprise, no mystery,” said Gee, noting the details of the agreement have been public since it was filed in 2016. “Any suggestion that this suddenly snuck up on us is not a fair comment, if I can say so.”

Gee noted the Orillia Power board met Aug. 30. At that meeting, the board supported the decision to refile.

Orillia CAO Gayle Jackson noted she and the mayor have spoken with new officials at Hydro One – the CEO resigned when Doug Ford was elected; Ford subsequently removed the board – and she said they remain committed to the purchase of Orillia Power’s distribution company and other elements of the deal.

Ainsworth also expressed concerns about pursuing the deal and asked Jackson how much money has been spent to date on legal and other fees related to the deal. So far, the city has spent $1.2 million to date, Jackson reported.

Ainsworth said he didn’t feel it was money well spent and questioned the amount of economic development that might be created.

Mayor Steve Clarke said it’s estimated it would only cost $20-25,000 to refile the MADD application. He then vacated his position as chair of the meeting so that he could weigh in on the debate.

He admitted the OEB’s rejection was a “setback” and conceded the process has not played out as hoped. But he said he remains committed to pursuing the agreement due to the “benefit to the city as a whole.”

He also criticized Ainsworth, without naming him, for the comment he made last week to OrilliaMatters. At that time, Ainsworth said: “The mayor and most of council just wasted more than $1 million of taxpayers’ money and have nothing to show for it.” 

Clarke noted Bell recently decided to invest about $10 million in Orillia, in part, due to the prospect of the Hydro One deal. He also said there is a potential of Hydro One investing more than $200 million in the city if the deal is consummated.

“If someone comes to me and wants to create jobs, make a $200 to $300-million investment … I’d be very irresponsible if I didn’t pursue that.”

Coun. Ted Emond agreed. He conceded: “None of us expected to be here," referencing the OEB's rejection of the deal.

He then criticized the three councillors who have been opposed to the deal since Day 1.

“We have … had three members of this council who have been opposed to this deal from the very beginning, sometimes couching it in opposition to process, but the effect is they’re opposed to the deal,” said Emond.

He said their “waffling and procrastination about (the) process is a fiction. It is not achieving anything other than building a lack of confidence within the citizens (of) the ability of this council to act in the best interests and good faith moving forward.”

Coun. Ralph Cipolla wondered why most other deals had been approved and why Orillia’s pact was rejected.

Rodger said the submission to the OEB “should have been enough and has been enough in other cases,” but noted the agency seems to be setting a higher standard because Hydro One is involved.

“I think … the OEB is an important public institution (but) I think they made a mistake,” said Rodger. “They went down a wrong road right back from when they (tried) to put the whole application on hold until the distribution rate application is heard (It has still not been heard). I think they’ve been off track, quite frankly and with respect, since then.”

If the sale of Orillia Power Distribution Company (OPDC) to Hydro One is successful, distribution rates (20-25 per cent of the overall electricity bill) would be reduced by 1 per cent and frozen for five years, followed by only inflationary increases for years six through 10.

After year 10, Hydro One has committed to distribution rates that will be no higher than the OPDC status quo. Any adjustment rates after year 10 would need to be reviewed and approved by the OEB.

If the sale to Hydro One is not approved, OPDC will be required to file for a distribution rate increase (known as a Cost of Service rate application) with the OEB at least twice over the next 10 years. It is estimated that distribution rates will increase by an average annual rate of 2-4% over the next 10-year period.

In a press release issued after the meeting, the mayor said it’s in the best interest of the city to pursue a deal.

“The OEB has not ruled on a key element of the deal which is a commitment from Hydro One that in year 11, after 10 years of lower distribution rates with Hydro One, Orillia customers will be no worse off than if we had retained OPDC. It is in the best interest of Orillia to pursue every avenue possible to complete a deal that offers $200 to $300 million in near-term economic impact in the community and lower distribution rates for 10-plus years.”

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Dave Dawson

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