Special Council Meeting on LUI loan payments

At a Council Committee of the Whole meeting on September 23, Ken Strauss represented the Cobourg Taxpayers Association (CTA) and criticized what he called Stealth taxes imposed by LUI (Lakeshore Utilities).  LUI is owned by Holdco which in turn is majority owned by the Town and pays both an annual dividend and interest on a loan to the Town set up in 2000. The loan is for $7M at 7.25% ($507K/year) and so far no payments have been made on the principal. Because of these payments by Holdco, Ken said that without them, electricity rates could be lower so in effect, the Town is taxing us via our LUI bills.  But the interest rate is higher than it need be (as set by the OEB) and Director of Finance Ian Davey proposed that the rate be lowered to 3.72%.  He said that the payment to the Town would remain at $507K per year but would now include some repayment of principal although this is subject to approval by the LUI board.

Lakefront Workers
Lakefront Workers

But the issue was not addressed in the meeting on September 23 but was instead referred to a “special Committee of the Whole Meeting” to be held at 5:00 pm on October 15.  LUI will present their case to Council who will also hear another presentation from CTA. Two citizens will also present their opinions.

Background

To a non-Financial person like me and most Municipal taxpayers, it’s hard to understand what this is about.  But let me try to explain (I’m sure any errors will be pointed out by readers):

Briefly, to comply with direction from the province, in 2000, the Town owned Hydro Utility was transferred to a for-profit corporation for $14M – half to be a loan (as documented with a promissory note) and the other half shares (equity).  Holdco was formed with LUI and LUSI as subsidiaries.  LUI is regulated and provides Electricity to the Town, and pays the town loan interest and a dividend. Regulation is by the Ontario Energy Board (OEB) which sets the interest rate allowed.  This was originally 7.25% but is now 3.72% and they further stipulated that although the actual interest rate is a management decision, Hydro customers should not be penalized – that is, Hydro rates should not be higher because the interest rate is higher.  Instead shareholders (in this case the Town) should bear the cost with reduced profit. (You’d think this would mean a higher dividend if the interest rate was reduced but this was not mentioned).  It seems that LUI is also implying that if the interest rate is not reduced, it will refinance elsewhere at the lower rate (see LUI presentation in Links below).

What this is about

So this issue is not about Hydro rates – they are mandated to be not affected – it’s about the relationship between an arms-length corporation (Holdco) and its owner (the Town) and what the corporation pays to the Town.  Currently it gets about $400K per year as a dividend because of the equity ownership and $507K per year because of the loan interest. The proposal is to reduce the interest to $260.4K but pay another $300.6K in principal repayment. (The principal repayment would be at the discretion of the LUI board).

This is an esoteric Financial issue and at the Special COW meeting, three citizens will be presenting: Ken Straus representing the CTA, and Cobourg residents Bryan Lambert and Paul Pagnuelo.

In the end, citizens only care about two things: 

  1. Hydro rates (supposedly not affected)
  2. Town taxes that can be held lower by getting payments from LUI.

I can’t be at the special COW meeting but I’ll report here on any decisions made although since it’s a Committee of the Whole meeting, any decision must be ratified at the next regular Council meeting.

Links

Update October 16

At the meeting on October 15, four citizens provided input to Council:

  • Ken Strauss representing the CTA (Cobourg Taxpayers Association).
  • Bryan Lambert – member of the CTA but presenting as a resident.
  • Trish Whitney who read a letter from resident Paul Pagnuelo because Paul had a health absence.
  • Ben Burd as a resident.

See Links below for copies of the first three presentations.

Their message was that Holdco/Lui’s interest payments to Cobourg are a ‘stealth tax’  resulting in “lose-lose – higher taxes (hidden) and higher utility prices”.

They also complained of a general lack of transparency and lost opportunity to take the $7 million equity or debt in LUI and fix the E-pier or pay off CCC debt.

Ben was very positive about Lakefront/LUI generally, but felt the Town is not transparent in letting the public know how they intend to use the reserve/income from Holdco.

Barry Gutteridge
Barry Gutteridge

Barry Gutteridge, Chair of the Holdco board presented on behalf of Lakefront – see his presentation in the links above – and his photo above-right. He expressed frustration with the CTA accusations and did a long credible defense of how good a job Holdco is doing in a complex regulated environment.  He indicated the CTA is confused on several things.

Councillor Brian Darling asked several questions that indicated he is a Holdco fan, including asking if the CTA had tried to meet with Holdco/LUI to understand things and talk – Barry answered “No”.

Deputy Mayor Suzanne Séguin made a motion to revise the new interest rate to 5% but after seeing no support from other councillors, withdrew her motion.

Adam Bureau was very positive re Holdco/LUI and the relationship with the Town.  Mayor John Henderson and Councillors Darling and Burchat agreed.

Treasurer Ian Davey said in response to a question that the reason Holdco dollars were kept separate was that the Town never relied on this income until it was received. This also means that the Holdco money or changes in it will not affect taxes.

The motion as originally proposed was then passed – that is:

THAT effective January 1, 2020, the terms of the promissory note in the amount of $7,000,000 be amended as follows: 

  • The interest rate be adjusted from 7.25% to 3.72% per annum and this rate remain fixed until each approved Cost of Service (COS) rate application, at which time it will be adjusted to the Ontario Energy Board’s (OEB) approved long-term interest rate for affiliate debt. 
  • In addition to the required interest payments, annual principal payments may be made at the discretion of the Lakefront Utilities Inc. Board of Directors after retaining sufficient funding to support their infrastructure requirements.

Photo and assistance in reporting by Warren McCarthy.

Update Council Meeting October 21

The motion above (para-phrased a bit) was passed with no further debate.

Additional Links

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Rae
22 October 2019 2:06 pm

Note that lower income renters have to pay for increases in utility bills but would not have to pay for re estate taxes

Fact Checker
Reply to  Rae
22 October 2019 6:08 pm

Rae,
So the property owner pays the property taxes out of the goodness of his/her heart and doesn’t recover this from the rent?

Cobourg Patriot
Reply to  Fact Checker
22 October 2019 6:27 pm

There are two things that nobody can escape. Death and taxes. Nobody gets a free ride with the taxman.

Rae
Reply to  Fact Checker
24 October 2019 9:46 am

There are government restrictions on rental increases

CobourgPerson
18 October 2019 8:40 am

https://cobourgtaxpayers.ca/2019/10/17/lakeshore-utilities-lui-wants-to-reduce-interest-rate-on-town-promissory-note/

Posted on the CTA website. “Lakeshore Utilities”. They don’t even know the name of the utility (Lakefront). Maybe it’s time for the CTA to get “back to basics”.

Miriam Mutton
16 October 2019 7:08 pm

From the LUI power point presentation to Council (slide 9) … “shareholders (not ratepayers) will bear the cost of the difference between the 7.25% and 3.72%”. And, above this point on the same slide the shareholder is identified as the Town of Cobourg. Where does the Town of Cobourg get funds? Much from the ratepayers.
Someone help me out with this one … how is the Cobourg ratepayer (taxpayer) not going to be paying, in some way, the difference? Even if customer rates would not rise, could it mean the Town can choose to make up the difference by adding a special levy to tax bills to make up for any ‘lost’ income? Further, would any future policy by Council to address spending of funds acknowledge the nature of variability in annual amounts received in order to minimize the notion of ‘lost’ income to be recovered by other means?

Ken Strauss
Reply to  Miriam Mutton
16 October 2019 10:02 pm

Miriam, your comments were partially addressed in my delegation. See https://www.cobourgblog.com/assets/2019/Delegation-Ken-StraussOct15.pdf

Albert
16 October 2019 9:20 am

And now to sum up:
I am with old Bill Shakespeare – Much Ado About Nothing – or maybe very little.

Albert
Reply to  Albert
16 October 2019 2:10 pm

And sooooo interesting to hear that the CTA folks – who have dumped on Holdco/LUI for years – never even tried to have a neighborly talk with them.
Not their style.

Bryan
Reply to  Albert
17 October 2019 12:43 pm

Albert,
And you know this how?
Mr. Gutteridge’s response to Clr Darling’s question on this was erroneous

For the record, the “CTA folks” have had several discussions with LUI and the Town.
The CTA participated in LUI’s 2016 rate application hearings and recommended that:
– the interest rate be decreased to market: about 3%
– the note be “open” to allow LUI to repay principal
– LUI’s cashflow would be improved by about $300K
LUI argued vigorously against this proposal. But now, 3 years later, they appear to have seen the wisdom of that proposal.

Ken Strauss had an hour long discussion on the issue with Barry Gutteridge about a month ago
Ken Strauss and I met with Ian Davey about a month ago to discuss the issue

Albert
Reply to  Bryan
17 October 2019 1:03 pm

“Councillor Brian Darling asked several questions that indicated he is a Holdco fan, including asking if the CTA had tried to meet with Holdco/LUI to understand things and talk – Barry answered “No”.”
So Mr. Gutteridge is lying?
Interesting!

Ken Strauss
Reply to  Albert
17 October 2019 1:15 pm

Lying? Perhaps Mr. Gutteridge was just forgetful.

I can confirm that Bryan’s recollection of our various conversations is correct. In addition, our participation in Lakefront’s 2016 rate increase hearings at the OEB is a matter of public record. Our final submission to the OEB dealt with the loan issue and is on the OEB website at http://www.rds.oeb.ca/HPECMWebDrawer/Record/546875/File/document

Albert
Reply to  Ken Strauss
17 October 2019 3:00 pm

Any assertion that Mr. Gutteridge is not telling the truth to Council about CTA talks with Holdco/LUI is a serious charge and could lead to a confrontation in Court.
Is it you who is confused as Mr. Gutteridge stated?
Were you meeting with Mr. Gutteridge as private persons or as CTA reps?

Bryan
Reply to  Albert
17 October 2019 4:01 pm

Albert,
A confrontation indeed. As you are the one who suggested that Mr. Gutteridge is lying perhaps you should be the one to consult a lawyer.
I said that Mr. Gutteridge’s comment was erroneous. Mr Strauss suggested forgetful. Neither suggests or indicates lying, just that an err was made.

Ken Strauss
Reply to  Albert
17 October 2019 4:03 pm

I am always identified as a CTA person. Just ask Walter!
One of my conversations with Mr. Gutteridge was by telephone. He returned my call the day after I had left a message requesting an opportunity to discuss the LUI loan. My other conversation was in Council chambers when we were both in the audience awaiting the meeting start. To claim that the conversations were with me personally rather than with me as a CTA representative is disingenuous at best. That said, Councillor Darling’s precise question was not whether the CTA had “met with Mr. Gutteridge” but rather had we “met with the Holdco Board”. I met with the Chairman of the Holdco Board rather than the entire Holdco Board. Mr. Gutteridge initiated the request to modify the loan terms and was presumably the one best equipped for a meaningful dialog. The intent of Councillor Darling’s question was obvious; Mr. Gutteridge’s answer was technically correct although misleading. The exchange is on video at https://youtu.be/nrZyOe5KzDI?t=4775 if you want to listen for yourself.

CobourgPerson
Reply to  Bryan
17 October 2019 1:25 pm

Barry Gutteridge is not Lakefront staff. Ian Davey is not Lakefront staff. Councillors met with Lakefront staff. Did the CTA meet with Lakefront staff in the past two weeks to discuss the promissory note?

Bryan
Reply to  CobourgPerson
17 October 2019 1:48 pm

To what end?
Mr Gutteridge is a LUI director and is responsible for LUI’s proposal to Council. Mr Davey is the Town’s CFO and acting CAO and responsible for the Town’s proposal. Why would we want to discuss the issue with people who are not responsible for these proposals?

Ken Strauss
Reply to  CobourgPerson
17 October 2019 4:08 pm

Neither I nor Bryan met with anyone from Lakefront in the last two weeks. My discussions with Mr. Gutteridge and Mr. Davies were prior to the September 23 CoW. Insofar as I know nothing has changed in the last two weeks to necessitate additional meetings. Actually rather little has changed since our 2016 OEB presentations (see http://www.rds.oeb.ca/HPECMWebDrawer/Record/546875/File/document).

ben
15 October 2019 2:27 pm

“Stealth Tax” get off this misnomer, What you are talking about is a contractual arrangement worth $507,500. That is the repayment of a loan that set the Utility up when Mike Harris demolished the old system of PUC’s in favour of ‘efficiencies’ and ‘consolidation’.

No tax here, if the Town had not secured its ownership with investing $14 million in the new Corporation then the Corporation would not have been able to function as a Corporation with no mechanism to offset expenses against debt.

Ken Strauss
Reply to  ben
15 October 2019 2:44 pm

Most consider that a loan consists of transferring money between two people (or companies). No money was transferred from the town to Lakefront in 2000. The $7M “loan” was an accounting entry representing 50% of the value of the assets of Cobourg PUC.

Cobourg did not “invest” $14M in Lakefront; they merely changed the name from Cobourg PUC to Lakefront Utilities and inserted a holding company, Town of Cobourg Holdings Inc, between the town and Lakefront. These changes were essentially window dressing to make things comply with Harris’s Bill 35. Lakefront kept the same staff, the same office, the same poles, the same wires and the same transformers that had previously been the assets of Cobourg PUC. There was no investment in new assets.

I have no idea what you mean by “… the Corporation would not have been able to function as a Corporation with no mechanism to offset expenses against debt”. Could you please explain?

ben
Reply to  Ken Strauss
15 October 2019 3:59 pm

As I understand it when setting up a for profit corporation it is advantageous to have debt which can be used to offset legitimate expenses. For a corporation to be completely debt-free is a peculiarity in our capitalistic system. LUSI needed debt this note provided it.

btw
“Cobourg did not “invest” $14M in Lakefront; they merely changed the name from Cobourg PUC to Lakefront Utilities and inserted a holding company, Town of Cobourg Holdings Inc, between the town and Lakefront. These changes were essentially window dressing to make things comply with Harris’s Bill 35. Lakefront kept the same staff, the same office, the same poles, the same wires and the same transformers that had previously been the assets of Cobourg PUC. There was no investment in new assets.”

Is this any different than restructuring a modern Company ? I don’t think so and the designers of this entity did a damn good job that has provided a cashflow of a million dollars a year.

Ken Strauss
Reply to  ben
15 October 2019 4:15 pm

It is hard not to make a profit when there is no alternate supplier!

Paul Pagnuelo
Reply to  ben
15 October 2019 4:26 pm

Ben…
I think you mean LUI not LUSI.

Durka
Reply to  Paul Pagnuelo
15 October 2019 5:26 pm

And I think you know what he meant…

Ken Strauss
Reply to  ben
15 October 2019 8:35 pm

As I understand it when setting up a for profit corporation it is advantageous to have debt which can be used to offset legitimate expenses. For a corporation to be completely debt-free is a peculiarity in our capitalistic system.

Yes, most companies have debt. Consider that for a for profit company interest charges are tax deductible. If money is borrowed to buy equipment or purchase a bigger factory or buy advertising then the company can grow faster. It is called leverage. A downside is if you make the wrong investments or the economy deteriorates things can rapidly go downhill. Things are a little different for a small town electrical distribution company like Lakefront. Realistically there is no growth possible for a Cobourg utility since once every customer is connected to the grid what do you do to sell more product? So why borrow to enhance growth?

ben
Reply to  Ken Strauss
16 October 2019 6:48 am

Ken as you were told last night the newly created utility was told by Mike Harris that they had to load up with debt because private investors wanted in. In Cobourg we did not want private investors and the Town profited.

Ken Strauss
Reply to  ben
16 October 2019 9:16 am

Then was then and now is now. Debt is not an investment. Also, we were “told” a number of things last night that were not entirely true.

ben
Reply to  Ken Strauss
16 October 2019 12:30 pm

That was then – utility ordered to load up on debt 50% debt. Now utility is ordered to load up on debt 60%. Things have certainly changed!

Greg H
15 October 2019 11:32 am

Ken, your recent explanation why you see Holdco profits a “stealth tax” could equally well apply to to the OLG, Ontario lottery and gaming commission.

I probably average about $5 a week on lottery tickets, that is about $250 a year. However only half of the ticket proceeds goes in prizes. The other half is distributed to worthy community endeavours. Thus I am contributing about $125 per year to various projects.

I do not see the $125 a stealth tax, but rather a way of supporting useful projects that otherwise might not happen. I do not resent this. Similarly I do not resent Holdco and Lusi profits going to support community endeavours in Cobourg.

Mrs. Anonymous
Reply to  Greg H
15 October 2019 11:42 am

I believe a key difference is that lottery tickets are a discretionary purchase whereas electricity in our society is considered essential.

Engaged Citizen
Reply to  Greg H
15 October 2019 11:43 am

You are choosing to play the lottery and in effect pay more “tax.” Some of the issue with regard to your analogy is that as rate payers we aren’t allowed to opt out. In a sense we are being forced to buy tickets for no personal gain (ie, the prizes).

Durka
Reply to  Engaged Citizen
15 October 2019 12:16 pm

Is it not prudent that LUSI budgets with a profit so unforeseen circumstances can be dealt with? There is always going to be a so-called “stealth tax” if that’s the case. Or they run razor thin on their margins and take on debt when the unforeseen happens. Which sounds better?

Ken Strauss
Reply to  Durka
15 October 2019 1:14 pm

Is it not prudent that LUSI budgets with a profit…?

What does LUSI have to do with anything? They are part of the town and unregulated and untaxed whereas LUI is a regulated utility that pays income taxes.

Of course it is prudent to have retained earnings to cover unforeseen expenditures. But I believe that we were discussing the interest payments from LUI to Cobourg. The interest payments are a deductible expense and separate from budgeted profit. Interest for the loan is paid from pre-tax dollars rather than being part of their taxable profit. Some of their profit (over $600K in some years) is paid to the town as a dividend. Yes, profits by LUI are subject to income tax (actually called PiL or Payment in Lieu but that is getting too much into the details).

Canuck Patriot
Reply to  Durka
15 October 2019 1:15 pm

Setting aside a contingency in the budget of say 3% is prudent. If it doesn’t get used it would be rebudgeted as a contingency the next year. Not the same thing as the stealth tax being discussed here.

ben
15 October 2019 6:39 am

“Without money from the LUI stealth tax, Cobourg has three choices: raise taxes, cut expenditures elsewhere or forego these sorts of expenditures in the future. Which approach do you recommend?”

Ken I am confused and it appears that you are proposing two things – both directly opposite to each other. You want to eliminate the “stealth tax” which may or may not reduce our hydro bills by the price of a cup of coffee and then suggest you want to make up the shortfall to Cobourg’s disposable income by raising taxes.

It appears to me that in a typical beancounter’s fashion you want to put expenditures in their proper place in a line item budget spreadsheet and ignore the unintended consequences. As another commenter said “Penny wise Pound foolish”!

Personally I would leave well alone and impose policies on the way the Holdco fund is disbursed and by whom.

Ken Strauss
Reply to  ben
15 October 2019 9:08 am

I have the perspective of one who believes in transparency. If repairing the Victoria Hall Clock Tower or “vitalizing” the downtown or repairing Dressler House or putting a stained glass window into the CCC are good ideas then they should be approved as part of the budget process together with the necessary increases to the levy. With the Holdco reserve slush fund available Council has often approved expenditures of questionable merit without any real consideration because “it won’t increase taxes”.

Whether the money comes from a stealth tax on our hydro bills or by an increase in property taxes, our disposable income is equally reduced. Taxpayers are the only source of money to run our government. Whether our pockets are picked silently or we knowingly pay, the effect on our disposable income is identical. The difference is that if we know what money is being taken we can make better choices regarding what spending is worthy and what is frivolous.

Frenchy
Reply to  ben
15 October 2019 10:09 am

“If council wants to fund a project, they need to make the value clear to the taxpayers, justify the tax support and stop hiding behind the public utility.”
Mrs. Anonymous, 17 October 2016

ben
14 October 2019 4:20 pm

“Holdco has requested that the annual interest payment be reduced by about $240K per year. This change will not affect your utility bill but will necessitate Cobourg raising property taxes to compensate for the shortfall.”

Another big fat red herring! The dividend and the loan goes into the Holdco reserve and if you want to know where that went to just look at the money Cobourg has paid to the Hospital funding over the years, not a penny of tax dollars, yet many millions of dollars from Cobourg. This money whether we like it or not has always sat outside of General Revenue and tax monies.

Ken Strauss
Reply to  ben
14 October 2019 5:03 pm

I’m uncertain about the colour of the herring but…
I believe that you may have forgotten a few expenditures. The $19M from the “Holdco reserve” has been used to fund many things over the years including donations to NHH as you mentioned, an aerial fire truck, Victoria Park Pavillion, Victoria Park Bandshell, Dressler house repairs, George Street RR crossing, public art at the CCC, Victoria Hall clock tower repairs, stained glass at the CCC, Victoria Hall fire panel, downtown “vitalization”, etc, etc.

Without money from the LUI stealth tax, Cobourg has three choices: raise taxes, cut expenditures elsewhere or forego these sorts of expenditures in the future. Which approach do you recommend?

Durka
Reply to  Ken Strauss
14 October 2019 6:16 pm

What a beautiful list of things. All plenty worthwhile if you ask me. That’s community building right there.

Ken Strauss
Reply to  Durka
14 October 2019 6:22 pm

I agree that many items in the list are good things although I consider some to be questionable. So one vote for alternative 1: Increase taxes!

Wally Keeler
Reply to  Ken Strauss
14 October 2019 10:51 pm

“George Street RR crossing,”

That crossing still remains in terrible condition, especially for those using mobility vehicles.

Walter Luedtke
14 October 2019 11:21 am

Talk about an esoteric issue!
Cobourg folks used to demonstrate about taxes.
Now they seem to have more important things on the minds as shown by the climate change demo.
But it’s nickles and dimes of public finance – $5 -per-year Durka? – that the CTA is fixated on.
And btw. at least Ken is proudly flying the CTA flag at the COW meeting.
The other presenters not so much.
Bryan Lambert is a current CTA director, Paul Pagnuelo is a former director.
Ducks!

Frenchy
Reply to  Walter Luedtke
14 October 2019 11:44 am

What, no picture?

Walter Luedtke
Reply to  Frenchy
14 October 2019 1:08 pm

Thanks for reminding me and a kiss on your cheek.
That is now!comment image

And that was then!comment image

Bryan
Reply to  Walter Luedtke
14 October 2019 12:27 pm

Walter,
Erroneous information from you is expected and your comment is true to form.
Durka’s math is off by a factor of 20. Ken wrote : “roughly $100/family each year”. That is clearly not $5 per year.
Regarding delegations: Paul and I are not presenting as “CTA” because the Town’s delegation rules prevent it. A person or group can only give one delegation per topic.
Lastly, this issue is not about nickles and dimes, It is about roughly $19M that has been collected from LUI’s customers and siphoned off to the Town’s coffers. As Ken aptly put it…..a stealth tax.
Hidden, no transparency, no accountability.

Walter Luedtke
Reply to  Bryan
14 October 2019 1:02 pm

Can you CTA folks ever deal with an argument and not in personal attacks?
Even $19 million over how many years does not strike me as a big deal.
“Siphoned off to the Town’s coffers”?
Make that ‘our’ coffers! Cobourg taxpayers’ coffers!
All money spent to make Cobourg a great place to live.
Unless the CTA believes that the money somehow wound up in the pockets of Council and Staff.

Ken Strauss
Reply to  Walter Luedtke
14 October 2019 1:34 pm

Walter, I understand that everyone has their own standards regarding how much money is a “big deal”. I am in awe of your earning capacity if $19,000,000 is not a “big deal” for you.

To put things in perspective for Cobourg, the town has averaged about $1M/year from Lakefront. Today $1M is over 4% of the property taxes collected. In 2003 the town got $1.1M from Lakefront. The stealth tax of $1.1M was almost 10% of the property taxes collected that year. Is that proportion a “big deal”, in your opinion?

Walter Luedtke
Reply to  Ken Strauss
14 October 2019 2:45 pm

no!

Ken Strauss
Reply to  Walter Luedtke
14 October 2019 3:10 pm

Then consider me in awe! Are you willing to share the secret of your financial success?

I neglected to answer your other question: I have absolutely no reason to believe that the money somehow wound up illegally in the pockets of Council and Staff.

Last year $478,000 ended up as payments to the “management team” and board of Lakefront. That’s not too shabby for a small company with sales of less than $6M annually (excluding the passthrough to Hydro 1 of the cost of the electricity that they distribute). Plus their executive salaries are up 9.9% from the previous year. Do their executives and board members have pockets?

Walter Luedtke
Reply to  Ken Strauss
14 October 2019 3:15 pm

Happy Thanksgiving Ken. ya old warhorse!
Whispers.
Ever heard of 649?

Merry Mary
14 October 2019 10:54 am

Please pardon the digression on your exemplary article. There is a third thing that worries citizens, which is the increase number of split-second power outages that have occurred this past year.

Rational
Reply to  Merry Mary
14 October 2019 11:19 am

In addition to short outages there are longer ones that happen in the mildness of rain/thunder. When you contact LUI they only say “they are working on it”. Are these outages the result result of a deterioration of equipment/infrastructure?

Durka
Reply to  Rational
14 October 2019 11:29 am

At times these issues can be traced back to Hydro One, who feeds LUI.

Cobourg Person
14 October 2019 10:23 am

Based on the LUI financial statements, LUI doesn’t pay a dividend to Holdco.

The loan is at 7.25% or $507,500. However, the amount included in rates is 3.72% or $260,400. I assume this what the CTA calls a “stealth tax”. But I’m not certain how the CTA suggests removing the “stealth tax”, the dollar affect on utility bills, and the affect on property taxes.

Ken Strauss
Reply to  Cobourg Person
14 October 2019 10:57 am

Correct, Lakefront currently pays the town $507,500 each year on a $7M “loan” (no money was actually loaned to Lakefront but that is a story for another day). In addition Lakefront pays Holdco a dividend (RoE) each year. The dividend varies but was $600K/year until recently. For the last few years the annual dividend has been in the $300K-500K range. The OEB allows all of the dividend to be recovered on your Lakefront bill and thus increases what you pay for electricity.

Holdco has requested that the annual interest payment be reduced by about $240K per year. This change will not affect your utility bill but will necessitate Cobourg raising property taxes to compensate for the shortfall.

Cobourg Person
Reply to  Ken Strauss
14 October 2019 11:29 am

But LUI has not paid a dividend the past few years. So what’s the CTA’s recommendation? It appears to be transfer the debt to shares. That would reduce the $507,500 to nil and have no impact on electricity rates.

Ken Strauss
Reply to  Cobourg Person
14 October 2019 12:20 pm

Cobourg Person, that is not quite correct. If the debt were changed to shares then the OEB allowed interest charge of 3.72% on $7M ($260,400 each year) would be removed from rates.

Bryan
Reply to  Cobourg Person
14 October 2019 12:47 pm

CP,
LUI has missed 2 dividends to HOLDCO (2017, 2018). However, Holdco paid the Town dividends in those years (2018 $150K, 2017 $200K). Holdco has only passive (dividends from LUI/LUSI) revenue, so where did Holdco get the cash to pay the Town $350K?
As Ken notes, the allowed interest ($260,400) would be removed from the next (2021) OEB cost of service rate setting, so all other things being equal, LUI’s deliver (regulated) rates would decrease. Further, not having to pay the Town $507,500 each year would improve LUI’s cash availability for capital spending and/or dividends.

Old Sailor
13 October 2019 6:15 pm

If the utility company is a subsidiary of the town, then on a consolidated financial statement basis there is no difference between the town owning the $7 million utility debt or the utility refinancing the debt with an arms length lender at the same interest rate. The utility company still has a debt of $7 million.

If the town gets the $7 million from the utility and spends it frivolously or gives it back to the taxpayers the town loses a $7 million built up cushion to fund future climate change disasters and other unpredictable events. We seem to see a growing number of $1 million dollar needs for capital reinvestment fixes in town assets. I would vote to leave things as they are.

Ken Strauss
Reply to  Old Sailor
14 October 2019 12:27 pm

We seem to see a growing number of $1 million dollar needs for capital reinvestment fixes in town assets. I would vote to leave things as they are.

I think that we are seeing more $1M needs to fix town assets because previous Councils have spent their tax dollars on flashy items or things that special interests demanded rather than maintaining the infrastructure.

MCGA
Reply to  Old Sailor
15 October 2019 2:05 pm

Absolutely agree Old Sailor, it would be a wash in the financial consolidation. And if the Town politicians squander the cash than there is nothing for a rainy day. As an aside, the $260K reduction of interest income paid to the Town would be more than 50% offset by discarding the Abbott Blvd. sidewalk white elephant. A win for the taxpayers and the residents of Abbott.

Durka
13 October 2019 5:43 pm

Cobourg Taxpayers Association – Penny wise and a Pound foolish

Greg H
13 October 2019 5:42 pm

I am not a member of the CRA, but I am impressed with the efforts that they have made to get the machinations of Holdco and Lusi made public. I believe it very advantageous to consumers to have Lusi owned by the Town of Cobourg, but there is no apparent reason that their financial management should be hidden from the public.

The Town of Cobourg has also been secretive about how much debt the town has, and when debt has been used to finance projects. Perhaps this secrecy was one of the reasons that the CRA was formed.

I think that the CRA’s objective is to get the financial issues and decision making into the public eye, and that they are not necessarily in favour of a reduction in necessary public expenditure. I know that municipal taxation in Cobourg is a higher proportion of property values than it is Toronto. However in Cobourg we do have smoother roads, and a functioning sewer and water system. These things can only be achieved with regular maintenance and investment.

ben
13 October 2019 4:44 pm

OK let the three ‘gurus’ and taxfighters do the calculation – how much will my hydro bill go down if they get their way? I have seen all kinds of suppositions but no hard figures. Let’s have them and then we can decide if a couple of bucks a month is worth the alternative – nearly a million dollars for us Citizens to play with.

Ken Strauss
Reply to  ben
13 October 2019 9:55 pm

John, thanks for your summary of the issues; I have little to complain about in your posting.

Greg H, the group is Cobourg Taxpayers Association (CTA) rather than the tax boys at the CRA!

Ben, that is a very fair question. Since 2000, in round numbers, Cobourg has received about $19M from a stealth tax that never appears on our electricity bills. This amounts to an annual amount of about $100 per family or roughly $2000 per family over the last 19 years. Any change in the amount of your Hydro bills will depend on the vote of our Councillors together with the actions of Lakefront Utilities (LUI). Please consider asking your questions at the public meeting on October 15 in Victoria Hall at 5pm.

I have no illusions that shedding light on the actions of Holdco/Lakefront will significantly reduce my taxes. However, most of our current Councillors campaigned on a promise of transparency and the current situation is anything but transparent!

Pierre
Reply to  Ken Strauss
14 October 2019 7:08 am

Ken S. can you tell us how hydro rates/delivery costs for the consumer would lowered, as the utility is regulated by the Ontario Energy Board.
You refer to a Stealth Tax…can you give us an simple explanation
As to where this is on our bill.

Ken Strauss
Reply to  Pierre
14 October 2019 10:24 am

Ken S. can you tell us how hydro rates/delivery costs for the consumer would lowered, as the utility is regulated by the Ontario Energy Board.
You refer to a Stealth Tax…can you give us an simple explanation
As to where this is on our bill.

We all know what a tax is. The dictionary says that “stealth” is an adjective meaning hidden. The transfer from Lakefront to Cobourg is a tax not shown on your bill which is why it is a “stealth tax”. The hidden charge is about $100/family each year or $19M since the creation of Lakefront and Holdco in 2000.

Durka
Reply to  Ken Strauss
14 October 2019 10:28 am

So roughly $5 a year….

Ken Strauss
Reply to  Durka
14 October 2019 11:03 am

So roughly $5 a year….

What is “roughly $5 a year”? The stealth tax is roughly $1M/year (the yearly overcharge on your electricity bills) so roughly $100/family each year (there are roughly 9500 families in Cobourg).

Durka
Reply to  Ken Strauss
14 October 2019 11:17 am

Thanks for the clarification, I misread that.

Walter Luedtke
Reply to  Ken Strauss
14 October 2019 11:33 am

Actually there are many non-family property owners in Cobourg.
Any idea how many?

Frenchy
Reply to  Walter Luedtke
14 October 2019 11:43 am

You tell us. You’re the one who says there are many.

cornbread
Reply to  Ken Strauss
14 October 2019 9:52 am

Perhaps a new book is in order…”Ripped Off In Cobourg”

Still waiting for the China Trip Report from Mayor Henderson and ex Mayor Brocanier…are we twinned with a Chinese town or not?

Durka
Reply to  cornbread
14 October 2019 10:00 am

Cornbread in actual reality our utility comes in on the lower end of pricing. The profits from our utility go back to the town rather than to shareholders (see Port Hope as an example). The situation is a win-win for the town and it’s residents. If you call that being ripped off then so be it. I’d rather pad the towns pockets, to help fund projects that benefit us all, than pad the pockets of some shareholder in the GTA who wants a new sportscar.

Ken Strauss
Reply to  Durka
14 October 2019 10:15 am

To clarify:
The profits from Lakefront, other than those squandered on things like selling streets lights, do go to the shareholders. Holdco owns Lakefront and is the only shareholder. I’m unclear why you think that collecting town taxes as a hidden charge on your utility bill is a good thing.

Durka
Reply to  Ken Strauss
14 October 2019 10:23 am

And Holdco is owned by the Town of Cobourg, profit stays here. It’s a good thing IMO because we are still low price utility and have this large fund accumulating. If we paid exorbitant price then I could see the issue here, but we don’t. Residents in Port Hope pay the same as we do but have no large reserve to show for it.

Fact Checker
Reply to  Durka
14 October 2019 11:02 am

How much is in the HOLDCO Reserve?

Durka
Reply to  Fact Checker
14 October 2019 11:08 am
Fact CheckerBryan
Reply to  Durka
15 October 2019 1:14 pm

Durka,
This link is to John’s report on Holdco’s Annual Report which has nothing to do with the Town’s “HOLDCO Reserve” The account is a Town reserve account that represents the net amount of income from the HOLDCO Group ($507,500 interest plus Holdco dividends $150K in 2018) less spending on various Town projects.

Ken Strauss
Reply to  Fact Checker
14 October 2019 11:29 am

I don’t know the current Holdco reserve balance and have been unable to determine the amount. As part of the promised transparency all reserve balances should be on the town’s website. Perhaps you should come to the CoW on Tuesday and ask.

Ken Strauss
Reply to  Durka
14 October 2019 11:11 am

Durka, please tell the whole story. Port Hope pays about the same for electricity as Cobourg. When they sold their utility many years ago they got a large pot of cash. You didn’t mention that the reason that they have no large reserve is because their politicians squandered the money and they now have nothing.

Durka
Reply to  Ken Strauss
14 October 2019 11:22 am

Yes they did and here in Cobourg we were much more prudent. We now control our own utility, have accumulated a healthy reserve and the value of the utility has gone up substantially if the town ever decided they wanted to sell. The whole story lends itself to favouring Cobourg even moreso.

Ken Strauss
Reply to  Durka
14 October 2019 11:34 am

Durka, I don’t disagree with you in the matter of Port Hope’s versus Cobourg’s prudence in selling a utility and squandering the money. Peterborough recently sold their utility for $105M. It will be interesting to see what they do with the money.

cornbread
Reply to  Durka
15 October 2019 11:37 am

The residential tax rate (not including the school rate) in Cobourg for Town & County is 1.30365% times your assessment…in Richmond Hill the residential tax rate (not including the school rate) is .527357% times your assessment. Cobourg taxes on your capital investment are almost 2 1/2 times that of Richmond Hill. I would say that’s getting ripped off for sure…that’s $2,328 more in Cobourg on a $300,000 assessment. Our town council has been spending way beyond our means for the past 50 years. Wake up everyone. The hydro situation is a drop in the bucket compared to our tax load.

Miriam Mutton
Reply to  cornbread
15 October 2019 12:08 pm

Do you have a comparable that is more like Cobourg? Richmond Hill has a population about 10x that of Cobourg and the average home value there is reported to be about $1.1 million.

Ken Strauss
Reply to  Miriam Mutton
15 October 2019 12:20 pm

If you consider Collingwood to be comparable, their 2018 TOTAL tax rate is 1.195% including the education levy of 0.17% or 1.025% for the town + county + special levy. That is about 79% of the levy rate in Cobourg.

See https://www.collingwood.ca/sites/default/files/docs/government/property-taxes/bl2018-046_2018_tax_rate_bylaw.pdf

Miriam Mutton
Reply to  Ken Strauss
15 October 2019 1:08 pm

A reasonable comparison, thank you. I note that Collingwood’s growth has been almost 3x that of Cobourg over the same period … new infrastructure paid by new development and not the existing taxpayer. And, it is a common misconception that more development will lower taxes. It will cost money to repair and replace public infrastructure down the line. A burden shared by all taxpayers.
However, on the main topic, I do agree with the need for public dialogue on transparency concerning revenues and expenditures by our local utility. I tend to align with Ben’s view here. In particular, policies for how funds are distributed.

Ken Strauss
Reply to  Miriam Mutton
15 October 2019 1:21 pm

And, it is a common misconception that more development will lower taxes. It will cost money to repair and replace public infrastructure down the line. A burden shared by all taxpayers.

My understanding is that development charges are intended to compensate existing taxpayers for their investments in current infrastructure plus fund whatever is required for the new comers. After that we are all in it together to maintain things. The development charges may not get the costs exactly right but at least they are something in the right direction.

cornbread
Reply to  Miriam Mutton
15 October 2019 1:30 pm

The “cost” of my same dollar investment in Cobourg is 2.5 times more in Cobourg versus Richmond Hill. So I would suppose that investing in Cobourg is too expensive and could be a reason why our downtown is in somewhat poor shape.