Town council rejects Entegrus offer for Essex Power shares

EPOWERBy Ron Giofu

 

Town council has made it official and has voted to reject the offer from Entegrus for the municipality’s 14.25 per cent share of Essex Power.

The $12 million offer was rejected at a special council meeting Tuesday night with Deputy Mayor Ron Sutherland and councillors Carolyn Davies, Bart DiPasquale and Diane Pouget voting to turn the offer down. Mayor Wayne Hurst and councillors Bob Pillon and John Sutton voted against the motion not to sell.

Sutherland said the majority of people he has spoken to have advised him not to sell. He added that council was elected to represent the wishes of the voters, adding that when he campaigned in 2010 he did so with the promise to listen to the electorate.

“In this case, I agree with the residents,” said Sutherland. “We should not sell.”

Davies said she voted “on the side of the constituents and my conscience.” She believed Essex Power had more than just the distribution side to it and was an asset to the town that would continue to grow.

Davies also questioned why Entegrus was willing to pay $12 million for the shares and believed it was because she believed Entegrus saw the same potential for innovation.

“Essex Power is making about three per cent per year but their growth exceeds the budget,” she said.

While CAO Mike Phipps referenced the BDR report and its president John McNeil with relation to interest rates and the opinion dividends would drop if interest rates rose, Davies added that “TD Bank projects interest rates will go nowhere in the next few years.”

Stating that “public input is enormous,” Davies said she could not support selling the shares.

“I have always been supportive of municipally owned public power and public services,” she said.

Pouget said Entegrus had been listened to as had BDR and the taxpayers. She added that she had spoken with lawyers, accountants and financial advisers while researching the topic and only nine people told her that the town should sell its shares.

“Where are the silent majority urging us to sell our shares?” Pouget asked.

Pouget believed there was inaccuracies in Phipps’ report to council, recalling statements where a 10.01 per cent budget increase was described as a “bare bones budget” although council has since brought it down to its current seven per cent level with more budget sessions to come.

“We must cut costs and reduce spending. Period,” said Pouget. “We do not need to sell our shares.”
Pouget added that the shares belong to “every man, woman and child in our community” and that she didn’t want the shares to be sold.

Pillon asked Entegrus president/CEO Jim Hogan whether he had gone to any other municipalities that are shareholders in Essex Power in addition to Amherstburg. Hogan said he had visited LaSalle, Leamington and Tecumseh just to introduce himself and the company in case the town voted to accept Entegrus’ offer.

“There was no offer made (to the other shareholders),” he added.

Pillon followed up by questioning Hogan if Entegrus would approach the other towns and Hogan replied by stating he did not imply that. Pillon further suggested that Entegrus “sweeten” its offer to give $50,000 a year to local youth programs for the next three years to ten years.

Pillon also noted that the town puts surplus lands out for bids, and wondered if the town could get as much as $15 million if there was a bidding process. He also wondered about other scenarios, such as if LaSalle were ever taken over by Windsor, and how that would impact the viability of Essex Power. Stating there were questions he still needed answers to, Pillon believed a decision should have been deferred.

“This is a very important decision. We’re selling something very valuable to the town,” he said. “I’m sorry. I need answers.”

Sutton offered similar views, stating he wanted more information on how a sale or a non-sale would impact debt repayment and reserve replenishment. He stated during the April 6 meeting there were 12 days until the offer expired and asked for more time to make a decision as he wanted the additional financial reports.

“I’m not prepared to support a motion on either side of the ledger,” said Sutton, adding that more “due diligence” had to be performed. “No one around the table has the answers tonight. Quite frankly, we don’t have them.”

Hurst rejected any idea of the decision being dragged on any longer, noting the offer first came to council last December.

“I don’t think we can afford to prolong this issue any longer,” he said. “The time has come to vote.”

Hurst called the issue “a hot topic” and wondered if articles that have appeared in the media have been written by people who had all the facts.

“There’s been an awful lot of information put out regarding the Entegrus proposal,” he said, adding that people “have a moral obligation” to ensure it is accurate. He believed Entegrus’ offer to be “handsome” and that it would allow the town to pay down debt, replenish reserves and alleviate future pressures in the town’s budget.

Phipps noted that Amherstburg has the smallest percentage of shares in Essex Power, with LaSalle owning 33.25 per cent, Tecumseh having 26.45 per cent and Leamington 26.05 per cent. While 2013 figures haven’t been audited, Phipps noted that 2011 and 2012 dividends were $199,640 in each year. The 2005 figures were $42,750.

“It should be noted as interest rates have fallen, dividends have risen,” he said.

The CAO flatly denied any conflicts of interest, with that issue having been raised at town council’s regular session the night before. That position was backed up by town solicitor Ed Posliff, who noted that while Phipps may live in Chatham-Kent (which owns 90 per cent of Entegrus), that does not mean Phipps as a ratepayer derives any direct benefit.

“There is no conflict,” said Posliff. “A corporation is a separate entity of its taxpayers.”

Phipps said 225 councils in Ontario have voted to sell their interests in their local utilities, noting that Amherstburg was not alone in receiving an offer.

“I highly suspect the CAO’s in each municipality could not have had a conflict of interest,” he remarked.

Noting that Lakeshore and Kingsville sold their ELK shares to Essex, Phipps reported that neither town that sold had any negative impacts from the sale.

“I was not in Lakeshore when the shares were sold,” he added.

The return on $12 million would be 1.67 per cent, said Phipps, adding the town could pay down its debt four to seven per cent. He also wondered what would happen if LaSalle and/or Tecumseh received an offer and whether Leamington and Amherstburg could match.

Phipps suggested that $5 million of the $12 million could be used on the capital budget and unfinanced capital, adding that would save $318,000 on principal and interest payments in 2014 and $636,000 over the next ten years.

“That is substantially more than the $200,000 dividend payments,” said Phipps.

A sale could have meant a drop in the blended tax rate from where it stands as of Tuesday night – 3.85 per cent – down to 2.46 per cent and helped relieve pressure for future capital works and put $3.5 million back in reserves. While he recommended the sale of the shares, Phipps said during his presentation that he expected the offer that “could have changed (taxpayers) lives” to be rejected. He added that rejection meant turning down a chance to pay down debt, replenish reserves, do such projects as Texas Road and help get the finances of the town back in order.

Hogan thanked the town for working with Entegrus.

“We fully respect your decision,” he told town council. “It was a tough decision.”

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