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Torstar Network - May 26, 2010 - By
City key to OMERS, inquiry told
The City of Mississauga Judicial Inquiry officially started yesterday after weeks of premliminary hearings at Provincial Court.
Staff photo by Fred Loek
Mississauga was the key to an ambitious plan by a giant municipal pension fund a decade ago to acquire and merge all the hydro utilities owned by municipalities around Toronto, the city’s judicial inquiry heard on its opening day yesterday.
It was against this backdrop that the Ontario Municipal Employees Retirement System (OMERS) entered a joint agreement with the city in 2000 to create the hydro utility Enersource — and, though holding only a 10 per cent stake, acquired a “negative veto” power in the deal.
That veto, apparently added without the knowledge of some councillors who voted on the agreement, became controversial years later and is one of the issues being examined in the Mississauga inquiry.
At the time, Ontario was in the process of deregulating power, and municipalities and private companies hoped to make a lot of money by charging higher electricity rates — something the province ultimately killed over fears of unreasonable windfall profits on the backs of consumers.
OMERS envisioned Enersource as a beachhead for its plans to prowl through the 905 region for more utilities to buy, with Mississauga as the major municipal partner. OMERS was willing to put the new mega-utility’s head office in Mississauga and risk a lot of cash, the inquiry was told.
That commitment to the city included a $750 million acquisition fund, a $1.25 billion commitment to carry debt and a “put” agreement that could have allowed Mississauga to force OMERS to buy the city out for a guaranteed price of $360 million within four years.
“There was substantial economic risk that OMERS was taking in this entity from the outset,” Michael Barrack, the lawyer for OMERS, said yesterday. “Against this backdrop, it would not be unreasonable for someone with that kind of exposure to have a fair degree of control over the enterprise.”
The negative veto is one of two issues involving OMERS being probed in an inquiry led by Justice Douglas Cunningham. The other is a failed deal, also involving OMERS, to sell a parcel of land for $14.4 million to World Class Developments, a company connected with Peter McCallion, the mayor’s son.
The inquiry was told OMERS head Michael Nobrega had initially proposed to Mississauga early in 2000 a deal that would have given the pension fund a veto over all major issues involving the newly created utility. During confidential negotiations, the OMERS veto was transferred to the city.
It was only later — after the grand plans for Enersource had fallen off the rails and the province had made clear that it would cap electricity rate increase requests — that the OMERS veto was reinstated in the agreement.
Mississauga councillors have alleged that the negative veto was inserted into the final documents after council had voted to approve the shareholder agreement with OMERS and before it was signed by the mayor.
Jonathan Toll, a TD Securities acquisitions and mergers executive who helped Mississauga find investors for its utility, told Barrack he agreed with his suggestion that the negative veto — given the financial risk OMERS took on — was not an unreasonable request.
Toll later told inquiry lawyer Will McDowell that he wasn’t pronouncing on whether the city should have agreed to the veto arrangement.
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