Finance staff at Greater Sudbury are recommending city council adopt a policy requiring Greater Sudbury Utilities to pay the city a share of its net profits.
And despite arguments from the GSU the city already receives the equivalent of a dividend through discounts on rates and interest payments, a report headed to city council June 25 says several other municipally owned utilities pay dividends, and the GSU should too.
Known as a dividend policy, it would detail exactly how much money the GSU's only shareholder (the city) would receive and under what circumstances. The staff report estimates the annual dividend payment would average about $1.75 million a year.
When the GSU was created in 2000, a dividend policy was supposed to be created, but the utility has never paid the city dividends. Late last year, city council passed a motion directing the GSU to provide finance staff with all financial and other information they required, and for a revised dividend policy to be prepared.
The GSU presented its own version of a dividend policy at its annual meeting June 4. But the explanation of the policy from GSU treasurer Peter McMullen left many councillors – including the three accountants on city council – struggling to understand exactly when the city would receive a share of profits.
The entire meeting can be viewed here, with Ward 9 Coun. Deb McIntosh trying to put the GSU's proposed dividend policy in simple terms beginning at 47:20 of the recording, followed by McMullen's complicated response.
Instead of approving the GSU reports, which is what usually takes place, councillors voted to delay a decision until city finance staff had time to analyze the documents themselves and make recommendations.
Those recommendations include changing the dividend policy to set out clear circumstances when a dividend would have to be paid — as opposed the GSU's proposed policy, which would make dividends dependent on board approval and doesn't include a formula to calculate how much the city would actually receive.
A consultant hired by the GSU – Governance Solutions Inc. – recommended adding two more independent directors to the utility's board and requiring a majority of those directors to approve dividend payments. That would mean city councillors would be outnumbered 4-3 on the board.
But city finance staff rejected that idea, saying the Ontario Energy Board (which regulates power companies) has only directed a utility to do that once, in the case of a municipal utility that had a long history of paying excessively high dividends to the city, to the extent it was short of money for long-term capital work.
That's not the case here, the report says, with the GSU earning strong profits and plans already in place to spend significant money on capital projects.
“(The GSU) has been able to keep distribution rates low,” the report says. “This is a notable accomplishment and should be credited to them as a sign of efficient operations and a creative mix of energy product offerings that are providing services as well as beneficial rates to their customer base.
“It is noteworthy, however, that several municipalities with similarly low distribution rates are paying dividends and or contributing more total cash to their respective municipal shareholders.”
Most utilities pay dividends between 25 and 60 per cent of net income, the report said, with a set of rules outlining when a dividend would not be paid – for example, if the money is needed for capital work, or if there are unexpected increases in employee benefit or other costs.
The push for a dividend policy resulted from a 2018 review by Auditor General Ron Foster, who uncovered the fact the dividend policy had never been established.
