Investing PDI profits is council’s big decision

Sometime next year Peterborough city council expects to deal with a very pleasant challenge: where to invest roughly $50 million.

The money will be profit from the sale of Peterborough Distribution Inc., the poles and wires side of the city-owned electrical utility.

That sale to Hydro One still needs final regulatory approval, which is expected by July.

Council took a first step to prepare for dealing with all that cash when it endorsed a recommendation to consider two investment options:

(A) Plow all the money back into the electrical utility to grow its renewable energy side, or;

(B) Invest it in a standard portfolio of stocks and interest-generating instruments.

The (A) option has been discussed for some time. The utility has been paying annual dividends since the city set it up as a private but wholly owned company 20 years ago.

This year’s payout will be $5.8 million. The total to date is $90 million.

Utility officials have said they can confidently predict an annual return to taxpayers of at least six per cent, or $3 million, if they are given $50 million to invest in new solar and hydroelectric projects.

Option (B) is more conservative. The money would be turned over to an investment firm that specializes in helping municipalities deal with large sums like the PDI proceeds.

It would go into a mix of mostly fixed-return investments. In the current interest rate environment it would not earn six per cent but could still generate $2 million annually.

There is one other significant difference between those options.

Profit from money invested in the utility would return to the city in the same way it always has. It would be rolled into the annual budget and council would decide where and how to spend it, few if any strings attached.

In the (B) option, however, a “legacy fund” would be created. All returns would go into the fund, which could be spent only on capital projects. Any funded project would need two-thirds support at council. The $50-million principal investment would never be touched.

It’s an interesting idea, one that has been used by national governments to ensure long-term benefits from non-renewable resources like oil and gas.

But it doesn’t have to apply only to an investment portfolio.

There is nothing to stop the city from putting returns from the electrical utility into a legacy fund and applying the same restrictions on spending.

In the same vein, there is no reason proceeds from an investment portfolio have to go into a restricted fund.

The money could be used to meet current or future needs the same way utility dividends are now.

Putting options (A) and (B) on that equal footing would make a decision between them simpler: first decide which is a better investment process, then choose either the current spending or legacy fund method to deal with the cash that rolls in.

In terms of which is the best manner of public investment, the utility has somewhat more risk but greater benefits. The money would support local jobs and generate environmentally advantageous clean energy.

An investment portfolio is safer, but the only added value is to investment advisers.

It’s a pleasant dilemma, one that will be easier to deal with if the options are made simpler.