How your Hydro bills were used to finance a failed plan to push sustainable energy

By Gerry Barker

May 16, 2016

Documents released Friday night reveal how, starting in 2011, the Karen Farbridge administration created an off-the-city books corporate rabbit warren to deceive and push up your Guelph Hydro bills.

And it happened right under our noses.

Here’s a snapshot of the convoluted corporate tangle that was created by Guelph Municipal Holdings Inc. by Mayor Farbridge. It happened after her defeat to sell Guelph Hydro in 2009 to a consortium composed of Hamilton’s and St. Catharine’s Hydro systems. It was a rare occasion when her own supporters refused to support her proposal.

Why? She needed the money to pay for the city’s share of the 2009 federal/provincial shared infrastructure program in which the city was to pay a third of the approved $66 million cost. Unfortunately, reason failed again and the city’s share grew to $28 million with added projects. These included $2 million for bicycle lanes on Stone Road and a new $750,000 time clock in the Sleeman centre.

So, Ms. Farbridge tapped into Guelph Hydro Inc (GHI), for $30 million that was owed to the city through another convoluted scheme that turned over ownership of GHI to the city. She redeemed a $30 million note to bail out the city of a serious financial bind.

In 2011, Guelph Municipal Holdings Inc. (GMHI) was incorporated with then mayor Farbridge as chair and Chief Administrative Officer (CAO), Ann Pappert, as Chief Executive Officer. The board was loaded with her fellow council supporters, plus a couple of friendly outsiders.

There was a series of corporate changes that resulted in GMHI taking full control of GHI and its subsidiary Guelph Hydro Electric Systems Inc (GHESI). This corporate body was the revenue producer of GHI. Why GHI management did not balk at this take-over, remains a mystery.

Just days after delivering his “state of the city” address last week, Mayor Cam Guthrie now says there is an $8.7 “write down” of the costs of building the two natural gas-fired district energy systems. One was built in the Hanlon Business Park and the other in the Sleeman Centre downtown. Both provide heated water to businesses and two new high-rise condos built by Tricar downtown.

So while the mayor says in that this is not a charge to taxpayers such as occurred with the Urbacon settlement, it was taxpayer money spent on building these gas-fired plants. Using the term “write-down” really means write-off. We presume the $8.7 million was posted to the GHI balance sheet.

The word is we the people will never recover those costs. Poof! They are gone along with the means to repay it.

So the balance sheets of GMHI and and sister corporation, Envida, are really a sham. The losses are horrendous in both corporations. It’s difficult to believe that any respected Chartered Accountant would not question the finances before signing off.

But now we drill down a little deeper. l give Mayor Guthrie credit for tackling this financial disaster that has driven up Hydro bills to pay for the abortive dreams of a distrusted administration. It did not occur on his watch.

The Mayor’s ongoing support of the CAO is questionable particularly her 17.11 salary increase approved December 9, 2015 in a closed-session that he chaired. The large increases to senior management were not revealed until the provincial Sunshine List of civic employees, earning more than $100,000, was released in late March this year.

Here’s more: There is an item in the report of the GMHI operation in the past five years that reveals damage to the credibility of a number of people.

The first item in the statement to be presented Monday night is “tax losses” by both GMHI and Envida Corporation, the stepchild of GHI. The tax loss amount for GMHI is $10,595,931. In the case of Envida it’s $7,341,313. That totals $17, 937,244.

To clearly understand the implication of those “tax losses,” is that those are operational losses in the past five years. When a corporation has tax losses it is because it lost money. The only way those losses can be recovered is by making profits to reduce tax liability. Trouble is the claimed losses disappear. Under the circumstances, these losses will never be recovered.

Those are, plain and simple, real losses by the various corporate bodies set up to fulfill the ego-driven dream of the former mayor. She was determined to create the Community Energy Initiative, (CEI). She planned it to keep it off the city books.

The reason why is that under her watch, the city’s credit rating was overtaxed due to excessive spending and mismanagement of finances.

Despite her overt attempt to hide the real story from the public, the city is still liable for the losses incurred by GMHI and Envida. The Royal Bank of Canada loaned money to these organizations. The bank would never have done so without the guarantee of the city to repay the loans.

Again, it’s more of our money down the rabbit hole

Now when you toss in the “write downs” of $8.7 million building those two gas-fired generating plants, the cost of which will never be recovered, there is a total hidden liability of some $26,237,244. The chances of ever recovering that money are zero.

Despite five years of towering losses, GMHI sent a so-called $1.5 million dividend to the city. In the 2014 annual GMHI report, it stated that GMHI had sent dividends totaling $9 million since its 2011 start-up. When you add the $3 million sent in the last two years it comes to $12 million. Will someone explain how a money-losing operation can afford to send dividends to the city when it is losing millions?

Or are they just moving the deck chairs around the sinking Titanic, aka the City of Guelph?

Here’s why. The so-called dividends were used by the city to balance its books as required by law at the end of each calendar year. The trouble is that the city for the past five years has generated large negative variances each year because the administration overspent its own budgets. Instead, the city administration used the GMHI dividends plus raiding reserves to claim a balanced Financial Information Report to the province, as required by law.

Three members of the city council, Leanne Piper, June Hofland and Karl Wettstein, were part of that administration. Do they still believe that supporting GMHI was a worthwhile project? They had to know of the write-downs and tax losses but remained silent, as did their leader, Karen Farbridge and CAO Ann Pappert.

We now learn that Ann Pappert has been reappointed CEO of GMHI and is working closely with the mayor to resolve the financial morass created by the previous administration.

Mayor Guthrie should ask the Minister of Municipal Affairs and Housing to request an independent investigation by the OPP of this off-the-books financial situation and its management.

Is it time for an OPP investigation for fraud?

There is strong evidence that the former administration knowingly used GHI to supply the funding for this abortive plan orchestrated by the former mayor. In my opinion, it is tantamount to a criminal act to defraud the more than 50,000 retail Hydro customers by taking control of GHI and using its cash flow to finance the CEI.

Today, Guelph has one of the highest retail electricity rates in North America. Now we know why.

The first step is to ask CAO Pappert to take a leave of absence because of her connection to GMHI from its 2011 inception. Deputy Chief Administrative Officer, Scott Stewart would manage the CAO responsibilities until Ms. Pappert’s return. Mr. Stewart joined the senior staff last December and is immune from any responsibility for this $25,237,244 hidden liability.

The second step is to close GMHI down before it loses more money.

From the evidence that has been made public, there is no hope for GMHI to become profitable under its existing organization.

In the end, the people will have to pay the bills. What a minute! We’ve been paying for it all along through our Hydro bills. It is just painful that GHI and GHESI were used to allow Farbridge to push a failed dream of energy sustainability. It occurred under the CEI.

Even today, the CEI is supported by the seven Farbridge supporters on council we call the Orange Crush because of their shared political ideology, rigidity and obstructionism.

This city can ill-afford another multi-million dollar financial disaster fostered by the former mayor, Karen Farbridge.

 

 

 

 

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11 Comments

Filed under Between the Lines

11 responses to “How your Hydro bills were used to finance a failed plan to push sustainable energy

  1. Joe Black

    Why is she not in jail?

  2. First a quick joke. How are the Toronto Maple Leafs, the Titanic and most politicians alike? They are all good to go until they hit the ice. A month or two back, I was shocked by my electrical bill – and we have converted to LED lights. I was attributing the jump to Dalton McGuinty and his $500 million squander, cancelling a hydro electric plant after most of the engineering was completed. I believed Wynn was designed as a scape goat to take the sin out into the desert. Now, with the incredible insight of Gerry in his piece above, we get to know…the rest of the story. It seems like there is a whole lot more sin going around than what I understood. This financial shuffling reminds me of the guy at the circus with three walnuts and one pea: “Round and round she goes, where she stops, nobody knows!”

  3. Glen

    Rolf.. that is an excellent analogy with the walnut shells & the pea since for any shell game to operate came there has to be a con artist & suckers. Well, we now know the suckers are the Guelph taxpayers. Any councillors who were/are past and present board members of GMHI & its related linked corporate entities should resign. They have no right to continue to in their council positions. Similarly, the executives of GMHI & related companies should resign, if still employed, or be pursued for failure of fiduciary responsibility. Why were these humungous losses not brought to public awareness years ago? In the real business world, the board chair & CEO would have been turfed out long ago. The business case of this sink hole of taxpayers money appears to be as full of holes as Swiss cheese. An external forensic auditing firm composed of accountants and lawyers must be hired to dig into this mess. The first rule when one finds oneself in a hole, is to quit digging. Shut down GMHI,and the district energy corporations. Abort any further action by CEI. Hold Farbridge and her supporters of the financial boondoggle up to public scrutiny. Is tar and feathering politically correct?

    • John McCuaig

      As I have been stating for years we are paying hidden taxes in many forms in this city. One of the biggest hidden tax is Guelph Hydro, although it seems that it is one of the best managed operations in the city (fortunately), in my opinion. I believe it is past time to call in higher authorities to investigate the mess on Carden St.!

  4. Milton Burns

    In the period of 2011-2014 since Guelph Municipal Holdings was formed, operating subsidiary Guelph Electric Systems Inc. had cumulative earnings of $20.4 million while Guelph Municipal Holdings had a loss of $1.1 million in the same period.
    For 2015, final figures are not yet available. Assume that Guelph Hydro Electric had the same operating earnings as 2014, while Guelph Municipal Holdings has a loss of
    $10.7 million, as stated in the above article.
    If that be the case, then the holding company has dissipated $39.6 million as it offsets the estimate
    $27.8 million earned by the operating subsidiary.
    For the sake of rounding, lets call it $40.0 million.
    Taxpayers, this is not an amount that slips through the cracks, but a fraud. It is a fraud that was pulled upon the citizens of Guelph by a lack of earlier disclosure.

    • Milton Burns: That’s a stunning analysis from someone who understands financial analysis. Seems to me that we have both been down this path before to expose the financial mismanagement of the Farbridge administration. I totally agree that this is fraud imposed on the citizens of Guelph and should be investigated by the OPP. The whole arrangement was done in complete secrecy without public knowledge. I was tipped off two weeks ago that this GMHI/Envida loss would dwarf the Detroit solid waste deal that cost the city $2.6 million. Boy! were they right about that.

  5. geo

    Considering what I’ve just read how can the City in good conscience re-appoint Ann Pappert as CEO of GMHI? She should be investigated, not the investigator. Oh and by the way another member of the City of Guelph management team is leaving. Deputy CAO Derrick Thomson is taking a job in Caledon. Get the heck out of Dodge before the s*** hits the fan.

  6. Andre

    I can’t believe the waste and we definitely need the OPP to investigate. Has the CAO been re-appointed? Surely this has to be the final nail in the coffin to not renewing her contract. If Council doesn’t freak out over this, than we all know the system is rigged. City staff are protected by City council and vice versa. I remember Leanne Pipper passionately speaking how great district energy is. Where is she now? The voters were smart to kick out Maggie, but I shake my head how Leanne got back in. I think we start showing up at our councillors front porches and demanding they resign or offer their houses up for collateral next time they approve these “progressive innovative projects”. Our city council is as corrupt just like it is in Brazil and all those countries. We are no better then them. Time for a provincial investigation.

  7. bostoncollie

    The hits just keep on coming…

  8. Capricorn

    Karen Farbridge and her followers pushed for this legacy project in spite of expert advice against it. Leanne Piper said she doesn’t want the public to think that there were” imaginary customers” but that there were” projections that showed it could have worked”.Yes, and the city could win the lottery. Councilor Piper: If the experts said that it was a mistake,and you went ahead anyway, why do you try to defend it? The public was lied to and mislead during the Farbridge years. We’ll never see it from the progressives, but Mayor Guthrie should receive a great deal of credit for bringing this to light.

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