How a flawed Community Energy Initiative wasted $26 million with no material environmental benefit

By Gerry Barker

May 18, 2016

The Chief Executive Officer of the Guelph Municipal Holdings Inc. (GMHI), Pankaj Sardana, CFO, GMHI, CEO, Guelph Hydro Electric Systems Inc (GHESI). and Envida Community Energy Inc., spent almost two hours explaining how the previous administration pushed to develop district energy units costing $8.7 million without having a comprehensive business plan.

Mr. Sardana pulled no punches except one. He did not name the political author who was pushing a failed multi-million dollar community energy initiative that resulted in a massive loss of some $26, 637, 244 million, provided the audit does not establish the same figure.

Former Mayor Karen Farbridge was determined to establish a Community Energy Initiative (CEI) that Mr. Sardana described as flawed from its inception in 2011.

Her name was never mentioned during the shareholder’s meeting. But following the GMHI CEO’s remarks, it was clear that there was no doubt who was pushing to adopt the flawed CEI and the district energy plants.

At the beginning of the meeting Coun. Karl Wettstein, out of the blue, made an unrelated comment: “I don’t believe the Urbacon decision (to fire the general contractor building the new city hall), was an error.”

Where does he get this stuff?

Well, Karl, describe to us why it cost an additional $23 million over the contract price? It is clear that Justice Donald Mackenzie ruled there was an error and it cost the citizens big time.

Wettstein’s comment clearly illustrates why the city is in such dire financial shape. There is slavish support of councillors such as Wettstein, Leanne Piper and June Hofland of their former leader. It demonstrates their lack of basic financial understanding and denial of serious mistakes in judgment.

If they don’t understand it, how do they expect us to understand it?

This became shockingly apparent Monday night at a meeting of the GMHI shareholders, aka city council; Mr. Sardana carefully walked the shareholders through the labyrinth of corporate involvement that had been established by GMHI.

The more he spoke, the more it became apparent that this whole GMHI partnership with GHESI was a rogue operation. GMHI activities were shrouded in secrecy. It is now apparent that senior managers in both the city and Guelph Hydro knew what was going on. They are complicit because they received quarterly GMHI financial statements. This multi-million dollar operation functioned not only in secret but also off the city and Guelph Hydro books. Hydro used GHESI to be the conduit for financing the project.

In order to accomplish that, there were a number of people in on the deal. The result is there are more total loss numbers flying around about how much money was wasted.

GuelphSpeaks uses the figure $26, 637, 244 already announced and signed off by the CAO and Mr. Sardana. However, there have been other numbers bandied about ranging from a loss of $11 million to $40 million.

The Sardana presentation detailed an accounting of the mish-mash of corporations involved in the operation of establishing the real loss figures. On June 13 there is another shareholder’s meeting to receive the audit of the whole operation.

Will the audit of this affair reveal the truth about the losses?

Hopefully this will confirm the loss plus the causes of it. Make no mistake, there was substantial loss but we don’t yet know how much.

There are two important points to be made. Mr. Sardana was not involved in the creation or subsequent errors in judgment made by the former Farbridge led GMHI board. Second, the meeting, while open to the public, was not televised. Wonder why not?

Coun. Christine Billings asked the CEO about what analysis was done before the plan was launched.

“If we had done it again, we would never have embarked on it,” he replied. He went on to say that if the there were a full rollout of the planned district energy operation, the required base of thermal customers would not support the cost of the project.

He said the CEI drove the project from the beginning.

“We paid $5.5 million on the Hanlon district energy system with no environmental benefit? Coun. Billings asked.

“We understand now what we didn’t know before,” The CEO replied. He added that GMHI is cleaning up the finances and moving on. He referenced the $18 milliohm in tax losses but there was no equity in GMHI to support those losses. He said there is an outstanding loan made by the Royal Bank of Canada that must be paid off.

One of the accounting moves was to convert debt into equity. That may have the effect of making the books look good, but the money that created those debts has been spent. That’s why they are on the books as tax losses. But there is little or no revenue to offset them.

Wettstein said the GMHI consortium understood the role of CEI

Coun Wettstein said the board members of GMHI, GHESI and Guelph Hydro Inc (GHI), understood the role of the CEI. He added that some of those involved in making the decisions were “no longer with us.” Is it any wonder?

“Cam and I had little to do with the 2015 budget,” he said. Excuse me, both of you were on the council that initiated this GMHI sponsored scheme. You had to receive quarterly financial reports on the activities of GMHI and its holding corporations, including GHESI and GHI.

Tell us Karl, where did you think the financing for this preposterous adventure was sourced? As a councillor, one would believe that you were on top of the city’s overall finances, including the abortive creation of GMHI.

Coun. Phil Allt, who was not part of this CEI plan commented: “I hope this doesn’t turn out to be Guelph’s “Avro Arrow”. The Hanlon/downtown (district energy units) was not a good decision.”

Coun. Dan Gibson commented that the data was flawed and administrative interference pressure made things happen. But he never mentioned the name of the person exerting the pressure.

Coun. Billings said it has cost $14 million and it should have been no more than $1 million.

Coun. Leanne Piper, who was involved in the GMHI board and its operations, said the people in Guelph wanted the CEI. She failed to explain why more than $26 million has been spent. Nor why with flawed planning, spending $8.7 million on two district energy plants will never produce adequate funding to replace the original costs.

We still don’t officially know the source of the CEI funding

During his presentation, the CEO never explained the sources of funding the CEI project. It is apparent that it did not come from city property tax revenues. The whole project was maneuvered off the city books.

It is obvious, that it came from Guelph Hydro Electric Systems Inc, allied with GHI. It appears that some $23 million was transferred to GMHI from GHESI in the period following absorbing GHI into GMHI.

This is an alarming revelation of total misuse of publicly owned assets to foster a poorly planned scheme to establish an alternative community energy plan.

It is becoming more evident that there should be an investigation by the OPP to determine if this is fraud, perpetrated in secret by elected officials, on Guelph Hydro’s more than 50,000 customers.

The opportunity for public participation and independent investigation is fast approaching, as there will be an audited statement presented June 7. This statement will be the subject of a public shareholders meeting Monday, June 13, 2016.

I urge citizens to attend this meeting and judge for themselves what has occurred to affect their costs of electricity, since 2011, today and in the future. This was a deliberate attempt to use GMI to pay for a poorly planned and executed plan that has already cost citizens more than $26 million.

Remember there is one person in the administration who has been intimate with the details of this financial disaster, she is the one who council gave a 2015, $37,581 salary increase, December 9, in closed session before the discussion on the 2016 budget began.

The CAO knows more than she is letting on

CAO Ann Pappert was there from the beginning in 2011. In my opinion, she knows more than she is prepared to reveal.

We repeat, there is now ample evidence that, if a project of this magnitude occurred in private corporations, the evidence points to dismissal of those responsible and closing down of a gravely failed operation.

Trying to pinpoint those responsible is difficult due to the absence of those who made the decisions that led to this. But, the CAO knew, Ann Pappert, and with respect, so did the DCAO, Mark Amorosi. The new board has flushed out those former board members and staff members who were involved.

Regardless, the buck stops with Ann Pappert and Mark Amorosi, and the CEO of GMHI from 2011 to 2014, all of whom received quarterly financial reports of the status of GMHI and GHESI.

The only remnants of this raiding of the public purse are those councillors who were on the original GMHI Board of Directors. There were five councillors on that board plus the mayor.

The buck(s) stop with all of them.

 

 

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9 Comments

Filed under Between the Lines

9 responses to “How a flawed Community Energy Initiative wasted $26 million with no material environmental benefit

  1. DAVID BIRTWISTLE

    WITHOUT PREJUDICE.Hopefully there’ll be a forensic audit of this unseemly and non-transparent use of taxpayers’ finances.I encourage Council to have the audit,whether forensic or “simple”, carried out by a firm that has no current nor previous business relationship with the City’s finances to underline the need for transparency by having another “set-of-eyes” view the financial documents

  2. Joe Black

    Cooking the books it’s time for the OPP.

  3. No one admires a person who learns of rot, and stays mum about it. And then, ironically gets a $37,000 salary increase! Is this “hush” money, or a diversion to all, indicating (and lying) that a job was well done? The action taken by our new council was sad. Shhh, don’t tell! I’m with David in his comment above. Lets have transparency regardless of additional expense or political cost. Surely there was a duty to report the truth. I am not the only taxpayer that is more than irritated on frivolous waste of our hard earned money. This is not thousands, its millions of dollars.

  4. wendy

    Karen Farbridge writes on her urban citizen blog just this week:

    “I am in the final stages of a project for a client. It is a toolkit for local elected leaders to build more resilient, sustainable and prosperous communities for all Canadians by taking action on climate change.”

    Who is paying Ms Farbridge to make these tools?

    What is the evidence that the tools will work? Do they come with a money-back guarantee?

    It sure looks like the tools Ms Farbridge and her followers bought for Guelph aren’t panning out too well, and the customer is now left holding a useless and very expensive bag of non-compostable waste.

    However, as she instructs us in another post, “it’s the low-carbon economy, stupid”. So anyone who doesn’t like her tools is, well: STUPID.

    In other news, the City of Waterloo is replacing old streetlights with LED. Estimated total cost is 4.1 million. In Guelph, the pending conversion is reported to cost almost 11 million.

    Are the tools Guelph uses to switch streetlights really worth that much more? How can anyone know why it’s costing so much more here? Where’s the ‘open government’ section for that?

    I see the former mayor is again way over the head of the common person on open government, as she wrote in June 2014: “I have noticed that some people, including the media, do not always “get” what open government is all about”

    She explains, “Open government responds to two major societal trends: on the one hand, growing complexity; and on the other hand, increasingly limited funds. It enables us to do more with less.”

    I am the first to admit, yes, that explanation is totally over my head.

    In other news, energy conservation is no longer viewed as a cutting edge idea. The problem is unilaterally offloading expensive, bureaucratically out-of-proportion, top-heavy costs onto taxpayers.

    Somehow, though, Farbridge and her supporters feel it’s OK to regard those who don’t defer to their self-bestowed superiority and unquestionable “toolkit”, and its costs, as unenlightened dumb-asses.

    • Wendy: What can I add? The architect of the financial morass that citizens find their city is woefully mired,doesn’t seem to matter to Karen the consultant. What organization would hire her to replicate what she has wrought in Guelph. Never mind, I know and its colour is orange. Excellent points!

  5. Rena

    Let’s see. This is the same CAO who said in a letter to GRG in February 2014 ‘that the City of Guelph is well managed and has an open and transparent process, that our financial position is not only strong, it’s getting stronger.’ She further states that Guelph demonstrates good financial management.

    Surely she can not believe this statement or stand by this opinion.

    We as taxpayers can no longer support this incompetence.

  6. geo

    I’m with David, a forensic audit by a reputable firm that has nothing at stake here in Guelph is the only investigation that I would consider credible.
    I suspect that thousands of Guelph taxpayers who are sick and tired of years of City Council / Staff mumbo jumbo would agree.

  7. Capricorn

    I’m with David and Geo. Only an independent audit will satisfy.Wendy, your comments hit the nail on the head!

  8. wendy

    It is not that District Energy is a bad thing, or an obscure technology. It works in many other places. It’s not clear what was so groundbreaking about doing it in Guelph, other than the people in charge liking the sound of saying that.
    Anyone who voted to proceed based on the strategic plan, a document nicely decorated with graphs and maps and riddled with very obvious practical holes, should have to explain why. Saying if they could go back to the beginning they wouldn’t do it the same way is insufficient. Saying they caved to ‘moral-suasion’ is equally weak. These people had a great responsibility that they are very well paid for. Oh but we are not allowed to criticize. We might hurt their feelings.

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