By Gerry Barker
June 13, 2016
The train wreck that represents former mayor Karen Farbridge’s Community Energy Initiative (CEI), was unanimously approved by city council in April 2007.
There was joy across the city as the newly elected council formed a consortium composed of the city administration, Union Gas, Guelph Hydro, business and industry representatives, University of Guelph, school boards, and the Guelph Chamber of Commerce.
Here are the goals set by the CEI by 2031:
* Use 50 per cent less energy per capita
* Produce 60 per cent less greenhouse gas emissions per capita
* Encourage and facilitate community-based renewable and alternative energy systems.
The staff report at the time, said that the CEI would position Guelph among the top energy performers in the world.
The wheels of this ignoble experiment started to come off in 2009 when Guelph Hydro’s subsidiary, Ecotricity Corporation reported a loss of $3,945,000. The report said the loss was due to declining methane gas from the Eastview landfill. An impairment charge of $2.984 million was taken that year.
What is the interpretation of an ”impairment” charge? If the recoverable amount of an investment is less than its carrying value, then the asset is deemed to be impaired. The value must be written down to the recoverable amount. Now most people know that the city must balance its books every year.
But because Ms. Farbridge formed Guelph Municipal Holdings Inc (GMHI) in 2010, as a separate corporation to pursue her dream of energy sustainability and reduction of carbon, the finances went off the city books.
It’s reasonable to assume that with the declining rate of methane gas supply at Eastview that the recoverable amount is fading fast, thereby increasing the impairment.
Let’s dig a little deeper. The problem occurs when the combined assets of GMHI and the renamed Ecotricity to Envida Corporations, are losing, on average since 2007, $1,967,625 a year. When factoring in the aging of these assets and the CEI enterprise, as organized by the Farbridge administration, the CEI becomes a major league loser.
The accountants like using the term ‘impairment” and describe actual losses of operations as “Tax Losses.” It’s still a loss by no other name. The argument that tax losses can be useful to offset future profits and capital gains, in this case it is an actual impossibility. Read on to find out why.
It is calculated that GMHI has an investment impairment of $68.3 million.
GMHI amalgamates with Guelph Hydro
It should be noted that in 2013, GMHI and Guelph Hydro (GHI) were amalgamated. This irrevocably pulled control of Hydro, a corporation with a book value of more than $150 million with a strong monthly cash flow from 55,000 customers, under control of the former mayor and chairperson of GMHI.
This was a little-noticed development that gave impetus and funding to pursue the CEI plan to develop two district energy units at the Sleeman Centre and Hanlon Business Park. These units cost $8.7 million to build. Powered by natural gas, they were linked to the geo-thermal underground water heating system then under contraction.
There were two developments that gave the green light to proceed with the CEI plans. The first, approved May 28, 2012, was a waiver of sending audited financial statements of GMHIL to the city as required under the shareholder’s declaration starting in 2012. But that’s okay, the mayor and four of her councillors were on the GMHI board and could monitor the finances. Surprise! The city council agreed to NOT receive the audited statements.
The second, approved June 28, 2010 by GMHI, was: “The tender process as set out on the city’s Purchasing Policy be waived for energy efficiency and renewable energy generation projects that require access to city-owned lands buildings and rooftops.”
These two developments reinforced the mayor’s determination to proceed with her CEI plans without having to deal with pesky rules that would threaten her plans
In other words, due to a series of operational mistakes that remained unreported, due to the closed-session meetings conducted by GMHI for five years, recovery of this GMHI financing was seriously jeopardized.
To be blunt, this CEI enterprise is a disaster financially with little or no hope of ever becoming remotely viable or an asset of the city. Today, there is no benefit to the public to show for the huge $65 million investment made by the unknown institutional investors. The carrying costs of this loan are probably 2 per cent per year that is $1,300,000. When this is added over slightly less than three years, the debt is now stated as $68.3 million on the GMHI books. Now, add in the growing annual “tax losses” of $1,967 245 of GMHI and Guelph Hydro subsidiary Envida and you don’t have to be an accountant to figure out this is a growing serious financial disaster. It adds up to between debt servicing and so-called tax losses, to some $3,268,245 every year.
Did Guelph Hydro, through its subsidiary, Guelph Hydro Electric Services Inc (GHESI), mortgage the city by more than $65 million due to those institutional investors who provided the money?
Citizens now have a debt created by the former mayor, with the complicity of the board of directors of Guelph Hydro, costing even more millions to wind down the non-performing assets.
Any attempt to keep this failed project alive is just pushing more money down the rabbit hole with no guarantees we’ll ever get our money back.
Even the current Chief Executive Officer and Chief Financial Officer of GMHI, Pankj Sardana, admits the CEI district energy projects, including the thermal energy connections, were poorly planned, managed and should never have been started in the first place without a sound business plan.
Yet, there are still plans being made to continue this charade of incompetence and wasteful spending.
The two who kept their mouths shut
Two councillors who served on the GMHI board since 2011 supported the architect of this financial disaster, former mayor Farbridge. Coun. June Hofland has been chairperson of the city council’s finance committee since 2010. Why did she not act in the public’s interest, to protest the financial gyrations of this operation? Was she not aware, did she not understand what was going on? She was a member of the GMHI board for four years. She also received a stipend for serving on the board.
The other is Coun. Karl Wettstein who also served on the GMHI board. Just last February 29, Wettstein declared a potential pecuniary interest at the time because he served on the GMHI board. The pecuniary interest he was referring to, was the stipend he received for serving on the board. Again why did he and Hofland not blow the whistle on this situation? Their silence in this matter is deafening.
Just to get this straight. If you receive a stipend for serving on a board does that mean you don’t have to speak up when the organization is diving into a disastrous depth of debt and operational failure? Apparently it never entered their minds.
And there were other members of council who were part of the GMHI abortive energy project. Two, former Councilors Todd Dennis and Lise Bircher were not elected or did not run in 2014. Regardless, they did not raise concerns about the borrowed $65 million of public money flowing out the door to maintain Karen Farbridge’s dream of world recognition.
The sick joke about all this is the some $10.5 million that GMHI sent to the city ttreasury through Guelph Hydro over a six-year period. Was it just a book entry on the GMHI balance sheet or did the cash really get transferred? Following the money for that phony claim defies logic. How does a money-losing millions GMHI afford to send an annual dividend of $1,500,000 to the city?
It was all part of the Farbridge plan to make it appear the GMHI was making money, when in fact it was losing millions annually. It also could affect the city’s credit rating that the city needed. Because the GMHI operation was off the books, it did not affect Guelph’s credit rating. It remains all smoke and mirrors.
It’s disturbing how egotism transcends reason particularly when it comes to spending the public’s money.
Most citizens did not benefit from this CEI plan
This was a misguided program that affected a tiny minority of the Guelph populace. It concerned a handful of buildings downtown and a similar number of businesses in the Hanlon Business Park.
It’s safe to say that 98 per cent of Guelph’s households and businesses would not benefit from this multi-million excursion into an ego-driven experiment. It is one that has monumentally failed in planning and execution. Now we all must pay for it.
There exists a huge gap in trust by the public of those members of the council’s Group of Seven caucus that continue to support this boondoggle. Instead, they lament the exodus of management staff, excusing it as staff being lured away by more money and better working conditions. They don’t get it.
There has been a gradual disintegration of staff trust in the controlling majority in council. They know how money has been wasted. Former CFO Al Horsman, got it and left to be the CAO of Ste Sault Marie. He left a $209,000 job as a Deputy Chief Administrative Officer (DCAO). You have to ask yourself, why?
Even Ann Pappert took her leave soon after the report she signed with Pankj Sardana May 16, outlining the disastrous history of CEI was made public. Derrick Thomson, left his job as DCAO of Operations to be closer to home in Caledon, He was rehired to replace her.
This is the classic case of the chickens coming home to roost. The staff exodus of managerial staff is unprecedented but indicative of the staff malaise that has infected city operations since October 2014.
Using the vernacular of the business, Mayor Cam Guthrie was handed a king-sized financially rooted rock by the former mayor and her supporters. This should bring a long overdue political enema. Hopefully it is one that our mayor and council will return civility, consideration and compromise, managerial excellence and, return the city to the people.
This entire project should be shut down and mothballed. That’s going to carry a large price tag. Also needed is clarification for the loan guarantees to the institutional investors.
Councillors. June Hofland and Karl Wettstein should resign for their failure to carry out their sworn duty to protect the public’s interests. But they’re not worried. GMHI bought director’s liability insurance for them giving them, some insularity from legal action.