Assessing the financial wreckage left by the Farbridge Community Energy Initiative

By Gerry Barker

July 18, 2016

Tonight, city council will discuss a thorough and damning city staff report detailing the history of the Community Energy Initiative (CEI) that was the heart and soul of the former mayor’s administration.

This was a master plan to develop District Energy Nodes that were linked to an underground network of insulated pipes to deliver hot and cold water to nearby buildings. The Nodes also were designed to generate electricity. These Node sites include the Sleeman Centre where the natural gas-fired pumping system was located; the RiverRun theatre across the street; St. Marks Church located nearby and the two Tricar high-rise condo buildings south of the Sleeman Centre.

The staff report also detailed the operation of the District Energy Node built in the Hanlon Business Park. That only had two customers plus the head office of Fusion Homes. The report said that both the Hanlon and Downtown district energy Nodes cost $8.7 million.

Ms. Farbridge acted as chairperson of a corporation, formed in 2010, known as Guelph Municipal Holdings Inc. Also serving on the board were Councillors Karl Wettstein, Lise Burcher, June Hofland and Todd Dennis. Burcher did not run in 2014 and Dennis and Ms. Farbridge were defeated in the civic election.

That meant that Councillors Hofland and Wettstein served on the GMHI board for five years or more in Wettstein’s case. They were present when the original business plan was developed, yet they never revealed details. They were present when the board meetings were held in closed session for five years, but never said a word about what was happening at GMHI and the Byzantine collection of various companies involved.

Tonight as city councillors, Wettstein and Hofland will be able to vote on the future of the CEI. If they were part of the problem for five years of closed session meetings of GMHI, they should resign or at least recuse themselves from participating in tonight’s meeting.

Oh! What a tangled web we weave

The former mayor did know what was going on and who pushed the failing CEI. She also said little about the role played by GMHI and ultimately Guelph Hydro, plus its subsidiaries, Envida Community Energy Corporation and Guelph Hydro Electric Services Inc

Now Mr. Wettstein says he will not be a candidate for council in 2018. Ms. Hofland tells people that she didn’t understand what was going on.

In 2015, it was reported that GMHI lost $9.4 million. At the same time, Envida owes $11.8 million to GMHI.

Then the staff report says that GMHI does not have the financial capacity to underwrite an expansion of the downtown Node to meet the Combined Heat and Power Standing Offer Program (CHPSOP). To meet that requirement standard, the reports says will cost $29 million.

Are you beginning to believe that this wasn’t such a good idea in the first place? You are not alone.

In the case of the Hanlon District Energy Node, the cost to meet the CHPSOP contract power requirements will be $31 million. That’s a total capital cost of $60 million including the two units already installed, and hooked up to the underground thermal heating and cooling system.

According to the staff report, GMHI has admitted that the two Nodes “will not generate sufficient cash flows over their useful lives to fully recover the costs of installing these assets.” GMHI has already stated it does not have the financial capacity to expand the two Nodes.

Up until this year, the city’s Capital Asset Renewal Reserve (CARR) fund financed the retrofits. Repayment to the reserve will come from cost savings from reduced electricity bills on public buildings with solar panels installed. The repayment is estimated to be completed in ten years. The report did not say how much was taken from the CARR reserve.

Exactly how these power savings will be transferred to the CARR is not explained.

Then there is the item carried on the city books of $68.6 million as an investment in GMHI on our balance sheet. But the so-called investment is already impaired and, over time, this will reduce the value of the investment that will become an expense on the city income statement.

Translation: Citizens could be paying this off over the next 10 to 15 years.

Another wrinkle in this maze of duplicity is the so-called dividends paid to the city by GMHI each year that totaled some $9 million up to 2014. This smells like it was a book entry without actual cash changing hands. If this is true, then it is gross misrepresentation and borders on being criminal.

Now we know why our former Chief Financial Officer, Al Horsman, left the city last August. His successor, General Manager of Finance and city Treasurer, Janice Sheehy, resigned in March after one year on the job. The city finances have been under the supervision of Deputy Chief Administrative Officer, Mark Amorosi for the past 19 months.

This secret scheme is so financially convoluted that we may only get to the bottom of it when the results of an audit are announced in September.

The three options recommended by the consultants and the staff:

In the meantime, this extensive staff report is offering three potential options:

  1. Exit Option: Exit the District Energy business and specifically shut down both Nodes.

Number One includes paying off agreements with customers using the heating and cooling system. Price tag is estimated to be more than $10 million to exit agreements with customers connected to the two Nodes.

  1. Operate As-is “Stabilize” the current investments in both systems and continue operations under current contractual agreements, without investing significant capital or infrastructure expansion or spending on business development activities.

Number Two is to keep it going until next March and evaluate the outcome of another nine months of losing money. It not hard to figure out that this is the salvage option to save some reputations and bump the mess into the 2018 budget.

  1. Preserve opportunity for growth: Continue to operate the current investments within both Nodes and actively assess our position for future investment opportunities.

Number Three represents insanity. We own a system that is losing money at warp speed and it will cost another $59.7 million to fulfill the Farbridge dream.

If you’ve made it this far, you are probably scratching your head over how could this have happened? How could reasonable and experienced people create such a mess and there was no critical comment or explanation for five years?

We now know it happened right under our noses by a small group of people who held absolute power over the city government for nine years.

We may never know the real costs of this failed project, masquerading under the guise of a Community Energy Initiative.

Did you benefit from this? It was a total abuse of the public trust that was a corruptive attempt to inflict a multi-million dollar energy plan on the citizens who had only one recourse every four years: Vote them out of office.

Let’s total up the costs of what is known so far

Cost of installing the Node pumps in the Sleeman Centre and Hanlon Creek Business Park – $8.7 million;

Tax loss costs for GMHI and Envida – $18 million

GMHI loss in 2015 – $9.4 million

Finally there is the $68.6 million investment by GMHI sitting on the city books. The trouble is the investment is impaired because its value declines as servicing the debt costs exceed the value. Over time, the GMHI investment becomes an expense on the City of Guelph’s income statement.

Other charges include $267,000 per year for GMHI Staff. There is a $612,000 break-up fee for contracts with the Independent Electric Service Organization. Add in the cost of consultants including Deloitte.

It appears that the losses so far amount to $37.1 million excluding the $68.6 million listed as an asset on the city financial accounts for GMHI. Also not included are the asset write-downs and write-offs or the so-called $9 million in dividends GMHI alleges it sent to the city.

Annual net income of both Nodes is $123,230. It will take more than 70 years to recoup the $8.7 installation costs. The Hanlon Node is losing $51,193 a year.

The problem lies in the five-year failure of Envida and GMHI to develop a customer base for each Node that would make the District Energy plan and thermal heating and cooling system successful. It was pointed out May 16 by GMHI Chief Executive Officer, Pankaj Sardana, that each Node should have a customer base in buildings of between three and four million square feet in order to meet operating expenses.

In the original business plan of GMHI and Envida it is now apparent that this vital component of the District Energy installations failed to factor in the customer base needed to support the two Nodes.

Here’s what should occur at tonight’s meeting.

The CEI should be scrapped and be reconsidered once the audit of the GMHI operations is completed. The “As-is” District Energy Nodes option proposed by the Deloitte consultants should exist until November 30th. At that time the two Nodes need to be closed down and mothballed until all agreements and associated costs have been settled. Current estimated liability to exit the District Energy system is $10 million.

It is up to our council representatives to consider the stakeholders who they represent and stop the bleeding of city funds supporting this failed attempt to satisfy the ego of a defeated mayor.

I urge Mayor Guthrie to call a recorded vote on each motion and amendment.

It is anticipated there will be arguments made to keep the CEI on track. The more people who attend the meeting, creates the greater opportunity to end this failed project.

Let’s show up and wrap it up.

 

 

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16 Comments

Filed under Between the Lines

16 responses to “Assessing the financial wreckage left by the Farbridge Community Energy Initiative

  1. Joe ( pay me back crooks )Black

    The Mayor is cut from the same corrupt mold. Start arresting these people is the only way.

  2. Milton Burns

    A quote from the 2015 Guelph Municipal Holdings annual report ,”At year end GMHI acquired a Development Corporation for further asset development. ”
    Good grief, now they want to get into the real estate business.

  3. Capricorn

    Ms. Hofland didn’t understand what was going on! I believe it was confusing the way it was all set up. So many secrets and slippery ways of dealing. It reveals a weakness in our system when people with little knowledge of any particular issue are making decisions with millions of dollars of our money..
    Still, the hydro board passed it….why?

  4. Capricorn

    Just looked at the information posted online by the city. After extensive work and consultation, and , I’m sure cost, the staff report suggests everything that should have automatically been done before district energy got off the ground.It took a lot of fancy words to say that what should have been done was not, and those who wanted this just ignored the rules of best practice. It’s upsetting that a small group of elected people can waste so much of our money without having to follow a process or answer for their actions.

  5. Glen

    The whole Community Energy Initiative and District Energy portfolio is a stupendous boondoggle wasting tens of millions of dollars. That some councillors, who were on the GMHI board, did not understand what was going on speaks volumes about their financial, technical, and business illiteracy. I would doubt their ability to profitably run a corner lemonade stand.There has to be accountability, morally & legally, for the loss of millions of dollars,while they moan about an infrastructure deficit. Those currently on council who are on the GMHI board should resign from council immediately.

  6. geo

    I never thought I’d say this but Her Royal Highness Karen Farbridge should be brought back to Guelph………….. in handcuffs!

  7. Louis

    Well for starters I’m glad the old prick (Wettstein) is retiring and June is dumber than a brick.

    Holfland seems to flip flop a lot if she doesn’t know what’s going on and I am unsure who the weaker link is her or Wettstein

  8. bostoncollie

    Why doesn’t Wettstein do the people of Guelph a favour if he isn’t planning to run in 2018 and resign immediately. A bye election for the seat would be very interesting.

    How scary is it that Ms Hofland doesn’t understand what was going on when she is chair of finance. Disgraceful.

    • Louis

      Yea he seems to be one who doesn’t like working city council, , and if that is the case he should step down.

  9. Hello?

    Quoting from Adam A Donaldson’s live stream of last night’s council meeting, an exchange between delegation Jason Dodge and Councilor Phil Allt about CEI, District Energy, GMHI and the tangled web of untendered contracts, spending, debt and creative bookkeeping that the city is now paying consultants hundreds of thousands to decipher and advise on.

    Dodge says “previous administration” felt justified to bypass proper business planning, and dismissing the warnings b/c they knew future

    Dodge says Guelph needs council that takes responsibility and holds self accountable.

    Allt asks what evidence Dodge has that previous council didn’t do due diligence.

    Dodge says it comes from past testimony of Sardana, who advised council at the time to slow down.

    Allt asks what’s more important: looking back to pin responsibility, or looking forward to see what to do now.

    https://storify.com/adamadonaldson/guelph-city-council-meeting-july-18-2016

  10. We watched the exchange last night. It was interesting to see Alt attack Dodge. He tried to put him on the defensive, needles to say he failed.

  11. geo

    Phil Allt defines stuffed shirt.

  12. Hello?

    Salisbury cites “hunt for a scapegoat” as too costly. Calls it purely political. So that means anything can be done behind closed doors, regardless of millions of tax dollars down the drain, and asking someone to be accountable is “too costly”? Is this the kind of person who should be in public office?

    • bostoncollie

      Salisbury also said words to the effect of, ” If you only knew what I know”, which I assume is a reference to in camera meetings. Where’s the transparency that taxpayers are spending hundreds of thousands on? The gang of seven continues to thumb their noses at common sense, joined in voting last night by Bell I believe. Mayor Guthrie was correct in saying not another dime, or more time should be wasted on this. That struck me, not only is it the tens of millions of money, but the hours and hours of staff hours that are diverted to these follies.

  13. Capricorn

    At the meeting Phil Allt claimed he is open-minded. He went after Mr. Dodge quite forcefully, seemed to give him a hard time, and then, in his comments later, thanked him for his presentation.Fine to ask questions but not a nice way to treat a fellow citizen. After listening to his comments it’s hard to believe the open-minded comment.

  14. DAVID BIRTWISTLE

    Wonder if any of the CEI structures had building permit(s)/environmental assessments/notice to nearby property owners/etc.?!

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