A dysfunctional council most of whom fail to understand the financial implications of their actions

By Gerry Barker

July 21, 2016

Let’s confirm that Guelph’s council is divided and dominated by seven councillors who don’t have the guts to close down a $37.1 million failed energy project that doesn’t produce enough energy to pay the bills.

Mark your calendar that Monday night, July 18, is a night that will go down as a failure to do the right thing. The majority Bloc of Seven failed to arrest spending more money on a project passed by the former Farbridge administration saddling citizens with more debt that even the Urbacon fiasco.

Here are some of the facts that have made a nine-year capital-spending plan after only a year, firmly in the ditch. Yes, it already has a 2016 capital budget deficit of $170 million as the first year of a nine-year capital budget.

Monday night, a delegation asked council to build a new downtown library and, get this, not partner with private investors to finance it. The last estimate for a stand-alone downtown main library was $60 million, or was it $63 million? These days the way some staff and activists are running the finances of our city, one cannot tell what the amount is. Nor did the two delegates produce a figure.

Take the Community Energy Initiative (CEI). On May 16, staff gave specific figures on how the previous administration launched a District Energy plan that was composed of two operating Nodes.

The downtown Node was located in the Sleeman Centre and the other in the Hanlon Creek Business Park. Total cost was $8.7 million. The financing and operational details were conducted in secret and hung in there for five years before Mayor Cam Guthrie, last year started asking staff for financials on the CEI operations. He especially questioned the District Energy Nodes that were connected to buildings downtown and in the Hanlon.

According to a detailed staff report July 18 on the District Energy operations, the cost of this operation, were managed off the city books through Guelph Municipal Holdings Inc (GMHI) and Guelph Hydro. Two Guelph Hydro subsidiaries corporations, Envida Community Energy Corporation and Guelph Hydro Electric Services Inc, were used to implement the District Energy project.

Adding up the costs of this adventure to develop sustainable energy and thermal hot and cold water to nearby customers, are estimated to be $37.1 million. That excludes the $68.5 million currently sitting on the city books as an asset.

The cupboard is bare

Here’s the nitty gritty. GMHI and Envida have zero financial capacity. Envida owes GMHI $11.8 million. GMHI is being carried on the city books as an impaired asset of $68.5 million. Today, because of the impairment, the asset is being depleted in value because the carrying charges exceed the capital on the books. Result, it is converted on the books as an expense as the value of the asset declines. Now the cost of carrying the asset exceeds the value of the asset.

Despite this damning evidence, on Monday night, July 18, council voted to adopt a strategy prepared by consultants Deloitte, to keep operating the money-gulping Nodes until the first quarter in 2017. Then, results will be reviewed. But there is not to be additional capital invested. Deloitte calls it the “As Is” option. Their fee for this analysis is between $130,000 and $160,000.

To this observer, this looks like another method by staff to hire a consultant to create a plan supporting, at the time, a point of view to salvage the project. Later evidence produced by staff, reinforced what everyone feared … it was a major expensive flop.

Oh! In order to make the Nodes able to meet a commitment to the Ontario grid of 10 MW for upgrading each Node, the price is estimated to be another $60 million. And there’s more, if the Nodes are shut down, there will be costs to cover broken contracts plus retrofitting some buildings to return to standard sources of hot and cold water and heat in some cases.

And yet city council receiving all this detailed information, prepared by the city staff, voted to keep the Nodes running until next March.

Two councillors urge not to look back

Two councillors stated that it was a waste if time and money to investigate those responsible for this ill-conceived and carelessly managed project. Coun. Mike Salisbury said any attempt to pin-point responsibility was “political.” He was joined by Coun. Phil Allt who said any recriminatory investigation would be a waste of staff time and money.

Phil, that money has already been spent by staff and Deloitte. They had to untangle the facts surrounding this failed exercise. It is one that does not produce power to the grid or provide any environmental benefit, zero.

The only beneficiaries are that handful of nearby buildings hooked up to the Nodes to supply hot and cold running water. It still requires natural gas to operate the Node pumps.

Jason Dodge spoke to council and affirmed the previous administration that they were not justified bypassing proper business planning. He added the project exemplifies loss of public trust in past councils and credibility. Mr. Dodge said the city needs a council that takes responsibility and holds itself accountable.

Up speaks Coun. Phil Allt to demand what evidence Dodge had that the previous council didn’t do due diligence.

Phil, you had better start reading your staff reports. There is ample evidence that not only was there no due diligence but there was no evidence of accountability. This was because the practice of the former administration was to conduct its business behind closed doors.

Two members of the present council, councillors June Hofland and Karl Wettstein, were present at those meetings of GMHI more than five years. Yet they did not, it appears, even inform their council colleagues of events that have led up to this $37.1 million cost to the city.

Coun.Wettstein made the comment that he believe the new CAO and city staff understand the problem and he is confident they will handle the public fallout of the project. “I am proud to be able to vote for this in its entirety,” he said.

How can Coun. Karl Wettstein keep a straight face?

Is he serious? He refuses to take any responsibility for his role as a member of the GMHI board of directors

Mayor Guthrie was on target to shut the District Energy Nodes down but the majority of council disagreed. The Bloc of Seven was joined by Coun. Bob Bell in opting for continuing the District Energy Nodes for another eight months.

This is just perpetuating the mistakes of the previous council.

Hopefully the mayor and a majority of council will be successful to shut this operation down, including the abortive Community Energy Initiative. The evidence is clear that the thermal heating and cooling underground system is too expensive and disruptive to expand without a much larger customer base.

Deputy Chief Administrative Officer Scott Stewart agrees with GMHI CEO Pankaj Sardona that a customer user base of between three million and four million square feet is necessary to make the District Energy project viable.

The fact the previous administration failed to understand this key factor is the root cause of the massive spending on a project that was doomed to failure from the start.

That’s another reason why there is no money to build a new downtown library or South End Recreation Centre.

It also explains why councillors Phil Allt and Mike Salisbury don’t want to look back and hold those responsible. The reputations of Hofland and Wettstein are at stake along with former mayor Karen Farbridge.

Do you think it’s fair to ignore obvious indiscretions by the two councillors who were directly involved for five years serving on the Board of GMHI? Why did they not question the decisions that led to this multi-million dollar failed project?

Not only did they not perform their fiduciary responsibility to the citizens but also they took money to serve on the board.

The only course left for them to salvage what’s left of their professional reputations, is to resign.

It cannot happen soon enough.

 

 

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7 Comments

Filed under Between the Lines

7 responses to “A dysfunctional council most of whom fail to understand the financial implications of their actions

  1. Tony

    Where to begin? Van hellmond said it best. How important the 2014 election was. Would we even know about all this if Guthrie doesn’t win? Most definitely not! This mess just makes me laugh pitifully. This whole fiasco should be chronicled and presented to every city council in Canada. A training video on how NOT to do things. Maybe that’s another award the city of Guelph can put on their Mantle.

  2. bostoncollie

    …separate the wheat from the chaff…
    to choose the things or people that are of high quality from a group of mixed quality.

    July 18th Council Meeting confirmed who’s who around the horseshoe

  3. David T. Starr

    Gerry, right on. Thanks David

  4. Milton Burns

    It appears that Deloitte was unsure and confused with the time honoured consultant approach of “telling them what they wanted to hear”. As a result they came up with Yes, No and Maybe options and charged the City $130,000 to $160,000

  5. geo

    I believe it’s way past reputations, there should be a police investigation. At the very least a forensic audit should happen right now and nobody’s name gets left out.

  6. Andrew

    I get the gang of seven but what about the mayor. I voted for Guthrie to bring change, and he can’t seem to lobby his fellow councillors to get his way on anything. Farbridge got him to support her multiple times. Is it inexperience, lack of skill, listening to bad advisors, or something else like incompetence. He is the only full-time politician we have so not sure what he is doing if he’s not spending time negotiating with a couple of the gang of seven on every issue to win them over or strike a compromise. He only needs one or maybe two members to make deals with. He also made a bad decision by replacing Ann Pappert with her underling Derrick Thompson. Its a no brainer he will be pushing the same agenda as she did that’s already obvious with him wanting a special tax, so we shouldn’t expect any changes to come until 2018.

  7. Louis

    By the way you are writing, it seems the gang of seven is at odds with each other, Allt and Salisbury seem to be out for themselves as they don’t want to look back, if the reputations of Wettstein and Holfland are at stake, perhaps it might be time for someone to resign if there is in fact infighting,

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