The meeting that left the GMHI eight ball still on the table

By Gerry Barker

February 17, 2017

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Thank goodness there were eight councillors who voted not to sell Guelph Hydro plus 11 delegates saying the same thing. The city spin does not quite describe it this way but as a vote against selling the utility as recommended by the Strategic Options Committee (SOC).

The more than four and a half hour meeting failed to discuss the Guelph Municipal Holding Inc, (GMHI), financial disaster that has left a $26,637,244 million loss in its five years of operation plus a stranded debt, a $65 loan from Ontario Hydro. It has been artfully morphed into an asset now parked on the city books, one that is “impaired” because GMHI is bankrupt and cannot even pay the interest.

In the city’s 2015 Financial Information Report this ”asset” was listed at $69 million.

Yet GMHI was not discussed during the meeting that was called by council representing the shareholders of GMHI, that’s us. The topic was on the city agenda for the Wednesday meeting but never brought up.

Checking with Bloomberg Financial Services, there are no executives listed. GMHI is defunct and as a wholly owned subsidiary of the Corporation of the City of Guelph. And on Wednesday, there was no discussion, of the status of this company by city council, aka GMHI shareholders. It was to be discussed at the February 16 special meeting of council according to the council meeting agenda.

GMHI is dead

Now we know why. GmHI was not discussed. It’s dead without identified officer of the corporation, no apparent surrender of its charter. Next question, where does the city-owned Guelph Junction Railroad fit into the new order?

The former mayor created the Municipal Energy Initiative (MEI), using the city-owned Guelph Hydro. Part of the plan was to create, through GMHI a $37.1 million District Energy system that combined electricity and co-generation to supply hot and cold water to nearby buildings.

The cost of this failed, massive project was not made public until May 16, 2016, following four years of operation and development, in closed session meetings of GMHI and city council. The secret GMHI plan included the construction of two, large natural gas-fired generating plants. One was to be built in the Hanlon Business Park and the other on city-owned property downtown. It is possible that the Hydro loan was to be used for these separate district energy plans.

It was the GMHI plan to make Guelph self-sufficient by creating its own power. What is this SOC bunch thinking are they trying to convince council and the public that we must endure another scheme to improve Guelph Hydro? The ramblings of the committee offering electrcity storage batteries in every basement are something out of Star Wars. It’s that spacey.

The citizens have just gone through a pricey, failed plan to turn Guelph into a community of self-sufficient power. Thanks, but no thanks.

The complicity of Guelph Hydro in this convoluted secret project is apparent and contributed to the soaring costs of electricity, up 45.5 per cent in four years, to its more than 55,000 customers.

Wearing two hats can be a recipe for disaster

Council and the city-owned Guelph Hydro, did not question the former mayor’s decision to amalgamate it with GMHI, of which she was chairperson before her defeat as mayor in 2014. That’s when the people decided enough was enough.

So why is this minority of council, led by a Mayor who wants to sell Guelph Hydro is the right thing to do?, paying another $500,000 to continue this examination of the future of Guelph Hydro?

While council, by an 8-5 margin, voted not to sell Guelph Hydro, it failed to even discuss GMHI, the MEI and District Energy system. Why is an independent committee composed of citizens with special interests and futurism, examining the operations and making recommendations?

Another odd element was the absence of CAO Derrick Thomson who is co- chair of the SOC composed of Pankaj Sardana, Hydro Board member Robert Bell (not Coun. Bob Bell) Richard Puccini and a former GHMI board member?

In the 2015 Financial Information Report, the city reported that there was an impaired asset outstanding of $69 million. The reason the amount had increased was because there was no money in GMHI to pay the interest. Presumably, there are no hard assets underlying this $69 million because GMHI is essentially bankrupt.

So the city takes on this debt, lists it on its books as an asset. Since the city has folded Guelph Hydro into its financial orbit, it’s only a matter of time before the “impaired” asset becomes a liability and will have to be written off,

Because of the operational secrecy employed by GMHI over the four years, there are still many questions that need answers. The ultimate hypocrisy employed by GMHI was sending a so-called $1.5 million dividend to the city each year to justify its existence. It was just a return of our money while GMHI in its entire history never made a dime. That’s a “Ponzi scheme” in which shareholders are repaid with their own money that is, paying through your hydro and water bills.

Writing off $96 milliom has cost every citizen

I don’t know how you feel about this, but the prospect of writing off some $96 million is one of the main reasons that the administration has no money for needed capital projects such as a new Downtown Library, Wilson Street Parking garage, and the South End Recreation Centre.

Another odd element was the recommendation of Mayor Cam Guthrie urging council to vote to sell Guelph Hydro. Councillors Mark MacKinnon, Karl Wettstein, Phil Allt and June Hofland joined him.

Two councillors, Karl Wettstein and June Hofland had a lot of nerve even participating in the Hydro vote. For four years, they were GMHI board members who were paid to serve on the board and never questioned or revealed the growing financial disaster of GMHI. Is this not an abuse of the public purse?

With MacKinnon and Wettstein, both representing Ward 6, they were salivating with the belief that the sale of Hydro would lead to building the $60 million South End recreation centre. Phil Allt’s said he was firmly opposed to selling Guelph Hydro but wanted more options. So why did he vote for the sale? Along with the Mayor who also said he was in favour of having the committee come up with more options.

The SOC has spent $100,000 since it inception Last September and is now projecting spending another $500,000 to complete phase two and report to council mid-year. So the $600,000 cost of all this jerking the public around will change the minds of those who voted against selling the utility?

It only points to the sheer desperation that the city administration is facing due to the GMHI financial disaster. Selling off Guelph Hydro is not an option to fix the mistakes of the past.

There was still no reference to the defunct GMHI situation.

But Panaj Sardana warned that the various merger options were not a slam-dunk. He said that on the negative side of the merger option, “Lots of mergers fail.”

“You’re talking about bringing cultures together and that has a huge impact on people, on companies, and you could have a very real culture clash,” he said. “If you don’t get this right, then you have challenges down the road.”

And the Mayor and certain members of council believe that investing another $500,000 will change things?

And how does a five-man (gender imbalance) committee justify spending $500,000 in the next four or five months?

Could it be that certain former officials of the city are complicit in corruptive practices and this failure to investigate the GMHI financial disaster is part of the cover-up?

Thanks to all you folks who influenced this Hydo NO Sale vote. As citizens we do have power the trick is how and when to use it.

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19 Comments

Filed under Between the Lines

19 responses to “The meeting that left the GMHI eight ball still on the table

  1. Guelph is in a state of dire Financial management as senior staff leave or are fired

  2. Barry

    2018 Gerry for all of this to end.

  3. Joe Black

    But where is the money ? Call in the OPP.

  4. Jerry

    Do u not get it?The whole idea of selling Guelph Hydro was to bury it in another company so the results would never come clear.Now that the vote was no (thank goodness)they will have to keep dodging the bullet.But do not forget the former mayor did this for 8 years before it came out and dribbles and dabs so do not expect anything different.But in saying this we should still keep the pressure on the mayor and council.

  5. Ron Minogue

    Where did the a;most $100 million go?? There must be something that can be seen for this type of money.

    • Ron Minogue: Good Question.There has been some accountability that spelled out a GMHI loss of more than $26 million. The big mystery is the $60 million loan from Guelph Hydro to GMHI. It is now sitting on the city books as an “impaired asset.” This means that the loan repayment from a bankrupt corporation that the citizen own, is not being made because GMHI has no money. This asset is on the 2015 city Financial Information Report valued at $69 million. Trouble is there is no collateral to support the loan. That’s why it will eventually have to be written off because you can’t get blood from a stone.

      So that’s why the Strategic Options Committee recommended the sale of Guelph Hydro. The plan was to use the proceeds to clean up the GMHI financial losses. GMHI is dead in the water with no listed board members according to Bloomberg Financial Services and the city is stuck with the loses because both Guelph Hydro and GMHI are now on the city books.

      This mismanaged adventure, orchestrated by the former mayor, is a major financial blow to our city. In my opinion those who were in charge should be held accountable.

  6. Glen

    Having read the info on the city “Energizing Tomorrow” I could see NO benefit to selling Guelph Hydro and NO benefit to merging it with any other electric local distribution company (LDC). How would maintaining ownership lead to higher costs as Guelph Hydro is merely a re-seller and distributor of hydro? Similarly how would merging lead to cost savings? The boogie man of mass electric storage batteries (Tesla type) and solar panels reducing residential demand is far fetched when the possibility of more electric vehicles placing a higher night time demand on the system is factored into the discussion.
    Why spend an additional $500,000 on merger possibility navel gazing?
    The 5 who voted for the sale of Guelph hydro (Guthrie, Allt, Hofland, McKinnon, & Wettstein) some of who are past their best-before-date by light years should (if they run in the 2018 civic election) be defeated.
    When will council have the guts to expose the whole GMHI mess by making ALL the minutes of the board meetings, decisions, and transactions, (complete with names), public? That would be real transparency.

  7. Fred

    Yes, where did the money go? $65 million plus $26 million = $ 91 million.

    The two plants cost $11 million. What exactly was the other $80 million spent on?

    Can anyone account for every dollar?

    Maybe the half million is for propaganda PR etc. to cover up for the unaccounted $80 million.

    What’s the best Police Force fraud department to investigate this?

  8. Fred

    Time to sell the $400,000 house to some slum lord, and get out of here before the doodoo hits the fan.

  9. Bill

    Sigh….if you loan someone $60 million and they lose $26 million, does it make sense that they lost $86 million?

    • Bill: The actual debt was transferred to the city books when the city took over Guelph Hydro. They reported an “impaired” asset of $69 million in the city’s 2015 Financial Information Report. Impaired means that the GMHI loan has no tangible assets underlying it, ie collateral, nor the GMHI ability to pay even the interest. Unless, that is, a mountain of cash (Selling Guelph Hydro) tumbles into the city coffers, this will be written off. Bet on it.

  10. Bill

    Gerry: Your blog provides information to the community that might not be disclosed elsewhere. However, I think you need to do a little more research on financial details. I don’t think any debt has been transferred to the city’s books. Any funding for the wasteful district energy program was provided by Guelph Hydro and still being serviced there, unless you can show otherwise. GMHI and its subsidiaries are not part of the regulated “City” and therefore have no impact on taxes or debt ratios, again, unless you can show otherwise. You should also try to itemize what has been squandered away in GMHI as it relates to district energy, as I am unclear to both the detail and the total.

    • Bill X2: The May 16,2916 meeting of council was told that GMHI had lost $28,637,244. That figure was in a report prepared by former CAO Ann Pappert, and GMHI CEO and CFO, Pankaj Sardana. Further, Mr. Sardana reported an “impaired” loan from Guelph Hydro to GMHI reported at $69 million that was on the 2015 city books as an asset. It is impaired because there is no money from GMHI to pay the interest on the loan. Be aware that both GMHI and Guelph Hydro are now under direct control of the City of Guelph. That means the citizens, stakeholders, are on the hook for the losses generated by GMHI. The best advice I can offer you is to go into the guelphspeaks archives where you will find most of the information you seek. I say most of the info but you’ll recall that GMHI operated in secrecy without any public exposure or participation. I have had to depend on city reports about the windup of GMHI.

      Not sure why you differentiate “ratepayers vs taxpayers” they are one and the same. Missing are all the citizens who pay user fees for city services regardless whether they are property taxpayers, renters or others who use city services.

  11. Bill x3

    Gerry: There is no loan (impaired or otherwise) on the City’s books for $69 million. The City of Guelph is not on the hook for any losses sustained by GMHI or its subsidiaries. Ratepayers need to be distinguished from taxpayers. Ratepayers are paying for this district energy mess, not the taxpayers. The losses are distributed quite differently to the ratepaying group than they would be to the taxpaying group.

    Again, I think you provide an excellent service. We find out about “things” that would otherwise go unnoticed. I do, however, think you need someone to review your financial numbers before publishing – i.e. you can’t add tax loss carryforwards to reported losses because you will be double counting.

    If you have time, I think you should summarize the total losses of this fiasco.

    • Bill:The 2015 Financial Information Report that the city must file with the provincial government annually had an impaired asset of $69 million. Pankaj Sardana, CEO and CFO of Guelph Municipal Holdings Inc.told council May 16, 2016, identified the impaired loan originating from Guelph Hydro. The bottom line is GMHI and Guelph Hydro are joined at the hip. Both have now come under control of the city administration. Bloomberg Business Services lists GMHI but there are no officers listed. Your definition of ratepayer is interesting. You say ratepayers are paying for the District energy mess. That is only part of the mess. The real culprit is the Community Energy Initiative founded by the former mayor in 2007.Under the CEI umbrella was GMHI, the District Energy program Envida Community Energy the Hydro subsidiary charged with construction of the GMHI projects, the installation of solar panels on some public buildings, and the underground co-generation piping system fed by the two District Energy Nodes.

      You say the ratepayers were paying for the District Energy mess. If you believe that, why is GMHI broke losing $26.8 million in four years?

      We are responsible. Because all this CEI activity was controlled by GMHI that also folded Guelph Hydro into its financial orbit.

      And all this was done in secrecy. The public was never informed or participated in this misguided, poorly planned and ego-driven adventure. And, remember, the mayor also was chairperson of GMHI with former CAO Ann Pappert, as Chief Executive Officer of GMHI for four years. You ask me to summarize the total losses of the CEI. I was not involved in any way until the May 16, 2016 meeting when Mr. Sardana reported the serious financial situation with GMHI and to a lesser degree Guelph Hydro. At least Hydro had assets probably worth about $150 million. GMHI had few assets the chief being the District Energy pump in the Sleeman Centre to supply five buildings with hot and cold water and some income from the Solar Panels Installed, I believe by Envida.

      Both GMHI and Guelph Hydro are now directly connected and controlled by the city and report to council.

      We still have not been told the full GMHI story. One outstanding item is the plan to build two large natural gas-fired generating plants, one downtown on city owned land and the other in the Hanlon Business Park. My guess is that was what the hydro loan was for but we’ll never know.

      Both Guelph Hydro and GNHI are now part of the city books.That means repayment the debt accumulation is the responsibility of the corporation, that’s you and me and the rest of the taxpayers.

  12. Bill x4

    Gerry: I’ll try one more time. GMHI is a non consolidated entity of the City. The City does not have to report any of its activities to the public, nor do any of its activities affect the City’s taxation. It’s a completely separate entity which is why it was set up in the first place. Underneath GMHI is GHESI (Hydro). Hydro’s activities are not subject to public scrutiny either. This is how the previous administration was able to create this mess. With Hydro having its own ability to borrow money, it was able to fund the Envida disaster, without anyone knowing.

    Because of the wall between the City and GMHI any money borrowed by GMHI (essentially all from Hydro) has no bearing on the City’s taxpayers. However, the ratepayers of Hydro are on the hook to service this debt. If they can’t recoup any funds from GMHI or Envida, then too bad for the Hydro ratepayers.

    Before you come back and tell me I’m wrong, check the City of Guelph’s debt schedule and you will see nothing has been added.

    Hope this helps.

    • guelphspeaks reader

      Bill, does it make sense that the loan is not on the debt schedule because it is on city books as an asset? An impaired asset.
      Saying taxpayers are not responsible for these losses, is like the former CAO saying the same about the Urbacon lawsuit payout. Magical accounting.

  13. Bill x5

    Guelphspeaks Reader: The only way this debt could be an asset on the City’s books is if it bought it from the lender, which in this case is hydro. If hydro sold the $69 million debt to the City for $1, then yes it could be on the City’s books but the loss would be in Hydro. If the City paid $69 million for the debt, then the City would need to raise $69 million and since they don’t have $69 million, it would have to borrow. $69 million in additional debt would be setting off alarm bells with the rating agencies, not to mention public screaming at the meeting where it would need to be disclosed.

    The taxpayers are not responsible for the losses. The City of Guelph did not guarantee any of the debt nor did they contribute any significant equity. The hydro ratepayers are responsible. The distinction is not subtle. These losses will spread out to hydro customers based on hydro usage, having no relationship to property taxes

  14. guelphspeaksreader

    It is council’s responsibility to provide the public with answers, and who is liable for the debts, and what is owned by whom. But the prevalence of secrecy rules the day. That is the root of this problem, as it stands now, and before it began.

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