By Gerry Barker
June 12, 2017
Part Two: Selling the crown jewel of Guelph
When will the Mayor tell us the truth about why we are spending thousands to sell Guelph Hydro in the next 12 months?
It is one of the most expensive and devious plans to capture the equity of Guelph Hydro that has an estimated book value of $125 million. On the surface, when reading through the 48 pages of plans and goals of the council-appointed Strategic Options Committee (SOC), it would have you believe this is the right thing to do.
Council appointed five people to represent the city in selling Guelph Hydro. The committee lost two members between October and April. Included was co-chair Pankaj Sardana, CEO of Guelph Hydro, who was replaced by the Guelph Hydro board chair, Jane Armstrong. A public representative, Ron Puccini, stepped aside to be replaced by Douglas Auld.
Chief Administrative Officer Derrick Thomson remains, as co-chair of the SOC. Is Mayor Guthrie an ex-officio member of this committee?
Before going any further, this is a sale of all or parts of Guelph Hydro. To dress it up as a merger is mere window dressing. Perhaps that’s why Mr. Sardana was removed from the SOC because he warned about the sharing of responsibilities as a result of a merger, does not have a successful track record. History in Ontario has shown that local community-owned electricity distribution system mergers don’t always work well because of the cultural clash between the parties of the merger.
We should mention that the SOC plan points out that the Province has encouraged the consolidation of small (Provincial designation) municipally-owned power distribution systems to create more efficient systems across the province. This is NOT mandated but suggested.
Why the push to amalgamate local power distribution systems? The McGuinty and Wynne governments granted juicy 20-year overpayments to corporations to produce solar and wind turbine renewable power. Now it has attracted interest in corporate ownership power distribution systems. These deals have cost power consumers millions and left Ontario having the highest cost of power in the country.
“It isn’t easy being green,” Kermit the frog.
Without hesitation, the beneficiaries of these deals include both Liberal provincial governments and those corporations that have benefitted from their largesse.
One of the members of SOC said that the distribution of power is changing, predicting that most homes in the future will have electricity storage units in their garages, powered by solar panels. The cost of this is astronomical for most people. Why the rush to sell off Guelph Hydro, lose any semblance of control and costs as it now it provides economic benefit to the 53,000 current customer base?
Those self-sufficient storage units have a definite future but are only cost efficient for the wealthy among us. It will take years to become a common reality.
But it is a prime rationale among an element of civic leaders who foisting their opinions, were bolstered by outside consultants including the core of the SOC.
Here’s a sample of what the SOC is planning:
- THAT the Strategies and Options Committee (the “SOC”) of Guelph Municipal Holdings Inc. (“GMHI”) be directed to conduct further discussions, engage in further due diligence, and prepare preliminary business cases to assess potential mergers between Guelph Hydro Electric Systems Inc. (“Guelph Hydro”) and potential merger partners.
- THAT the SOC continue its communications and community engagement to inform its work.
- THAT the SOC report back to Council in early fall 2017 with the results of further discussions and due diligence, communications and community engagement and a preliminary business case, including recommendations regarding next steps.
The four phases leading to selling Guelph Hydro
The SOC plan is divided into four phases. Following the June 13 meeting, the next phase is Part 3 to be reported to council in October, or thereabouts.
Here’s one of the reasons citizens should be concerned. Two members of the SOC, in my opinion, have a conflict of interest.
Note in the recommendation above that the SOC is the offspring of the Farbridge Folly that created Guelph Municipal Holdings Inc. (GMHI). We now know that it cost citizens close to $100 million, so far. This appears to be a desperate attempt by the Guthrie administration, to convince citizens to support the sale of Guelph Hydro. We say: NO SALE!
Getting back to those two SOC members. The former mayor appointed Mark Goldberg as an independent member to the GMHI board of directors. Did Mr. Goldberg support the GMHI projects that lost $26.6 million? What is he doing on the SOC? Is he part of the salvage crew out to sell a profitable, locally owned Hydro Distribution system to cover up the total failure of the Community Energy Initiative (CEI)? It is now clear that the former mayor sold the merits of the CEI to an unsuspecting public. Then buried its operations in closed sessions of the board.
Or, let’s hear from SOC member Guelph Hydro Deputy Chair, Robert Bell, who in answer to a question by Coun. James Gordon about how the public feels about the sale of Guelph Hydro replied that he was an expert in mergers and acquisitions, (M&A) and knew more about it than the general public.
That arrogant answer confirms the takeaway that this is a contrived set-up to sell the publicly-owned Guelph Hydro in part or all-in, to pay off the debts of previous administrations.
Well, those two men, for different reasons, seem to have their minds made up.
This is a very serious political play in which, with respect, may result in Mayor Guthrie’s ongoing support for the sale, being figuratively bitten in the derriere come Election Day. His fair-weather friends on council could blame him for either the success or failure of the Hydro sale proposal. As he is Mayor, it’s a lose, lose situation no matter what happens.
It’s not too late to regain the support of the majority of the public by disassociating himself from continued support of the sale.
Here is the SOC schedule of how we can say bye-bye to Guelph Hydro before the next election.
SOC says: “If, in the fall, Council directs the SOC to pursue the next phase of the process, details about potential merger partner(s) will be shared with the public. At that time, the SOC will seek public input on the proposed merger. More public and stakeholder engagement will occur to generate that input.”
GS Comment: Just how are the SOC and its partners Guelph Hydro and City Council going to inform the public during this “process?” There is a ground swell of objection among many citizens that this phase is not going to sell. So far the attempts to communicate this to the real stakeholders, the citizens of Guelph, has been an abject failure. But read on to see the proposed timetable of selling the utility.
SOC says: “Phase 1 (Complete)
“Explore options; begin community consultation, present findings and recommendations to Guelph City Council in early 2017.
SOC says: “Phase 2 (March to June)
“Scan the industry for potential merger partners. Consider publicly-owned utility companies likely to provide value to Guelph Hydro customers, the City and the community.”
GS Comment: Phase 2 is the topic of the June 13 meetings including a closed session of council starting at 4 p.m. and the public open meeting at 6:30 p.m. at City Hall. Let’s get this clarified. Guelph Hydro supplies electricity to 53,000 customers. No one in this city or Rockwood is without power. This should make them the stakeholders in this plan. The City of Guelph owns this utility and history shows that the citizens want to continue owning it. The SOC should conduct a poll by an independent polling organization to measure public support for selling Guelph Hydro. The result may save citizens the cost of pursuing this project.
SOC says: “(June to fall) If City Council votes to explore further: engage specific targets, develop a preliminary business case and financial analysis, outline impact on shareholders rate payers, discuss governance, compare to maintaining full ownership, and make recommendation to City Council.”
SOC says: “Phase 3 (fall to winter)
“If Council decides to pursue a merger: enter into memorandum of understanding, announce the parties involved, continue community engagement, begin exclusive negotiations, conduct financial, legal, operational and regulatory due diligence, develop merger and shareholder agreements, finalize rate impact and make recommendation to City Council.”
GS Comment: And during this phase when does the public have its say? Where is the business plan underlying any proposal?
SOC says: “Phase 4 (late 2017 to 2018)
“If City Council approves the transaction: submit a MAADs (?) application to the Ontario Energy Board (OEB) for approval, develop implementation plan and establish leadership and governance of the new utility. Following OEB approval the transaction would close, the parties would enter into the shareholders’ agreement, and the merger would be given full legal effect.”
GS Comment: Just in time to create a huge issue in the October 2018 civic election. This is an attempt to wrap up the before the election and deny the public the right to dissent.
Recommended next phases of developing the sale:
SOC says: “Given the potential cost of developing complete business cases with multiple parties, the SOC recommends developing preliminary business cases with the most promising candidates and making a recommendation to Council in early fall 2017. This approach is a cost effective way to provide Council with more information while being fair and respectful to potential merger partners.”
GS Comment: The Guelph Hydro board affirmed the recommendations made at the outset of this report at its May 29, 2017 board meeting. None of them were elected to represent the public’s interests. So, why now? Why is this plan being presented to the citizens who are not collectively in favour of selling Guelph Hydro? Here’s more of the sale plan.
Value for the City of Guelph
SOC says: § Realizing the best financial return and overall value.
GS Comment: Again what is the real purpose of this proposal? Is the city in such financial shape that we have to sell Guelph Hydro to pay for the financial mismanagement of the past ten years? Is it fair to say that if Guelph Hydro is sold that it can recover that “impaired” asset that it loaned GMHI and now sitting on the city books, can be recovered? One would believe that had to be a condition of any sale.
SOC says: § Supply electricity efficiently and cost-effectively.
GS Comment: Isn’t that what is being delivered today?
SOC says: § Contribute capital funds for reinvestment.
GS Comment: Ah! The truth is starting to come out. What reinvestments are they talking about? Is it reduction of debt? Paying down the Police Headquarters $34 million renovation? Providing $400 million for the aging infrastructure? There is no shortage of projects but because of the financial mismanagement, the cupboard is essentially bare.
It is welcome news that the city has finally hired Trevor Lee, an experienced professional who has the financial accreditation to bring responsible order to our city’s finances. The evidence exists that successive councils relentlessly continue to jack up property taxes and user fees to cover up bad management and questionable decisions.
SOC says: § Support long-term community planning and economic development.
GS Comment: There has been little effort to address the high overhead costs of running a city. What has this sale got do with economic development? How will it create jobs and at the same time protect Hydro employees? How can citizens be assured of cost controls if the utility is sold or merged? How much has this proposal cost year to date? Who is paying those costs? What operational guarantees are included in this proposal that affect all Hydro customers?
What does the SOC mean when it says it will engage in “open, honest communication with community and industry stakeholders?” This and past administrations have a terrible track record of operating in closed sessions without transparency and accountability doing the public’s business. The record of the previous GMHI board of directors conducting its business in an open and accountable fashion is a sick joke.
City councillors Karl Wettstein and June Hofland were members of the MHI board for four years and today accept no responsibility for the financial disaster. SOC member Mark Goldberg is another former GMHI board member who has never commented publicly about his role on the board.
A good place to start is opening all SOC meetings to the public. Making all electronic communications pertaining to the sale among SOC, its consultants and members of council available to the public. The one exception is discussions regarding proprietary information of bidders.
Regardless, in my opinion, this proposal was tried in 2008 and was rejected by a majority of council including supporters of the former mayor. I see no reason why this won’t happen this time. Sorry, NO SALE
Frankly, city council approved this methodology of selling Guelph Hydro. It’s time for a serious rethink of the project.
Now council owes the citizens a specific reason for creating this proposal to sell Guelph Hydro. That includes full financial disclosure of the costs and benefits to the citizen stakeholders.
This is only Act One of the Theatre of the Absurd
Until that closes, we still say: NO SALE.