When it comes to Mergers and Acquisitions, Guelph Hydro is a plum to be plucked

By Gerry Barker

October 23, 2017

So, 51 days from today, on December 13, city council will vote to merge Guelph Hydro with a company called Alectra Utilities Inc., or not.

Put me in the “not” side of this.

And Mr. Mayor, please stop using the term “merge” when this is a sale or perhaps a sell-out?

There have been few details of the deal to take over Guelph Hydro. In the corporate world when two corporations merge – Merger and Acquisitions – the acquirer agrees to pay for the assets of the acquired, in this case Guelph Hydro.

Turtle Alert!

But city council, like a turtle sensing danger, goes into closed-session to discuss the details far from the madding crowd.

Guelph Hydro has $228.4 million of installed assets including wire, poles, transformers, sub stations, vehicles, buildings and a trained staff to keep the power on. In addition, in 2016, Guelph Hydro earned, after expenses, more than $7 million. Hydro pays an annual dividend of $1.5 million to the City general revenues. Essentially, this is a cash business. Customers need power and must pay for it monthly along with their city water bill.

As a going concern, Guelph Hydro is a plum to be plucked. Well run, profitable, respected with a ton of goodwill, we should not let our treasure disappear into the corporate confines of an organization of which we know little about.

So, if it ain’t broke, why the rush to get rid of it? And what are the terms contained in this memorandum of agreement? How binding is it? Or is this turkey already baked in the oven?

There’s a new boy on the block

Alectra was incorporated nine months ago, January 31, 2017. It now claims it has 1 million customers both residential and businesses. Alectra’s founder was Powerstream, the Mississauga electricity distribution system. Alectra’s head office is in Mississauga.

Most important, what’s in it for the citizens of Guelph who own Guelph Hydro?

These details are essential and must be made public ASAP so that the owners of Guelph Hydro know and understand what’s at stake pending council’s final decision December 13. City council represents the owners and has a moral and fiduciary responsibility to inform their constituents of the details of this proposal.

It’s the second attempt to sell Guelph Hydro following the failed attempt by the former mayor in 2008. She tried to convince her council to merge with Hamilton and St. Catharines power distribution systems called Horizon. She refused to tell the public the details of the deal and her own supporters refused to allow it.

It was an example of people power influencing their councillors to vote against it.

Not again!

Here we go again. But this time it is a very sophisticated plan to remove local authority over distribution of our power and give it to a company that we know little about. Please note the absence of the words “sell or sale” in presentations and news releases. It’s an attempt to not revive the 2008 public backlash when the former mayor attempted to sell Guelph Hydro.

The citizens own and operate our power distribution system that covers some 55,000 customers in the city and Rockwood.

Apparently the city heard from 14 potential partners interested in merging with Guelph Hydro. The Strategic Operations Committee, (SOC) appointed by the city, involved a five-member committee charged with seeking potential partners to operate Guelph Hydro. During its investigations, the committee team lost three members who resigned or were replaced, a development that challenges the SOC’s credibility.

Did the committee, co-chaired by Hydro Chair, Jane Armstrong, and Chief Administrative Officer, Derrick Thomson, examine all those potential partners to determine the best deal?

Jargon Alert!

We’ll never know because they won’t tell us, claiming it was “subject to advice that was subject to solicitor-client privilege.” It was another legal reason to hold a closed session meeting.

If you can’t run, just hide

Despite the Mayor and the CAO’s promise to conduct an “open and transparent negotiation process, the shareholders remain in the dark. It should be noted that early last summer, the SOC laid out its plan to merge/sell Guelph Hydro. This fall the SOC plan was to present a consolidation of the information to Council. In early spring, it was to announce its findings and allow council to vote on the committee’s recommendation.

Once again, the public is being misled. We still have little financial and operational data on why the SOC’s selection of Alectra. We still don’t know anything about Alectra or details of the deal.

Artful Dodger Alert!

What we do know is that merging Guelph Hydro with Alectra’s family of municipally owned Local Distribution Corporations (LDC) will bring millions in cash flow to Alectra because we will start paying our service charges to them when Guelph Hydro is merged. Also Alectra’s president has already admitted that there will be staff reductions of Guelph Hydro to maximize administrative efficiencies.

Attempting to read the 2016 Powerstream financial statement on its website proved fruitless. The structure of Alectra is unknown at this time. Is it an umbrella organization? Is it publicly traded? Are there shareholders? Who are the executive officers?

Why won’t the city elected representatives tell the truth about this deal? Are citizens being reimbursed for the Guelph Hydro assets? What happens to the $93 million in debt currently carried on Guelph Hydro’s books?

Confirm or deny:

Will Mayor Guthrie be named to the board of Alectra if this deal goes through? Apparently those municipal mayors who Alectra claims have joined the organization are on the Alectra Board of Directors.

If true, does this not place the mayor in a conflict of interest? How can an elected official who signs a memorandum of agreement, then votes to approve the Alectra deal while knowing that he will benefit while serving on the board of directors?

So Mr. Alectra, what’s your bid?

The news release carefully avoided what Alectra was going to pay for the system. Instead, we learn that this is not just about electric distribution it’s about generating power through Alectra’s planned Green Energy developments. Mayor Guthrie was enthused about Alectra’s intention to build a Green Energy and Technology Centre in Guelph. The mayor says it will create jobs.

Spoiler Alert!

Didn’t we just experience a disastrous green energy experience with the Guelph Municipal Holdings Inc.’s financial failure? Didn’t the Community Energy Initiative’s failed GMHI project cost $63 million in shareholder equity losses developing green power self-sufficiency in the city?

More questions about governmnet manipulation of the numbers

Doesn’t the Wynne government recommend the merger of consolidating smaller municipal power distribution corporations? But what has that to do with researching green energy issues involving personal storage of power, electric vehicles, charging kiosks etc? This smells like the stench of the failed electricity programs of the Liberal provincial government that has been so mismanaged using phoney accounting practices.

Ontario’s independent Auditor General, Bonnie Lysk, confirmed this. She charged that the accounting of energy including electricity operations in Ontario, failed established accounting practices used by public agencies throughout Canada.

The Liberal government’s promise to reduce electricity bills by 25 percent was basically built on the premise, reduce rates now and increase them in five years to pay for it.

How does that grab you?

In view of this, be aware that the Mayor is quoted that the Alectra rates will be lower than at present, and the dividend received from Guelph Hydro will increase so that more can be invested in the community.

Mayor: You mean spending this alleged newfound cash on the downtown library that is now pegged at just under $59 million. No? Then how about the South End Recreation Centre coming in at about $66.5 million.

Wait! There’s more. Don’t forget the staff revised estimate of $400 million of neglected infrastructure maintenance and upgrades required over the next 13 years. Or paying off the $34 million police headquarters renovation.

And Mr. Mayor are you predicting that selling off our power distribution system will bring great benefits to the city?

Time to show all the cards or fold them

When you carefully explain what the immediate and future benefits are to Guelph’s hydro customers, then you might be able to convince them this is a great opportunity. I’m not holding my breath.

A good starting point would be to explain the deal in detail and not parsing it behind closed doors. The first question that needs answering is how much cash is Alectra prepared to pay for Guelph Hydro?

Further, we not only lose control of our power system but also the future of the 130 Hydro employees is uncertain.

For 2018, the city staff is proposing a $90 million capital budget of which 79 per cent or $71.1 million will be spent on infrastructure. The remaining 21 per cent will be divided with $18.9 million for unspecified growth projects and $3.6 million for city building, again not specified. Council will vote October 26 to approve the staff recommendations, or not.

Tell us where does the two per cent special property tax levy go in 2018?

With less than a month and a half before council votes on selling Guelph Hydro, it leaves little time to clarify these questions and concerns. It should be pointed out that Dec 13 is the day of council’s final approval of the 2018 budget. Coincidence? It seems like great timing to simultaneously approve the Guelph Hydro sale and its potential affect on the 2018 budget.

Here’s my take on the situation. Council wants to get this off the table before the election campaign starts. The risk lies in a public backlash against those councillors who voted to accept the Alectra deal, whatever that is. It could seriously impair their ambition to run again next year.

As for my wife and I, we are opposed to any deal involving divesture of public ownership of assets in which the details have been cloaked in secrecy. Vague promises just won’t cut it.

We say: NO SALE.

 

Important Notice

If you are interested in following more details of the Guelph Hydro proposed sale, login to guelphspeaks.ca. Your comments are welcome. Join other citizens who are currently opposed to the sale, based on the lack of “openness and transparency” as promised by the Mayor and CAO. If you don’t want to post a comment on the GS website, send your comments by email to gerrybarker76@gmail.com.

Comments can also be made on Facebook and Twitter where GS posts are located as well.

If requested to remain anonymous, we accept a pseudonym with the proviso we know the name of the source and that your information will be protected.

Be reminded that Guelph Speaks does not permit profanity or personal attacks from those commenting. We do encourage debate and expression of views in the comment section.

I believe in free public participation that includes criticism of the municipal administration including elected officials and public servants

Thanks for joining the GS family. Best, Gerry

 

8 Comments

Filed under Between the Lines

8 responses to “When it comes to Mergers and Acquisitions, Guelph Hydro is a plum to be plucked

  1. Joe Black

    I thought Mississauga was Ensource?

  2. Rena

    Here we go again. Just wondering, will there be an escape clause to this ‘merger’?

  3. Guido

    Why try to fix something if it’s not broken. It sounds like the same scam that was laid on us by Kathy when she sold Ontario Hydro. Need cash to pay off debts like the City hall boon toggle, GMHI goofs. Everyone opposed to this deal should contact all of council and the Mayor.

  4. DAVID BIRTWISTLE

    Gerry.Sure hope that the “backroom scalawags”publicly release sufficient details of the merger and its financial aspects so that Mr.Pat Fung can ‘do his thing’-lord knows we’ll need all the external advicewe can obtain to ensure that our asset is not stolen nor used for ulterior political advancement purposes(ie.,positions on the board of directors and etc.).SOS Mr.Fung

  5. Colleen

    The recently merged Alectra company is four large provincial players – Hydro One Brampton, which was purchased by Alectra, and Powerstream, Enersource and Horizon. Remember Horizon? They are the ones that the citizens of Guelph did not want to partner with in 2007-2008. Here they are again. Guelph has been guaranteed a seat on the Aletra board, which will then have 14 board members. With a 4% share in Alectra it’s a pretty small seat. Customer service will not be local. Our general service customers already pay 37% less than the provincial average so they will not see any further savings. Residential customers thinking that they will save money are misinformed. They will not see an increase on the distribution portion of their bill only for a period of time. This amounts to about 20% of the electricity portion of their bill. So, what the “nothing but good news for Guelph” that Mr. Mayor is talking about? A bigger dividend payment to the City.

    • Colleen: Well said! You have addressed part of the details concerning this take-over of Guelph Hydro by Alectra. I recall the 2008 rejection of the Horizon attempt to take over our Hydro system. It was a failure because the mayor at the time refused to reveal details of the deal including the business plan. Same thing is happening now and we citizens must stop it. The political risk for those members of council who vote to accept the Alectra deal will pay the price next October when Guelph votes. Remember what happened in 2014.

  6. SOS Mr. Fung, thank you 🙂

  7. COLLEEN, Thank for your expertise, and, point of view on Guelph Hydro, “Residential customers thinking that they will save money are misinformed.” I appreciate your facts provided!

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