The top reasons for city council to reject or defer the Guelph Hydro Merger

By Gerry Barker

December 11, 2017

With just two days before city council approves or rejects the alleged final agreement to merge Guelph Hydro with Alectra, there are some troubling aspects derived from an independent source and the mayor’s answers to the 46 questions we asked.

Yesterday, Guelph Speaks (GS) published a second unbiased and independent analysis by Toronto Lawyer Jay Shepherd, an expert on most matters concerning power and its distribution. We urge citizens to read Mr. Shepherd’s full analysis that is fair, transparent and informative. He takes no sides. The post may be reached by clicking on the title above today’s headling.

I personally want to thank him on behalf of all citizens and his reminder that the actual agreement wording is released before any final decision is made.

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Muzzling the truth denying the details of the merger

GS took some of his diagnosis of benefits as outlined in the 245-page so-called final terms of the agreement as published December 1. The document was published Online, available only to citizens with a computer. GS was able to obtain a hard copy and was stunned at some of the content that was misleading and impossible to understand or be available to all 55,000 Guelph Hydro customers.

It was another deliberate tactic by the authors to use the Internet as an escape hatch to prevent full disclosure of the proposed merger.

According to Mr. Shepherd, he asked the Mayor, the Chief Administrative Officer, Guelph Hydro and Alectra for the agreements. He was referred to Pankaj Sardana, CEO of Guelph Hydro, and the designated spokesperson of all things merger. Sardana said the agreements are not final and cannot be shared. Shepherd stated that the secret final agreements have been provided to the Alectra Board of Directors, Guelph Hydro Board of directors and City Council.

But cannot be shared with the stakeholders who own Guelph Hydro.

*            *            *            *

GS Question: Are Guelph stakeholders receiving any immediate reimbursement for turning over Guelph Hydro and its assets to Alectra?

Mayor Guthrie: There are no incentives, and in my view, Guelph isn’t turning over anything. A merger would make Guelph a part owner of larger utility company. In a merged company, neither party would have complete autonomy, but Guelph would still have some ownership rights and protections set out in a shareholder agreement.

GS Comment: In that case, and thanks for answering a question that was not asked, is Guelph Hydro being given to Alectra with no payment other than a share of Alectra’s profits? Who operates our publicly owned power distribution system if council passes this incomplete agreement? There is no evidence that Guelph will retain ownership rights and protections as set out in the shareholder’s agreement. It is the agreement where citizens have no knowledge.

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The consequence of approving the merger Wednesday night

Mr. Shepherd: Further, under OEB rules they (the agreements) will have to be made public when OEB approval is sought, although of course by then they will be signed, and Guelph will be legally obligated to complete the deal.  Public disclosure at that point doesn’t really help anyone.

GS Comment: Wednesday night it is crucial for council to approve the merger. If the majority votes for it, then there is no looking back. Guelph has lost control, sold out its Hydro employees all for getting 4.63 per cent of 60 per cent of Alectra’s profits. The city will be allowed, through its defunct Guelph Municipal Holding Inc. (GMHI) one member on the 14-member Alectra Board of Directors (not the Mayor or councillor). That’s like playing in the minors because we are not good enough for the big show.

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GS Question: Why were no elected officials appointed to the SOC?

Mayor Guthrie: Using a skills-based team is the most appropriate way to conduct this type of asset review.

GS Comment: It appears that the Mayor did not have confidence in his council to be part of the Strategies and Options Committee (SOC.) it was selected to research and investigate a sale or merger of Guelph Hydro. It is reported that the law firm Aird and Berlis of Toronto was selected to handle the legal issues concerning the merger. That firm also previously represented Alectra in an application before the Ontario Energy Board;            there is no information about the accounting firm Grant Thornton LLP and its experience in assessing mergers and acquisitions.

*            *            *            *

Mr. Shepherd: Claim #2:  “Guelph Hydro will pay the City a special dividend of $18.5 million immediately prior to closing, without adversely affecting its regular annual dividend.”

The implication is that this is a benefit from the transaction.  It is not.

Guelph Hydro is currently managed conservatively, and so is underleveraged.  It doesn’t need a merger to pay $18.5 million out to the City, thus increasing Guelph Hydro debt and decreasing equity.  It could do that today.

It is not coming from Alectra.  It is coming from Guelph Hydro’s cash on hand, which at the end of 2016 was $22 million. The City is not better off initially under this transaction.  That is just not correct.

GS Comment: This is perhaps the most damaging reason to reject this merger. It was obviously crafted during the many closed-session meetings between Alectra and the SOC, representing the council. Now we can understand why the Mayor didn’t believe his council was qualified to be part of the SOC. He may be surprised Wednesday night when some of his council understands this naked attempt to mollify the undecided members of council and vote no deal.

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GS Question: Who and how many third parties expressed an interest to the SOC to buy or merge with Guelph Hydro?

Mayor Guthrie: As stated in June 2 public notice “The committee had preliminary discussions with 14 local utility companies to learn how a potential merger could affect Guelph Hydro’s operations, financial position, infrastructure, ownership structure, organizational culture, and local electricity distribution rates.”

To protect competitive information about Guelph Hydro and the 14 utilities we engaged, all parties agreed not to disclose the identity or the reasons why a business transaction was or wasn’t pursued. This is a common practice.

GS Comment: If this was widely known by the stakeholders, why are so many surprised at the Mayor’s answer. Well, don’t be, because the mayor’s major communications tool is the Internet with the odd paid advertisement in the “City News” pages in the bi-weekly paper. Those ads are paid from the public purse.

Will the Mayor explain what he means by competitive information? Does Guelph Hydro compete with Kitchener or Cambridge power distribution systems?” It may be common practice in competitive businesses but this isn’t the case with a publicly owned utility.

There is competition among those corporations seeking to consolidate Local Community Distribution systems such as Enbridge, Hydro One, EPCOR and others. It is reasonable to expect that major corporations will make high priced offers. Mr. Shepherd points out that it is not reasonable to expect that Alectra – or any distributor, merged or standalone – will remain municipally owned forever.

In view of that, perhaps Guelph Hydro, the SOC, city staff and council should defer this decision in the event the utility may attract a good offer to purchase Guelph Hydro at a fair market price.

Claim #15:  Guelph customers will experience a lengthy list of customer service and other improvements, shown at page 29-30 of Att-2, the advisors report.

This seems to be somewhat oversold.

When you go down the list of supposed benefits from the merged utility, it would appear that virtually all of them are already in place at Guelph Hydro.  It is not clear where actual improvements are being proposed.  Are there any?

As is so often the case when companies that have a business goal are trying to get the public onside, a picture is painted that is the prettiest version of the transaction.  Claims are made, rosy forecasts are delivered as if factual, small things are treated as big, and any details that could undermine the narrative are either not made public, or glossed over.

That appears to be the case here.  This may be a good deal.  There are arguments on both sides.  However, it is important that those assessing the situation start with the actual facts, not hopes and dreams and maybes.

Or sales pitches.

  • Jay Shepherd, December 9, 2017

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Some final thoughts

What matters most is the will of the people to express their doubts about a possible corrupted piece of legislation. The reasons are clear why this attempt to takeover our standalone Guelph Hydro system is so flawed and contrived. It’s all about the money.

The real value of Guelph Hydro is estimated to be $300 million; the utility’s cashflow is more than $600 million annualy; council has already spent $2.36 million just orchestrating this deal; Guelph Hydro has cash reserves of $22 million.

And the council appointed Strategies and Options Committee recomends that we turn all of it over to Alectra for 4.63 per cent piec of 60 percent of its profits. Trouble is what does that mean in dividend dollars?

Only we the people can change it by influencing our elected councillors to just say: NO

Instead, save our Hydro system and its loyal employees until the right and fair agreement can be completed without the secrecy and insider influences that have made a mockery of our democratic rights.

Our last chance comes Wednesday night. By attending the meeting that starts at 6:30 p.m. at city hall, we can peacefully demonstrate that we don’t want this deal with Alectra.

Instead, council should listen to the people who have little opportunity to even discover what’s really in these agreements that are not being shared publicly.

If council approves these merger agreements, there is no recourse by the shareholders.

Not after the fact changes, no objecting and Guelph Hydro, as we know it, disappears.

Please show up and we’ll have a chance to stop it or at least defer it until the real facts are revealed. We can judge whether to approve it or start over again on the people’s terms and engagement.

Gerry Barker, Editor of Guelph Speaks

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7 Comments

Filed under Between the Lines

7 responses to “The top reasons for city council to reject or defer the Guelph Hydro Merger

  1. Glen

    The saying “Marry in haste, repent at leisure” which in modern lingo is “Merging 2 things together too soon will lead to problems” is applicable here.
    My concern is the speed with which the merger is being pushed forward.
    Let’s have the voters decide via a referendum on the merger question as this was not on anyone’s mandate/platform at the last election.
    It has been mentioned that residential & industrial energy consumers are unplugging from the grid or simply relying on Guelph Hydro as a backup.
    How many of each & what % of the total of each over what period of time? Let’s get some hard numbers.
    Also, why are they unplugging or relying only as a backup? Has that got anything to do with hydro rates rising nearly exponentially due to the McGuinty/Wynne fubar with green energy etc.?
    Can these consumers generate their own electricity cheaper than hydro can supply it?
    When the province a.k.a. Ontario hydro (or whatever its current incarnation of a name is) loses over $1Billion in dumping power to the US, can hydro consumers have any realistic trust in OPG to contain electricity costs that flow thru local distributors (of whatever size)to consumers?
    Why not join together with other regional (K-W, Cambridge, Milton) hydro systems on a more equal basis rather than be a 5% part of a large entity serving over a million customers?

    • Colleen

      The notion that residential and industrial energy consumers are unplugging from the grid is simply not true. There are two residential Tesla battery storage systems installed in residences in Guelph now (according to the Mayor) and we have had one large customer install a Cogeneration unit. The battery wall is not off grid, it is load shifting. So charge the batteries when the cost is cheaper to use when the cost of hydro is more expensive. There are hundreds of FIT and MicroFIT solar installation in Guelph, and Guelph Hydro is doing just fine. The cogen is a bit more complicated, but under the current OEB model the utility is held harmless and is able to recoup lost revenue from these projects. As well – we live in a province with winter….alternative power sources can only go so far. Let’s be realistic. So load shifting – Yes. Total grid defection – No. People using grid defection and the electricity “death spiral” are fear mongering.

  2. Milton Burns

    If our Guelph Mayor and Councillors were truly interested in managing the financial affairs off the City in a manner that was in the best interests of its citizens, they would sell the Sleeman Centre and The River Run Centre and retain Guelph Hydro.

  3. DAVID BIRTWISTLE

    Gerry:Regardless of the outcome of today’s GUELPH Hydro merger by Council I wish to thank you for your tireless,outstanding efforts for shining the light on this contentious and most important civic issue,Your dedication to ensuring factual transparency to City matters over the past few years has most assuredly given citizens information which was/is otherwise non-existent.Please keep up your efforts in 2018.Have a happy and healthful 2018.

  4. bostoncollie

    Citizens of Guelph will remember this at the ballot box next November.

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