By Gerry Barker
August 20, 2018
Some days are better than others.
This past week I had the opportunity to spend time with a professional accountant who was familiar with much of the details of the proposed merger between Guelph Hydro and Alectra Inc.
Right off, this was a complex agreement containing many parts that was conducted in such a manner that defied understanding, especially to me who had to rely on city statements, devoid of the details.
As it turned out, I wasn’t the only one who didn’t get it right and for that I apologize to my viewers.
My advisor walked me through the maze of financial manipulation of city-owned Guelph Hydro Inc (GHI) and Guelph Municipal Holdings Inc (GMHI) conducted by the former Mayor, Karen Farbridge.
It turned out to be an epic misadventure of the use of public funds over a time frame from 2011 to 2014 when she was defeated. She was joined by four of her supporting councillors, June Hofland, Karl Wettstein, Lise Burcher and Todd Dennis to serve on her GMHI Board of Directors. Chief Administrative Officer Ann Pappert was appointed Chief Executive Officer of GMHI in 2011.
Without going into the convoluted explanation here is a recap.
It started in 2011 with GMHI commencing its control of the following players: Guelph Hydro Inc, Guelph Hydro Electric Systems Inc (GHESI), and Envida Community Energy Inc.
Explanation: While the city-owned GMHI and its assets, the leadership was the same, Mayor Farbridge and CAO Ann Pappert. Supporting this arrangement were councillors friendly to the mayor and her agenda.
The key to fulfill the agenda of GMHI were the profits of GHESI, owners of the tangible assets, including the poles, wires, substations, service equipment and cash to serve the 55,000 customers. The 2016 GSI financial statement put the value of these assets at $228 million.
During these four years, the GMHI operated almost entirely in closed-sessions, defying the public its right to understand what was going on.
So, what was going on?
Guelph Hydro Inc, the parent company of these assets and liabilities, was brought into the GMHI Corporation. This was done to strengthen the financial viability of GMHI that was not earning sufficient income to support its agenda and pay the operating costs.
The profits of GHESI allowed it to pay a dividend to GMHI who only paid a portion of these dividends to the city. This development provided GMHI with only one source of financing.
Following the result of the 2014 election, Mayor Cam Guthrie assumed chair of GMHI along with Coun. Karl Wettstein. It was reported that in 2014 GMHI had lost some $3.5 million.
In the middle of this was Envida Community Energy Inc., a GHESI subsidiary that was operating the District Energy pumps in the Sleeman Centre and Hanlon Business Park plus other projects. In May 16, 2016, the CEO of GMHI, Pankaj Sardana, reported to council that the Envida assets were impaired and should be written down. Further impairment occurred the following year.
In 2017 it was reported that Envida had lost $17 million on district energy. The district energy assets were worthless. This in itself was a growing cash liability that needed to be addressed.
During 2016, the city appointed a Strategies and Options Committee (SOC) to examine the options available to move forward with GHESI. Council removed the option to sell GHESI at an open meeting.
My accountant showed that the GHESI had total assets of $228 million and liabilities of $159 million in 2016, not as how I had described it. GHESI’s value for the merger that was $129.4 million. While I speculated the proposed merger was a $300 million giveaway, it appears, based on the evidence now obtained that the merger value is is in exchange for a 4.63 per cent of Alectra Inc.
The merger agreement consists of a special dividend to the city of $18.5 million. While I believe that it is being paid with our own money, I now believe it is a righteous adjustment to clear up the financial morass created by the former mayor and her GMHI board of directors.
So what does the city get in return for agreeing to this merger? I have been informed that there will be a dividend paid annually by Alectra Inc. based on a pooled share of 60 per cent of that corporation’s profits. Alectra Inc is a $2 billion corporation and our share will be 4.63 per cent of that pool of profits. Right now it’s difficult to determine what the dividend will be. We’ll know better following the potential approval of the merger by the Ontario Energy Board and with the first dividend payment.
The agreement has the dividend paid to GMHI. It currently owns GHESI and will own the Alectra Inc. I believe that GMHI, if the agreement is approved, should be closed down and the dividend paid directly to the city.
In my opinion, GMHI was a dreadful episode in our city’s history serving the personal agenda of the operators including Karen Farbridge, Ann Pappert, Councillors Karl Wettstein, June Hofland, Lise Burcher and Todd Dennis those elected officials who served on the GMHI board. They failed their sworn duty to protect and represent the citizens who elected them.
In my Opinion, for that reason, GMHI board members and council candidates June Hofland and Lise Burcher should not be considered for re-election.
The solution to continue supporting GMHI’s condemned function is to close it down.
According to my source that the end of all this is a $17 million loss, and the clean up has yet to be completed.
It is possible that it will take ten years of Alectra dividends to eliminate this increasing loss.
Finally, I am not yet prepared to accept this as a good deal until all the facts are known. I appreciate the advice I have received from a professional accountant and will continue to monitor and report.