Dancing with the devil: A tale of two municipalities dealing with Alectra power distribution

By Gerry Barker

June 25, 2018

Remember last December 13 when Guelph city council approved merging Guelph Hydro with Alectra utilities, a subsidiary of Alectra Inc?

Well it turns out that the Town of Collingwood had a six-year partnership with an outfit called PowerStream. This corporate entity of that operate, PowerStream, is also the power distribution system in Mississauga wholly owned by Alectra Inc.

In 2012, PowerStream purchased a 50 per cent interest in Collingwood utilities operating the power distribution and water system for Collingwood known as Collus (Collingwood Utility Services Corp.) At the time Mayor Sandra Cooper along with the head of the Utilities Corporation told council that PowerStream was paying $15 million for 50 per cent of the utility.

In a separate issue revealed later, the mayor’s brother, former Liberal MP Paul Bonwick, was working with PowerStream plus other companies doing business with the town.

Citizens complained about Paul Bonwick’s involvement with PowerStream, who was hired on a monthly basis by the acquiring corporation. In January 2012, PowerStream successfully bought a 50 per cent share of Collingwood’s public utility company, Collus, for $15 million allegedly.

Acting town CAO, Ed Houghton, told CBC News that PowerStream’s projected growth and “recapitalization and debt to equity ratio” promised a better long-term return for taxpayers, and noted the sale was approved by an 8-0 vote by council.

Does this sound familiar?

Didn’t Alectra make a similar pitch to Guelph city council last December with adjustments for technical blue-sky changes in power distribution?

Our guys fell for the pitch by Alectra voting 10-3 to accept the draft agreement.

The big difference between Collinwood’s experiences dealing with PowerStream aka Alectra is that they were allegedly paid for half of the Collus operations.

What did Guelph get for giving Guelph Hydro away?

Following the February 27, 2018 town council meeting, the CBC reported that lawyer William McDowell, hired by the town, outlined how a judicial inquiry could help answer who benefited from the sale, potential conflicts and where the money from the sale went.

At the sane meeting, Collingwood town council voted to invoke a rarely used section of Ontario’s Municipal Act to set up a formal judicial inquiry into the 2012 sale to PowerStream of a 50 per cent stake in the Collingwood Utilities Corp.

Complaints of citizens prompted an investigation by the Ontario Provincial Police. To date no charges have been laid.

That $15 million price, as it turned out, was never paid and the town received only $8 million.

Then, PowerStream offered to purchase the 50 percent of Collus stock it did not own for an alleged $13 million.

The February 27 meeting of town council voted 5-1 to launch a judicial inquiry with Mayor Cooper the only dissenter.

In November 2017, PowerStream, now known as Alectra Inc. the corporate owner of 50 per cent of Collus, said it would sell its shares back to the town in a buy-sell agreement.

Norm Loberg, chairman of Alectra Inc. said: “Working closely with the excellent staff at the utility, we were able to improve reliability, enhance service and offer a broader selection of conservation programs.”

It was a similar comment he made to Guelph city council last December only the promise to establish a Green Technology Centre in the former Guelph Hydro headquarters differed from the Collingwood statement.

So if what Loberg tells Collingwood council is true, why do they want to sell their interest back to the town?

Further, why three months later is the town prepared to launch a judicial inquiry into the original purchase of the utility and the six years of partnership with Alectra?

Deputy Mayor, Brian Sauderson, who voted for the inquiry said: “”Who benefited? If things were done in such a way that people benefited, then people in this community need to know.”

Is there a message here for Guelph city council?

The merger of Guelph Hydro with Alectra Utilities poses a similar series of questions in its impending deal now before the Ontario Energy Board (OEB).

In 2012, Collingwood at least sold a 50 per cent share in its Collus for $8 million.

Heck, that’s chump change comparing the giveaway of Guelph Hydro worth an estimated $300 million.

Who benefits from this merger? Is it the 55,000 owners of Guelph Hydro who have been paying their bills and supporting the growth of the City and Rockwood?

Read the words of the Alectra Chairman above. Should we feel comforted that city council is giving away our reliable, efficient, profitable and highly rated utility for the promise of a 4.36 per cent annual dividend of Alectra Utilities’ profit … but only 60 per cent of its profit?

Does that make sense to you?

There are 19 documents in the written Alectra proposal to the OEB. Some of the material is redacted on the alleged ground it contains proprietary information about Alectra.

The final insult to our collective intelligence perpetrated by city council was the last minute revelation that the city was going to receive a “special dividend” of $18.5 million.

Really!

To juice the merger deal just before the vote, city council agreed to pay us back with our own money! Those funds are coming from Guelph Hydro’s cash reserves. That’s public property.

This exercise has already cost the city $2.4 million just to perform its lame dog and pony show to convince we peasants that this is a great deal.

We can learn from the Collingwood experience dealing with Alectra.

Perhaps council should rethink its position in approving this merger. It’s still not too late as the OEB hearing may not even be held this year. There are citizens who have been approved as interveners.

Despite the closed-session meetings of the Strategies and Option committee, appointed by council, it may turn out to be a monumental political blunder come next October.

We all know what happened in 2014 when the people voted.

As an aside, there were more than 6,000 votes cast online in the advance poll four years ago. But the present council voted not to allow online voting this year.

Wonder why?

The changing world of provincial politics in April, National Humour Month

By Gerry Barker

April 9, 2018

It has been brought to my attention that the month of April is National Humour month.

Well, the mockery meter level of puffed up politicians has been increasing with Donald Trump the leading source of disdain, ridicule and ignorance.

Here in Guelph, we have a Mayor who will go down in history as the man who gave Guelph Hydro away. Of course His Worship denies that Guelph Hydro is being given away. It’s also a subject he doesn’t want to talk about as he segues into the $100 million infrastructure deal between the city, federal government and the province.

He has every right to be proud of that proposal. But hold on: There is a provincial election June 7 in which Premier Kathleen Wynne’s Liberals have a 70/30 chance of being soundly defeated by the Doug Ford Progressive Conservatives.

That is if Mr. Ford controls his personal feelings, unbridled arrogance and delivers a believable policy statement and attracts some good candidates to the caucus, he will make Ontario great again.

I can’t believe I said that.

Mr. Guthrie, on the other hand, will run on his record. And it’s a beauty.

Property taxes under his watch have soared by an estimated 15 per cent compounded in four years. On his 2014 election campaign, he promised to hold property taxes to the Consumer price Index (CPI) level. That index has been hovering since the Mayor’s pledge by slightly less than two per cent.

That’s not a good record for a self-described numbers guy who was elected to head the City of Guelph Corporation.

In fairness, the Mayor ran into a couple of major roadblocks. Number one is the Guelph Municipal Holdings Inc. disastrous attempt to create power self-sufficiency in Guelph. With the former mayor in charge and the involvement of Guelph Hydro, almost five years when millions were spent and are not recoverable.

It occurred without public participation as GMHI meetings were conducted in closed-sessions. Today, we are still waiting for the truth.

The whole plan was ill conceived without the benefit of a practical business plan. While he essentially inherited the mess, he had to involve a certain select group of councillors to help get the city out of the GMHI problems. Unfortunately, the real truth of what happened and how much did it cost the city have been buried.

Like it or not, that issue alone is something he will have to defend on the campaign trail.

The second major consequence he will face is defending the agreement to merge Guelph Hydro with Alectra Utilities.

While these issues are on the table it may be all moot if the P.C.’s win in June. The opposition parties, the Tories and the NDP, have opposed the Wynne government’s plan to collectivize the small and medium sized Local Community Distribution power systems by merging those operations into larger Utilities such as Alectra.

Here’s a back-story on how Alectra operates. Alectra bought Brampton’s LCD known as Hydro One for millions. So why does Guelph take the sell option off the table? The merger is a sham and our hydro distribution system will be lost forever including the brand name Guelph Hydro by the end of this year.

Here’s another Alectra back-story. In Collinwood, Alectra and the city shared ownership of the community power distribution system. Alectra purchased the 50 per cent share from the city for $3 million. Later Alectra informed the city it wanted to buy the city’s share for $8 million.

The city suddenly realized, in the first share purchase, the price was way below market value. In order to own the whole system, Alectra was low-balling its second offer in which the city share had appreciated significantly.

The result was there will a judicial review over these two transactions sometime next year.

Did the Mayor and council know about these Alectra deals in which real money was exchanged for control of established and mostly debt-free community property?

So keep in mind this is National Humour month, keep the tongue in the cheek and laugh out loud when the candidates take themselves too seriously.

 

 

 

 

Why did Council approve Guelph Hydro merging with Alectra Utilities not knowing the final terms and conditions of the deal?

By Gerry Barker

January 2, 2018

Following a marathon meeting December 10, council approved by a 10 to 3 majority, to merge Guelph Hydro with Alectra Utilities.

It was the culmination of a $2.36 million city-financed campaign that was conducted chiefly in closed-sessions by the Strategies and Options Committee (SOC) and city council. Our council approved formation of the SOC 14 months ago. It did so without the active participation of any elected members of council.

Council’s decision remains the greatest con job of a proposal in the history of Guelph. The details to this day are secret and kept far from the eyes of the 55,000 Guelph Hydro customers and owners of the utility.

How did this happen?

The night of approving the merger, there were 22 delegates appearing before council. By a three to one majority, they opposed the merger or at least request deferring the decision to allow more time for the citizens to absorb the details. Also, there was a petition containing 76 names that flatly opposed the merger.

The majority of council robotically ignored these citizens.

Seven delegates representing Alectra’s interests sang the praises of a Guelph Hydro merger with Alectra. Only one of the seven, Mark Goldberg, a member of the SOC actually lives in Guelph. The seven came from Toronto, Mississauga Brampton and Barrie to praise Alectra and reassure council that this was a good marriage.

Or is it?

From at least two sources, why didn’t council not have the final agreement details, and not declare that important information before approving the merger after midnight Dec. 10?

We attended that meeting and the lawyer representing Aird and Berlis, the Toronto-based legal firm, carefully outlined the status of the negotiations between the city and Alectra, stating they were yet to be finalized.

Add the voice of Pankaj Sardana, Chief Executive Officer of Guelph Hydro, who admitted just a few days before the meeting that negotiations were not completed and would not be shared. That is, until Guelph Hydro, Guelph Municipal Holdings Inc. (GMHI) and Alectra approves the merger and documents are released to the media and the 55,000 Guelph Hydro owners, the customers.

Here’s why not to hold your breath on that happening

The question is: Why did council pass a motion to approve the merger when the final legal documents had not been negotiated, signed and sealed?

Did those ten councillors understand the final merger details when they voted to approve it? But then, why would they, negotiations were still being conducted in closed- sessions between the parties.

Why is that a surprise?

This administration conducts too much of the public’s interest behind closed doors. Since Cam Guthrie was elected mayor, there has been little attempt to open council’s business. Indeed, there has been little attempt to fix the secret workings of the public business, a hangover of the previous administration.

Once those doors are closed, the public is shut out of the proceedings. To protect itself from public disclosure, council has a hired closed session investigator at their beck and call to diffuse any right of the public to know and understand what’s going on behind those closed doors.

We know from personal experience how the closed-session investigator from London known as Amberlea Gravel functions.

I requested the minutes of the Dec. 10, 2015 closed-session council meeting, in which three months later we discovered $98,292 in base salary increases were awarded to the top four senior managers. I received my answer four months later when my request was denied.

Not allowing need-to-know our business is an inconvenience

This is nothing but a repeat of the policies of the Guthrie administration. It’s just too inconvenient to let the public know how and why council conducts our business.

In itself, it is an affront and disregard of our Canadian Democratic rights to participate in public civic affairs without the threat of retaliation.

Personally, I have experienced how our council condones retaliation against a writer, a resident and critic who legally participates and comments on public affairs for the past ten years.

Back to the business at hand, betrayal of the public trust

It really didn’t matter because councillors were well aware of the secret meetings. Council confirmed it by appointing an outside lawyer who said the merger terms and condition were still to be negotiated. Mr. Sardana knew the deal was not finalized and that’s why he said the negotiation information would not be shared.

We were informed that Aird Berlis had acted for Alectra previously in an unrelated matter.

Did council base its decision on the 245-page of manufactured dreck purported to be the final details of the agreement? This document was released to the public but was only available online December 1. Just 12 days before the Dec. 10 meeting.

This was a carefully orchestrated operation to deny the public its rights to access the details that council passed with only three members opposed, James Gordon, Bob Bell and Phil Allt. I do not often share the views of Mr. Gordon or Mr. Allt but in this case, they had the guts to do the right thing and opposed the deal.

On November 24, GS sent each councillor 46 questions regarding the merger. We only received one reply from the Mayor five days before the Dec. 10 meeting. To his credit, the Mayor gave me a previous heads-up that he needed more time to consult and research his answers.

But five days before D-Day?

The questionnaire was in response to the “energizingtomorrow.ca” website that stated, “Ask Us Anything.”

All the GS questions were based on the merger and the details as far as we were aware. As Mayor, Mr. Guthrie I would assume was speaking for all members of his council. Three of them did not vote for the merger

The most interesting answer to one of the questions asked wawhy council was giving away Guelph Hydro. He replied: “We are not giving away anything.”

Our differences lie in one simple fact: If Guelph Hydro is valued at $300 million how does that justify a $1.5 million “dividend” from Alectra a year? Further the city share is based on only receiving 60 per cent of Alectra Inc. profits. So to get control of Guelph Hydro, Alectra threw in some sweeteners.

You are the judge, how sweet are they?

They promised to establish a Green Power Technology Centre in the Guelph Hydro headquarters building that will employee ten people. Alectra also promised to make Guelph the “Hub” of its expansion into South Western Ontario. And don’t forget the $18.5 million special dividend from Guelph Hydro to the city. That’s persuading council using our money.

The downside is that an estimated 60 Guelph Hydro employees are to lose their jobs through termination, relocating or retiring. It didn’t seem to matter to the ten councillors who approved the merger.

Adding up the Guelph Hydro’s annual estimated profit after expenses, in 2016, the surplus was $7, million: in 2017 it is estimated the surplus will be $7 million; in 2018, prior to closing there will be additional net earnings of Guelph Hydro. That will possibly total $21 million over the three years.

On closing of the merger, that notorious $18.5 million special gift from Hydro to the city kicks in leaving a balance of $2.5 million remaining in the kitty.

Hold the phone! Guelph Hydro already had a cash reserve of $22 million on its 2016 books. It’s all so deliciously transparent. First, the $2.36 million the city has spent on driving this crazy deal to fruition is neatly covered by the annual $3 million dividend Guelph Hydro delivers to the city three-year surplus of $21 million.

So it would appear that city council is not going to receive a $3 million divudend when it mergers with Alectra but just $1.5 million.

Is this a great deal or what?

Still with me?

Lying in the entrails of the great give away by city council is the $22 million stash of cash Hydro had before any these merger talks ever began.

What happens to that money if this deal ever closes?

Another unanswered question. Is it remotely possible that not only Alectra will wind up with the city’s only viable, profitable subsidiary worth an estimated $300 million but a bonus of $22 million in cash? As 131,000 citizens are kept outside the decision process, the council approves the deal. We are left without clothes shivering in the dark.

Bad metaphor? Unfortunately true

In view of the facts, how can Coun. Mike Salisbury who moved the approval motion, and seconded by Coun. June Hofland, have access to the final terms and conditions that were yet to be completed? That goes for the other eight councillors who voted to approve something that they had little knowledge of, the final merger deal and documents.

And why were Councillors June Hofland and Karl Wettstein even involved in this decision? They were on the failed GMHI board of directors for four years, drawing a fee for serving and never revealing what was happening as the operation lost $63 million in shareholder value.

That was our divestment that was swallowed up by incompetence.

When does council deliver the details of this merger?

Accordingly, as one of the 55,000 Hydro owners, as a shareholder, I would be interested in knowing the final details of the merger agreements version if and when completed.

In my opinion, the council motion Dec 10 was illegal because the final details of the terms and conditions of the merger were not known at the time. Therefore, council cannot give away our $300 million Guelph Hydro without fully disclosing the final details to the public. For a change, hold an open debate on the merits and benefits as agreed to by both parties.

The Ontario Energy Board must still approve the merger. It is incumbent on the two parties that proof of public acceptance of the merge must accompany the application. This is not expected before the fall of 2018.

Will that be ham and cheese or smoked meat on rye?

There was little council enthusiasm listening to the delegates opposing the motion. This turkey was already baked in the oven. The only reason to hold a one-hour closed- session meeting before the public meeting was to eat supper and decide who would move the motion and who would support it or not.

Wilson Street Parking garage financing

Oh! In case you are wondering what the city will do with $18.5 million “special dividend,” here is the latest info: The Wilson Street $20 million five-storey parking garage across the street from city hall. Guess who benefits from that?

If that’s the case, the $18.5 million is our money only held by Guelph Hydro. So at least it may be used to create a badly needed downtown parking garage. The only problem is those having monthly parking passes will occupy the majority of available spaces.

And there are so many capital projects begging for funding.

Yep! It makes sense to give away Guelph Hydro to solve that problem.

Some Short takes

Notice the Mayor was a part owner of the Guelph Royals baseball team to save it from folding. He had to vacate his position due to a conflict of interest. Guess he got a look at the books. What? Council has a baseball team?

The changes are a’comin

There will be a number of changes coming in this year’s civic election. The provincial government has passed rules governing corporate and union donations. There remains a proposal to have a new nomination period of three months starting in May. The 445 civic councils in Ontario have Until March 31 to pass new bylaws to change the nomination dates. The last thing Premier Wynne needs is to rile up the municipalities. It’s the best we can hope for.

Mayor announces he is running in 2018

Stating: “I really enjoy being Mayor and I love being Mayor.” He then produced a list of accomplishments that were not specific including the financial details.

We do not agree with the mayor that 2018 will be the “silly season.” There will be many surprises and issues demanding the truth.

Accordingly, watch for a special “Truth Squad” report posting by GS based on the Mayor’s list of accomplishments … One Pinocchio, Two Pinocchio, Three Pinocchio!

Guelph Speaks wishes all a Happy New Year, one that is prosperous, healthy and fulfilling.

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.

*            *            *            *

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.

*            *            *            *

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.

*            *            *            *

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.

*            *            *            *

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

*            *            *            *

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

Guelph Hydro: Fifteen Claims

Introduction

Guelph Speaks brings you the second independent analysis of the alleged Guelph Hydro/Alectra merger agreement by Toronto Energy lawyer, Jay Shepherd. Mr. Shepherd’s expertise and experience presents an unbiased and revealing overview of the controversial merger between the two corporations.

On Monday, Guelph Speaks will present a timely review prior to Wednesday’s council meeting to approve or reject the merger agreement. It will be an overview of an agreement that has yet to be finalized according to Mayor Guthrie, the Chief Administrative officer, Derrick Thomson and Alectra.

Gerry Barker, December 9, 2017

Guelph Hydro: Fifteen Claims

Posted on December 9, 2017

by Jay Shepherd

Since my article on November 5^th analysing aspects of the Guelph Hydro Alectra merger, a number of readers in Guelph have asked me to look at the transaction further, particularly in light of the lengthy report tabled December 1^st to Guelph City Council.

The best way to do that is to look at the actual agreements.  That way the information is clear and precise, and is not filtered by the perspectives of those providing the information.

I asked the Mayor, the CAO, Guelph Hydro and Alectra for the agreements, but was told by Guelph Hydro CEO Pankaj Sardana (who was apparently designated to respond on everyone’s behalf) that the agreements are not final, and so cannot be shared.  I believe they have, however, been circulated to the Guelph Hydro and Alectra boards of directors, to City Council, and others, so they can’t be that confidential (40-60 people have probably seen them by now).

Further, under OEB rules they 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.

It thus appears that the primary reason to withhold public disclosure now must be so that the public doesn’t have all of the details of the transaction.

That is unfortunate, but it is what it is.  I will have to provide my commentary based on the report to City Council.

That report comes from a specific, pro-merger perspective.  For example, the Guelph Hydro lawyers providing the legal analysis are the same firm that represented Alectra in their merger application before the Ontario Energy Board.  While I’m sure they are trying to be objective (and they are a good firm that I know well), they have an obvious point of view.  No matter how well they may eliminate their bias in fact, it is pretty difficult for them to remove the perception of non-objectivity.

The commentary below takes several of the claims in the report to City Council, fifteen in all, and assesses how they match up with the facts.

I repeat my earlier comment that I do not have an opinion on this transaction.  This article is intended to provide information and analysis, but any interpretation that suggests I think the transaction is good, or not good, would be incorrect.  I strongly believe that it is the residents of Guelph whose opinion matters.  My opinion – even if I had one – does not.

Claim #1:  A merger between Guelph Hydro and Alectra is better for Guelph residents in the long term than Guelph Hydro remaining a standalone utility.

This claim is likely to be correct.

However, it is also highly problematic, because this comparison asks the wrong question.

Guelph Hydro as a standalone utility is probably not a viable long-term option.  As the electricity distribution sector expands and becomes more complex, smaller distributors will have a hard time keeping up.  Further, they will have a hard time recruiting the best people, which will put them even more behind the curve. In these respects, the discussion of “Utility 2.0” in the report and attachments is largely accurate.  We are entering a period of change.

Guelph Hydro is big enough to be a very good utility today.  As expectations on, and challenges facing, distributors increase in the next decade or so, Guelph Hydro will probably be at a disadvantage unless it increases in size through merger or acquisition.

This means that comparing any merger proposal to the standalone option starts out stacked in favour of the merger.  Size is going to matter.  Standalone is effectively a straw man.  It is not going to happen.

The fair comparison would be a merger with Alectra vs. a merger with Cambridge or Kitchener or Waterloo or Milton or Halton Hills or Oakville or Burlington, or even several of them.  The problem is that the residents of Guelph don’t know whether those possibilities were considered and, if so, what stood in the way of reaching agreement on any of those potential merger directions.

Without that information, it is impossible to know whether the Alectra merger is better than other  viable alternatives.  The public doesn’t know what other alternatives were available, and/or considered.  (It’s a secret.  Largely for legitimate reasons, but it’s still a secret.)

The only comparison given is to an option that is not viable.  Take this deal, or die.  That is not really useful.

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.

The “special dividend” has to be paid to adjust the debt equity ratio of Guelph Hydro to roughly 60/40, the standard for Ontario distributors.  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.  The effect would in all respects be exactly the same.

It is called a dividend only because that is the legal form that is used to effect the change.  It is not like a normal annual share of profits.  It is a catch up of prior year profits that have been left in the company and accumulated as equity.  It is not coming from Alectra.  It is coming from Guelph Hydro’ cash on hand, which at the end of 2016 was $22 million.

Where the analysis by the advisors says “Guelph is better off financially under a merger with Alectra  than on a standalone basis with ~$29 in additional cash through closing adjustments and dividends”, that is just bad math.  The $18.5 million dividend is not an improvement in the City’s financial position, and the $10.1 million in extra future dividends (see below) is speculative at best.

The City is not better off initially under this transaction.  That is just not correct.

Claim #3:  “Dividends are projected to exceed dividends under the “maintain full ownership” option by $10.1 million.”

It is not possible to confirm this.

Past dividends by Guelph Hydro to the City have been $3 million per year, and there is no reason to think that would end.  Based on current estimates of Alectra combined income, a 4.63% ownership by Guelph, and 60% payout, dividends look to be about $2.2 million per year to Guelph in the short run.

Without the backup calculations for the $10.1 million figure, it is not really possible to get to anything like that on the basis of public information.

Claim #4:  “GMHI will receive one permanent seat on Alectra’s board, and will have the right to appoint an independent director.”

This is correct, but it is important to understand what it means.  It is one, not two.

Guelph will appoint one member on the 13-member Alectra board.  It cannot be a councillor or the Mayor.  It must be an independent, and it is one person.

Further, it is important to note that the Alectra board doesn’t have the same close oversight of management as is currently the case with the Guelph Hydro board.  For example, Alectra is right now before the Ontario Energy Board seeking a 2018 rate increase of 1.3% to 4.2%, depending on rate class.  That request was not approved by the Alectra board.  That decision – what rates to request – has been delegated to Alectra management.

There is no information on whether the executive management team of Alectra will include anyone from Guelph.  I suspect it will not.

Claim #5:  “There are important restrictions on transferring shares, and therefore indirectly on privatization, in the USA.”

Assuming the new USA (unanimous shareholders’ agreement) is substantially the same as the existing one, this statement is correct.  Any significant minority of shareholders can block or slow down any process of privatization of Alectra.  (Some of the details of this agreement remain confidential, even today, but for good reasons.)

It is also true that some of the municipalities that own shares of Alectra are currently opposed to selling shares to the private sector.  Alectra has a small percentage of shares already held by an investment bank, for the OMERS pension plan, and some shareholders don’t want that non-municipal ownership increased.

There will, however, be strong pressure to privatize or partially privatize in order to monetize the value of the shares of Alectra.  At some point, high priced offers will be made by companies like Enbridge, and EPCOR, and others.  It is not reasonable to expect that Alectra – or any other distributor, merged or standalone – will remain municipally-controlled forever.

Claim #6:  “Rate increases are projected to be more moderate than they would be under the “maintain full ownership” scenario.”

This is probably not true.

As I have noted in my previous article, Guelph Hydro has a better record of controlling rate increases than Alectra does, and that goes back many years.

That is likely to continue into the future.  In their merger application, Alectra filed a forecast showing expected rate increases over the ten year “sitout” period of an average 1.74% per year (Exhibit JTC1.3 in that proceeding, for those keeping score).  That included a first year increase of 2.79%.

Alectra’s actual application for their first year rate increase is now in, and it is very close to that, an average of 2.84% for the three general service classes (residential, small business, and commercial/industrial).  Some of this is based on a predetermined formula which they can’t change, and the rest is extra money they have requested for additional spending they want approved. These new rates are not yet approved, but Alectra is pressing hard.

(I have excluded Horizon, because they are required to reduce their rates in 2018 due to an agreement reached with customers in 2014).

Guelph Hydro has also applied for 2018 rates, using the same formula.  Their average distribution rate increase will be 0.23%.  The reason is that, while they used the same formula as Alectra, they didn’t ask for any extra money.  Guelph Hydro has historically been able to live within its regular budget, without extras, and still make a good profit.

Alectra has made clear that they expect to seek extra money for additional spending each and every year during their ten year sitout period.  In total, they forecast that they will want approval for $500 million or so of incremental capital spending during that period, although that will change as circumstances dictate.

They don’t actually need the money, because they will have more than enough from the savings arising out of their merger.  Under the rules, though, they can keep the merger savings, and ask for extra rate increases to spend more as well.  There is no reason to think their tactics will change after bringing Guelph into the fold.

The graph at page 25 of the advisors’ report, which shows lower distribution revenue per customer under the merger scenario, appears to be based on inappropriate assumptions.  The basis of those assumptions has not been made public.  Where in that report at page 28 the advisors say Guelph customers can expect “Rate Increases Below Inflation”, that statement is inconsistent with the evidence of Alectra in their own merger application.

It is therefore more likely that rate increases will be higher under a merged utility than under a standalone utility, but it is really difficult to forecast the amounts with any level of accuracy.

Claim #7:  “A Southwest Operations Centre will be preserved at the location of Guelph Hydro’s current offices with a minimum commitment of 10 years.”

This is almost certainly true.

The standard approach to mergers in Ontario, which Alectra uses well, is to promise a strong presence in the acquired area for a period of time.  This reduces the feeling that the local community will be served by outsiders.  This approach has been central to every past merger application I’ve seen.

On the other hand, in the longer term it will not make sense to keep a major operations centre in every Alectra community.  Some will have to eventually lose their local operations for Alectra to operate efficiently.  Ask the City of Markham, one of the original merger partners that formed Powerstream, how many Alectra employees are still based there.

Claim #8:  “Guelph Hydro employs about 130 people. About 70 of those existing positions have been identified as needing to remain in Guelph. About half of the remaining positions would be offered relocation opportunities starting in 2019, with the majority of moves happening between 2020 and 2022. The other positions are expected to be addressed through attrition, voluntary retirement, or voluntary separation wherever possible.”

These ratios are consistent with Alectra’s past approach, and so are likely to be correct.

Of the current 130 employees, 70 (mostly tool in hand employees) will remain in Guelph, which minimizes travel time to job sites.  30 others will be offered jobs within Alectra, but only if they are willing to work in Hamilton or Mississauga or Vaughan.  The other 30 will be without a job.

Claim #9:  “Alectra will establish the GRE&T Centre in Guelph as a platform for supporting transformation in the electricity industry by accelerating integrated energy solutions. The GRE&T Centre will have eight to ten new full-time positions, with $5 million of capital spending in the first three to five years of the merger, and $3 million in annual operating spending within two years of the merger.”

This is true, but it may look better than it actually is.

First, it is a relatively small commitment, $3 million a year for a utility with +$600 million in annual revenue, i.e. under ½ of 1%.

Second, and perhaps more important, the former Powerstream Head Office was, in the Alectra merger, renamed the “Sustainability and Innovation Office”.  This large (92,000 square feet) office building near Highway 400 in Vaughan, which can house 270 people, will clearly be the centre for most sustainability and innovation activities.  Decision-making, of course, will be centralized in the Alectra Corporate Office in Mississauga, which is also a large (79,000 square feet) office building that can house 200 people or more.

There is little doubt that some initiatives will be carried out in Guelph, if for no other reason than Alectra promised that.  If Guelph thinks that it will be the centre of a major hub of innovation and other green activity, that may be wishful thinking.  The GRE&T Centre (“great”, get it?) has a very pretty (green) business plan, but its substance may be substantially less than the hype suggests.

Claim #10:  “Alectra will meet or exceed service standards and reliability for electricity distribution customers in Guelph Hydro’s current service territory.”

This is also true.

As noted in my previous article, both Alectra and Guelph Hydro are well run utilities.  On both reliability and customer service, Guelph has generally been better, but both are good.  For example, Guelph currently gets about 200 phone calls on the average day, and about 5 of those have to make a second or third call to get their problem resolved.  At the Alectra service levels, about 35 would have to make that second or third call.

Claim #11:  Guelph customers will share in the $32.3 million OM&A and capital savings from the merger, as well as in the $426 million in savings from the original Alectra merger. (See Att-2, page 5).

This does not appear to be true.

Under the rules of the Ontario Energy Board, all savings for the “sitout” period go only to the shareholders.  That includes the savings for the original Alectra sitout period.  None of these savings go to the customers.  There does not appear to be any basis for saying that they will, and the report is almost certainly wrong on this point.

Claim #12:  From 2026-2041, customers will receive $73.7 million in savings from the merger. (See Att-2, p. 5).

This may or may not be true.

First, it is too far in the future to project, and second, the basis of the calculation has not been made public.

In the past, the customers of the Powerstream merger partners do not appear to have benefitted from the mergers, since their average rate increases were higher than those of Guelph, which did not have any mergers.  Horizon customers, on the other hand, did apparently benefit from the merger between Hamilton and St. Catharines.

Thus, the jury is out on this one.

Claim #13:  GMHI will benefit from greater growth in the value of its investment due to the scale of Alectra and its focus leading industry change.

There is no reason to believe this is true.

It is true that, compared to standalone, growth in value is likely to be better with a merged entity.  There is no evidence to suggest that merger with Alectra, as opposed to merger with someone else, will produce better growth in value.  Generally speaking, growth in value of a wires company is driven by demographics.  Some of Alectra has reached lower rates of customer and business growth, while Guelph and other municipalities that are not part of Alectra can look forward to quite high future growth.  Which will grow more:  Hamilton and Mississauga, or Guelph and Milton?

Whether Alectra is “leading industry change” is a matter of opinion.  Alectra is certainly active in the corridors of power, and has some influence.  Many others in the Guelph-centred region are also active and influential.  It would not be fair to say Alectra is the “leader”.  It might be fairer to say they are an important player.

Claim #14:  “All customers of a consolidated utility are expected to benefit from lower distribution rates than what they would have to pay as customers of their respective utilities.”

This is probably not true.

As I demonstrated in my previous piece, at the time rates are harmonized, the Guelph small business and commercial/industrial customers are likely to experience high rate increases, since their rates are quite low right now.  Where Alectra says that it will not harmonize rates if this is the impact, that is not consistent with their past history.

Because we can’t see the agreements, we don’t know if the City of Guelph has any veto over large increases to customers in Guelph.

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

Related

Energy #20 – An Open Letter to Guelph Hydro CustomersIn “Energy”

Energy #15 – An Answer for the PremierIn “Energy”

Energy #19 – Regulatory CaptureIn “Energy”

 

The Guelph Hydro agreement includes a $20.86 million going away present of our money to hook up with Alectra

By Gerry Barker

December 4, 2017

City of Guelph Media Release:

Guelph, Ont., December 1, 2017 – With negotiations complete, a report that shares the details about the proposed merger between Guelph Hydro and Alectra is now available on the City’s website and energizingtomorrow.ca

Guelph Speaks has commented on the media release and its comments are in bold face.

On December 13 at 6:30 p.m., City Council will meet to discuss the report, hear delegations from community stakeholders, and decide whether to approve the proposed merger.

“The report answers a lot of the questions we’ve been hearing from our community about electricity distribution rates, service reliability, the City’s dividend, our share in the merged company, and jobs,” said Derrick Thomson, chief administrative officer for the City of Guelph (and co-chair of the Strategies and Options Committee (SOC). “We encourage all community stakeholders to learn more about the proposal, ask questions, and send us comments as City Council prepares to make its final decision December 13.”

Well Derrick, here’s our comment: Please explain to the 55,000 stakeholders why after a year and a half of negotiations, why did this agreement give Guelph Hydro away getting nothing for the assets valued at $228.4 million? The citizens have just nine days to obtain, read and digest the 245-page agreement that is only available online.

In view of your invitation to participate in the process, it is too late and smacks of a deliberate attempt to conceal the details and block public participation. The administration has depended on the Internet to communicate its information. But neglects the thousands of Hydro customers who have no access to a computer or are disabled or disadvantaged.

I received a hard copy December 2 and it’s a daunting task to read and absorb 245 pages of the document with just nine days remaining before the December 13 council meeting to approve or reject the agreement.

Council refuses to answer my merger questions

On your advice I attempted to ask a number of questions but were blocked by the energizingtomorrow.ca website under the title ‘Ask us Anthing.’ I then sent the questions to every member of council receiving no resposnse. That’s so much for transparency. A member of the administration was reported as stating ‘They are asking the wrong questions.’ Not only are citizens restricted in the number of characters in their online submission, it now appears there is censorship of certain questions the administration doesn’t approve. So much for the Ask us Anything claim.

“The final report and recommendations for City Council give me confidence that this is the right direction for our city to take. Guelph residents and businesses will save money, and the City will receive higher dividends we can use to support local infrastructure, programs and services. A new Green Energy & Technology Centre would provide new jobs, economic opportunity, and strengthen Guelph’s position as an energy leader. The time has come for Guelph to embrace our energy future and this merger accomplishes that,” said Guelph Mayor Cam Guthrie.

How can the Mayor make these assertions months before the final details of the agreement are signed? How will 55,000 Guelph Hydro customers save money? How does the city receive higher dividends when it loses control of Guelph Hydro what is the basis of such a statement? Why do we need a Green Energy and Technology Centre when we just blew millions attempting to create green energy sustainability? Mayor, specify all those new jobs and economic opportunity (sic) that will strengthen Guelph’s position as an energy leader? I don’t recall that statement being part of your 2014 election campaign.

Well Mayor, there is absolutely no truth or assurance that anything you say will occur. If you had done your homework and checked Alectra’s track record of dealing with consolidation of Local Municipal Distribution (LCD) systems, you may have been more careful in your support. For example, why did Alectra purchase Brampton Hydro One but is not interested in buying Guelph Hydro?

Will the real Alectra please stand up? Is it Alectra Utilities or Alectra Inc? The city generated Dec. 13 agenda does not specify. The agenda states there is a closed-session meeting at 5:30 one hour before the public meeting.

Oh! To be a fly on the wall for that closed session.

Question: Is it a fact that Counc. June Hofland and Coun. Karl Wettstein, voted to appoint the SOC in 2016? They were former paid members on the Guelph Municipal Holdings Inc. (GMHI) Board of Directors,. GMHI controlled Guelph Hydro, are they not in conflict and should they abstain from voting in the December 13 meeting to approve/disapprove the merger?

After a year of industry research, financial analysis and community engagement, the City began negotiating a merger between Guelph Hydro and Alectra in October. The negotiated transaction before City Council offers greater benefits for customers, the community and the City as shareholder than maintaining full ownership of Guelph Hydro.

If that is true, why was the composition of the SOC appointed membership changed? It has been reported and not denied that the option of selling Guelph Hydro was taken off the table in February 2017. Did the SOC interview any organizations regarding the purchase of Guelph Hydro? We assume that after more than a year researching opportunities for either a sale or a merger, when did the SOC decide to negotiate a merge with Alectra?

It appears the SOC is a one trick pony.

Were these some of the questions that were judged to be wrong by those directing the merger campaign and therefore not answered? No wonder.

“I want to thank City and Guelph Hydro staff, along with the Strategies and Options Committee for their work over the past year preparing a comprehensive financial and legal analysis for Council’s consideration. I also want to thank Guelph and Rockwood residents and businesses for participating in the process. Your questions and comments have, and will continue to guide City Council’s decision, ” added Mayor Guthrie.

Mayor, where is the evidence of “comprehensive financial and legal analysis” allegedly conducted by the SOC?

The report includes materials which address the Merger Participation Agreement and Unanimous Shareholders’ Agreement—the two main agreements that would give effect to a merger; the Green Energy & Technology Centre (GRE&T) Strategic Business Plan; a fairness opinion—an independent financial opinion which concludes the merger agreement is fair from a financial point of view, to the City as shareholder; a letter from Alectra board chair, Norm Loberg, offering City-sought assurances regarding no intent to privatize; findings from the 14-month public consultation process.

If you give our $300 million Hydro system away with little or no consideration from Alectra, a private corporation, then the benefit to the owners is nil, nada zilch, pure and simple. I, for one, have been unable to download the details of this agreement from the city website.

Linked Resources:

• City Council report and presentation for December 13 meeting
• Energizing Tomorrow community survey results
• Energizingtomorrow.ca: community questions and comments
• About Alectra Utilities (print-friendly pdf)

When I asked the city communications contact employee for assistance. I received a one-line reply that the documents were on Microsoft Explorer and Chrome browsers. I am a Mac user and use Firefox as my brouser. No reply or assistance was received. Guess that’s what can happen on a Friday afternoon.

A copy of this agreement will make an excellent door stop

Well, it doesn’t matter. I received a hard copy from another source. It’s 245 pages so it will take time to digest. There are five days left to join the petition and tell your councillors that you are opposed. Send your request to oppose the merger to gerrybarker76@gmail.com Please include your full name, address and ward.

Local ownership and dividends

In addition to its regular annual dividend, Guelph Hydro would pay the City a special dividend of $18.5 million.

So to sweeten the pot, the agreement includes a special dividend of $18.5 million from Guelph Hydro to the City of Guelph. Such a transaction is simply getting paid with your own money.

Toss in the $2.36 million that the City and Guelph Hydro is paying to join this Alectra club.

No mention in the ageement of the $93 milion in Guelph Hydro’s long-term debt. It’s made up of two debentures assigned to Guelph Municipal Holdings Inc. one due in 2030 and the other in 2045. Who pays the interest to satisfy that liability? Answer, it’s us the taxpayers.

Why is GMHI receiving the Alectra dividends?

The City would receive a 4.63 per cent ownership interest in Alectra. Among other things, this percentage determines what share of Alectra’s future dividends Guelph Municipal Holdings Inc. is to receive

Just to keep it straight, in return for giving away our $300 million Guelph Hydro system, we get a 4.63 per cent ownership of Alectra? On top of that, for the privilege, it only costs us another $20.86 million to join Alectra.

Why is GMHI receiving the unknown amount of Alectra dividends and not the city?

Especially when GMHI has already lost $63 million in Guelph shareholders equity? Did not the Mayor state that Alectra would pay twice what Guelph Hydro was paying in dividends to the city? That could become $3 million a year. Guelph Hydro had a net profit in 2016 of $7 million. That’s after all expenses including the $1.5 million dividend paid to the city that year.

So why are we giving it away?

Okay, we citizens have no idea where Guelph Hydro is finding $18.5 million to send to its corporate owner, the City of Guelph. Yes that’s still we the people. This is starting to resemble a Ponzi scheme where the shareholders are paid with their own money.

If this deal is approved, it will be snowing, if you get my drift

Summing up: This agreement to give Guelph Hydro away to Alectra will cost the city $20.86 milion. Alectra is not putting up a dime. It’s a mystery why city council is being snowed by this deal. What would they do if it were their own money?

In return we get a 4.64 per cent share of Alectra, the Alectra dividend amount is unknown. Does the agreement contain Alectra’s certified copies of the following: 

Details of incorporation, jurisdictions

Current assets and liabilities

Status of long-term debt and type of liability

Names of shareholders and corporate officers and interest

What is the difference between Alectra Utilities and Alecrta Inc?

Names and position of senior staff

Names and terms of office of the Alectra Board of Directors

Dividend distributions in 2016 and 2017 YTD

Income statement from January 31, 2017

If this informatiin is judged proprietory, then the city lawyers and accountantss should swear to their authenticity and the contents reviewed on behalf of the shareholders.

What assurances do the Guelph Hydro shareholders have that this information was disclosed to the SOC in confidence because parts of it are proprietory?

If the SOC did not pursue answers to these vital questions of the merger proposal during negotiations, then how can it possibly support the merger if they don’t share the intimate details of each organization?

It’s what we don’t know that hurts

Alectra certainly knows everything it needs to propose this merger but what do the shareolder’s of Guelph Hydro know about the inner workings of Alectra?

On the surface, it appears that the city administration doesn’t care what the shareholders’ interests are, only that they get their hands on $18.5 million of the shareholder’s money.

Where do you think that money is going?

Again, don’t be duped by hollow promises. This is not a deal but a blatant steal of our prime asset.

Why would the SOC who ostensibly negotiated this merger, ever be lured by the so-called special dividend of $18.5 million to be paid to the city using our public funds, in return for recommending this merger?

More to the point, if city councillors believe this merger benefits the 55,000 customers of Guelph Hydro, then they are suffering from power cut to the brain.

Alectra’s current policy is to pay annual dividends equal to 60% of its net income. This policy is expected to continue, and as a result of the merger the dividends payable to the City would increase significantly as compared to the dividends it would receive if Guelph Hydro continued operating alone.

Promises, promises will get us nowhere

The key words here are “expects” and the “promise” of greater dividends paid to the city. Is this a guarantee and part of a committment by Alectra in the merger agreement?

Guelph would receive one permanent seat on Alectra’s board of directors and have the right to appoint an independent director.

The Guelph Hydro brand would be used for one year following the merger.

So what? Once you transfer the corporation and its assets, it’s game over.

Electricity distribution rates

Electricity distribution rates are not expected to go down after a merger, but they wouldn’t go up as much as they would if the City maintained full ownership of Guelph Hydro.

Guelph and Rockwood customers would avoid an estimated 5% distribution rate increase in 2021, and another estimated 5% increase in 2026, and would also benefit from the savings expected from consolidating the two companies.

Service and reliability

Alectra would meet or exceed service standards and reliability for electricity distribution customers in Guelph and Rockwood.

Is this why Alectra doubled its customer service charges in its current operating distributions systems? Does the agreement protect Guelph Hydro’s lower cost customer service charges and for how long?

Protection from privatization

Alectra is 97% municipally-owned, with the remaining 3% owned by a subsidiary of OMERS (Ontario Municipal Employees Retirement System). Alectra’s existing unanimous shareholders’ agreement is the result of extensive negotiation among its shareholders, none of whom planned to privatize.

Provisions in Alectra’s unanimous shareholder agreement, tax disincentives, and the municipal character of its shareholders are all protections against future privatization of the utility.

To describe Alectra’s clients as being 97 per cent municipal-owned is a stretch. In Guelph’s case once the deal is approved it is no longer municipal-owned. If the agreement has a clause that gives Guelph Hydro the right to withdraw would that be opposed by Alectra.

Green Energy & Technology Centre

The GRE&T Centre would employ eight to ten people, and Alectra would invest $5 million in capital to convert parts of Guelph Hydro’s existing headquarters into demonstration areas, laboratories or showrooms. It would invest an additional $3 million annually to fund pilot projects, demonstrations, salaries, administration, marketing, and partnerships.

Gee! All it cost Guelph Hydro shareholders was $300 million

This is an offer by Alectra to sweeten the deal for the political-left inclined voters. Our city has had a belly-full of left-inspired environmental projects to last 100 years. These include: Entensive bike lanes throughout the city; waste removal; garbage bin collections; downtown redevelpment; the GMHI green energy district energy debacle that lost some $63 million in in GMHI shareholder equity; building an infrastructure needs liability of $450 million; failure to fulfill promises of building a new downtown public Library and a South-End Recreation Centre.

So, why would council accept an offer from Alectra to take over Guelph Hydro for nothing?

Yet our Mayor is endorsing the merger along with a number of his council.

Jobs

Guelph Hydro employs about 130 people. Approximately 30 positions are expected to be addressed through attrition, voluntary retirement or voluntary separation, whenever possible.  An equal number of positions would be offered relocation opportunities within Alectra starting in 2019, with the majority of moves occurring in 2020 and 2022.

The facts: The 38 jobs potentially lost. In the report released December 1, some 60 jobs will be lost, or about 46% of existing Guelph Hydro staff. It is predicted about 10 jobs will be created for the Green Energy Technology centre – net job loss =50 jobs.

Guelph Hydro’s key outside workers recently transferred to the Power Workers of Canada trade union, from their present collective bargaining unit. With attrition of staff, Alectra will have to provide skilled replacements workers from other jurisdictions who are not familiar or reside anywhere close to the city.

If you conclude that the merger deal is not for Guelph, send your name, address and ward to gerrybarker76@gmail.com to be added to our petition opposing the merger. Also, letting your municipal councillor know before December 13 about your opinion will build our collective opposition.

Your voice matters

Who owns Alectra and why is it in such a hurry to scoop up Guelph Hydro??

By Gerry Barker

November 2, 2017

Corporate documents obtained from the application to invest in Alectra Inc. have been revealed through the Federal government’s Sedar site containing the information of the investors. Five of the six provinces listed in the Alectra Sedar submission are outside Ontario.

The information accompanying the application states that Alectra will become the second largest municipally owned electric distribution system in North America.

Heady stuff. Already Alectra claims it has 1 million customers in Ontario with 44 “investors or municipally owned local power distributions utilities.”

Now this is a private corporation that apparently has attracted investors, controlling power distributions In Ontario. In Guelph’s case, that’s our city council representing the 55,000 Guelph Hydro customers.

Here’s a look into some of the Alectra corporate organizations contained in its May 2017 Sedar report. It appears there is provision for distribution of profits to security holders.

The first figure is the number of participants, the second is the amount invested in Alectra Inc. according to its Sedar applications:

Ontario (44), $455,200,000

British Columbia (1), $100,000,000

Alberta (3), 8,800,000

Manitoba (3), $50,000,000

New Brunswick (1), $7,400,0004

Quebec (9), $53,600,000

That totals, $670 million. The Sedar application states that the number of securities is 675,000 each valued at $1,000.

Fat cat Alectra has eyes on mighty mouse Guelph Hydro

What do all these investors know that has been kept from us?

Apparently the merger details are still being negotiated including Guelph’s share of the profits earned by Alectra Inc. So while there is a memorandum of agreement, the devil is in the details

Is the Guthrie administration trying to force us into a deal with a private corporation with shareholders seeking a profit from their investments? Particularly, are corporate profits generated on the backs of Guelph power customers to benefit out of province Alectra Inc. investors?

This total investment for a company that has been in business for less than ten months is breathtaking in terms of organization, combining cultures of the local Power Distribution systems including Markham, Vaughan, Mississauga, Brampton, Barrie, Hamilton, and St. Catharines. You remember the last two-called Horizon that tried to persuade Guelph to join them in 2008. That didn’t work for some of the same reasons Alectra is selling today.

As of today, there are 41 days left before Guelph city council absorbs the benefits of this merger to the owners of Guelph Hydro. These details are still being negotiated and council faces a deadline on Dec. 13.

The question remains: What’s in this proposal that will benefit the citizens and their city and guarantee safe, reliable distribution of power, just like we have enjoyed for the past 100 years?

Alectra does not answer that question. We say what’s in it for Guelph citizens?

Here are some facts about Alectra that you should know:

In my opinion, if I were on council I would be wary of a group that has been in business for less than a year. The first clue is the close relationship between Powerstream, power distributors for Mississauga and Barrie. These Powerstream executives formed Alectra Utilities. The holding company is Alectra Inc. This corporation when incorporating this year already had a number of power distribution utilities in house in B.C., Alberta, Manitoba. Quebec and New Brunswick.

Ontario has the largest number of what Alectra describes as Investors, with 44 and a capitalization of $455,200,000.

The Alectra Inc. board of directors has 13 members of who five are mayors, Mississauga, Vaughan, Markham, Barrie, Hamilton (aka Horizon includes St. Catharines). The other eight are a carefully chosen directors composed of lawyers, accountants, and executives etc.

It is notable that none of the non-Ontario provincial investors has representation on the Alectra Inc. board. Alectra Inc lists them all on the Sedar application.

Another caution is the Alectra statement that claims it will have the second largest municipally owned power Distribution Company in North America.

Alectra has stated that it now has one million customers in Ontario.

I chuckle when I read this. I’m reminded of that great Naked Gun line when the Detective (Leslie Neilson) charged into this shop where a buxom young woman exclaimed: “Is this a bust?” Neilson replied: “Very impressive.”

It seems premature to agree to a merger with Alectra until at least, we see a first year audited financial statement. It seems to me that Alectra wants to close this deal before it reports its first year results. Particularly when the SOC told council last year that the investigation into merging Guelph Hydro would be complete in the spring of 2018.

Does this have anything to do with the October civic election next year?

Alectra has said it will be developing green power technology and if the deal goes through, will set up a tech hub in Guelph to work on this aspect of its promises.

Why does Alectra state that the technology of not only distributing power is rapidly advancing but that in-home/factory power storage systems will allow self-sufficiency of power to users. Collecting power during daylight and storing it overnight for use the next day.

What is the effect on Ontario’s overbuilt power generating capacity when customers generate and store their own power? Will this make the Guelph power distribution system eventually become redundant? Who picks up the tab in this eventuality? This is a situation that is at least 20 years away, if at all.

Bottom line: This is an over-hyped and irrational decision to end Guelph Hydro, as we know it. It’s like telling William Tell to miss splitting the apple on his son’s head. Okay, so political decisions are not just apples and oranges.

Fact, the technology for home power storage remains expensive with limited battery strength. For example, Tesla, the electric luxury car maker, sells a system that can store power collected from a solar array on the roof virtually taking the owner off the grid. The system must be installed by factory-trained Tesla technicians and costs in U.S. dollars some $18,000 for a basic system.

Perhaps, you might want to delay spending $25,00 C$ on stored Tesla power system in your garage until after Tesla solves its production problems with its new, low-priced model three electric car ($35K USD) a copy.

We learned this information when we visited Florida a couple of years ago. They don’t call it the Sunshine state for nothing so solar panels are producing power at an estimated 90 per cent efficiency rate. However, the northern part of the continent does not have the same amount of sunlight as the southern states so the efficiency is much lower, particularly in the winter months when the days are shorter. Especially when the days are cloudy and not sunny.

Guelph Hydro has detailed performance data on the public buildings in the city that have installed solar panels.

As electricity cannot be stored, the Liberal Government of Ontario has currently installed generating capacity of some 42,000 MW. The highest amount of power needed in the past ten years was 27,000 MW. As a result of poor planning, Ontario’s surplus power is sold at less than cost to neighbouring U.S. states or in some cases given away.

Power generation cannot be turned off with the flip of a switch. You cannot stop the Niagara River, or shut down a Nuclear reactor. It should be noted that 66 per cent of all power generating in Ontario is by only four nuclear energy reactors. One of which is usually down for maintenance and refurbishment.

To get rid of coal-fired generating plants, the former McGuinty government replaced the utility with turbine-wind power and solar panels using renewable energy. All this was built by private corporations who received guaranteed 20-year contracts that paid in most cases, 20 cents per KW hour. That’s about 13 cent greater than hydro and nuclear costs of generating power.

Power generated by wind and sun amounts to a paltry nine percent of all power generating sources and is the most expensive.

And you wonder why your hydropower costs are so high.

Included in the wind turbine deals located chiefly on farmland, the owners also were given bonuses in the form of lower power costs. A whole lot of sweetheart deals all around.

The Wynne Liberal government has pledged to reduce power costs by 25 per cent over five years. Part of the reduction is removal of the 13 per cent HST plus the new Carbon Tax.

The problem is that these reductions have the same effect of going deeper in debt to pay for the power rate reductions, The experts claim that by 2023 power rates will have to increase to pay for Wynne’s five year rate holiday. It appears to be a political move to achieve re-election next June. However, with the Premier’s personal approval rating at 20 per cent it will be a tough sell.

Again, we say: NO SALE

 

 

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.

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Thanks for joining the GS family. Best, Gerry