By Gerry Barker
January 12, 2017
Mayor Guthrie made a statement last week reporting the city had avoided spending some $60 million to complete the two District Energy Nodes in the Hanlon Creek Business Park and the Sleeman centre.
This was part of the Guelph Municipal Holdings Inc. (GMHI) plan to supply energy to the city instead of receiving electricity from the Provincial power grid, as is the case today.
The underlying plans that the previous mayor made as chairperson of GMHI was supported by four members of council serving on her board. This board conducted all its meetings, in closed sessions, thereby eliminating any public participation in the process.
The plans were based on the Community Energy Initiative (CEI) that was planned and executed by the Farbridge administration starting in 2007 when she was elected mayor.
The only thing that stopped the plans was the defeat of Ms. Farbridge in the 2014 civic election. But terrible planning, combined with absorbing the city-owned Guelph Hydro into GMHI over a four-year period, set the stage for a financial melt down.
But some of the credit goes to Mayor Cam Guthrie for taking over GMHI and commencing a post mortem on the multi-million dollar mistake, fostered by the previous mayor and her administration. Here’s his latest announcement:
- The original contractual obligations to spend $60 million dollars on furthering these two district energy nodes have now been avoided.
- The security deposits for both nodes totaling $612k has been returned with no penalties.
- The land in which Envida was to build a district energy plant has also been re-negotiated allowing the city to sell most of it to a private developer. This resulted in no losses on the sale of this parcel of land and revenue to the city of approximately $1.3 million dollars.
Let’s clarify a couple of important details.
GMHI CEO and CFO Pankaj Sardana told council that $60 million back in May 2016 was needed to make the installed District Energy Nodes viable. That was not money spent and will not be spent.
In point two, the Mayor has persuaded the Independent Electricity System Operator (IESO), a Crown Corporation, to return contract security deposits of $619,000 that would guarantee 10 megawatts of power from each Node per year. Neither Node delivered any power.
The question is, what was the source of those deposits, the City? GMHI? Guelph Hydro? More important where is the refund going?
In Point Three, it is revealed that the former mayor had even bigger plans. GMHI secured two parcels of land in order to build two Natural Gas-fired generation plants, one in the Hanlon Park and the other downtown. Part of the proposed Hanlon gas plant site has been sold to a developer for $1.3 million. Was this property offered by tender as required under the Ontario Municipal Act?
How does this square with the admission, May 16, 2016 by former CAO Ann Pappert and GMHI CEO and CFO Pankaj Sardana that GMHI had lost $26,637,244? That’s tne number they both signed off on May 16 at a meeting of Council representing the shareholders of GMHI. Ms. Pappert resigned 10 days later.
The big picture of a deal gone bad, really bad
First, for the average person this is very difficult to unravel and digest what happened, how much has it cost and who was responsible?
Let’s start with the write-offs. The capital cost of the Hanlon District Energy Node of $5.1 million will be written off. With only two customers, it loses a reported $55,000 every year. The Sleeman Centre Node cost was $6.1 million with $3.6 million being written down.
Mr. Sardana told the May 16 meeting of council that GMHI had some $18 million in tax losses. Those losses are never going to be realized because the money-losing GMHI is financially defunct. Translation, they are losses, period.
That totals losses of capital of $8.7 million. So far, that closely equals the amount it took to settle with Urbacon Buildings Group in 2014. Former Chief Administrative Officer, Ann Pappert told the public that the settlement would not affect property taxes. Her administration raided three unrelated reserve funds for $5.7 million to pay the settlement of which little has been paid back.
The Guelph Tribune fails to report the cost of the underground thermal energy system connected to two Tricar condominium buildings, the RiverRun Theatres and the Sleeman Centre. Instead, we are told that the thermal system, powered by the Sleeman Centre District Energy Node will continue to supply hot and cold water for heating and cooling.
Finally, there is that $65 million borrowed from Guelph Hydro by GMHI. In his May report, Mr. Sardana said neither GMHI nor Envida Community Energy having any financial resources to even pay the interest on the loan.
In the 2015 Financial Information Report, the city reported that there was an impaired asset outstanding of $69 million. The reason the amount had increased was because there was no money in GMHI to pay the interest. Presumably, there are no hard assets underlying this $69 million because GMHI is essentially bankrupt.
So the city takes on this debt, lists it on its book as an asset. As the city has folded Guelph Hydro into its financial orbit, it’s only a matter of time before the “impaired” asset becomes a liability and will have to be written off,
Because of the operational secrecy employed by GMHI over the four years, there are still many questions that need answers. The ultimate hypocrisy employed by GMHI was sending a so-called dividend to the city each year to justify its existence. It was just a return of our money while GMHI in its entire history never made a dime.
I don’t know how you feel about this, but the prospect of writing off some $99 million is one of the main reasons that the administration has no money for needed capital projects such as a new Downtown Library, Wilson Street Parking garage, and the South End Recreation Centre.
Yet this council approved converting $700,000 slated for new parking meters to paying some $650,000 toward initial planning of the South End Recreation Centre. Council was told that initial planning would ultimately cost $3.5 million. It didn’t matter, the majority voted for it anyway.
This was a decision to delay installing new downtown meters for another two years thereby failing to start creating revenue.
Finally, this council passed a motion to hire 13 new employees at an annual cost of more than $1 million. That friends, is increasing overhead when there is no courage among most councillors to reduce the high cost of staff.
Since Mayor Guthrie took office there have been more than 45 additional employees added to the staff.
Those are some of the reasons why our city is in a financial mess and cannot afford to even come close to its nine-year capital-spending plan.
The irony is that Guelph resident, Pat Fung, CA, CPA wrote an excellent analysis of the city’s financial management based on four years of the city’s own audited financial reports plus two year’s of reports by external consultants BMA.
Yet in September, Mayor Guthrie outlines what needs to be done to create the 2017 budget. His remarks were right out of the Fung recommendations. He also told a town hall meeting that the greatest cost to the city was the staff
But that’s not what the 2017 budget was all about.