Tag Archives: Guelph Hydro

The GMHI Odyssey: Following the money leads to a staggering hit on city finances

By Gerry Barker

July 24, 2017

The epic unraveling of the Guelph Municipal Holdings Inc, (GMHI) affair is like watching a kitten untangle a ball of wool.

There are so many moving parts, bopping through a dense fog of spin, denial, obfuscation and malfeasance.

What people are expecting is how much did this excursion into a fantasy world of power self-sufficiency coupled with providing co-generated hot and cold running water to buildings actually cost?

Guelph Speaks used two official documents to reach its conclusion that GMHI cost the city $157.422 million most of which is not recoverable. The two documents include the audited consolidated balance sheet of GMHI and the Guelph Hydro 2016 financial report. By any definition losses can only be described as “staggering.”

The long-term effect is a severe restriction of capital and operational spending. That amount represents about 40 per cent of the total 2017 city operational and capital spending budgets.

In my opinion, it has jeopardized capital spending on the $63 million South End recreational centre and the Downtown library (again) of an estimated $60 million. Keep in mind that city council has approved capital projects including the $34 million police headquarters and the $20.5 millionWilson Street parking garage.

There is no easy solution to this. The project is a failure financially and leaves the city with few alternatives to recover the losses of GMHI. Increasing debt, property taxes and user fees are not alternatives. Rationalizing cost of operations is now a necessity to reduce overhead costs. It’s the only way out of the situation because the city cannot win the lottery.

It all started in April 2007 when the new city council unanimously approved Mayor Karen Farbridge’s proposed Community Energy Initiative (CEI).

Here are the goals set by the CEI to achieve by 2031:

* Use 50 per cent less energy per capita

*   Produce 60 per cent less greenhouse gas emissions per capita

*   Encourage and facilitate community-based renewable and alternative energy   systems.

The staff report at the time, said the CEI would position Guelph among the top energy performers in the world.

Today, the key management players are no longer employed by the city, leaving behind a multi-million dollar losing legacy that has challenged the most skilled financial practitioners among us. Item: The city has spent more than $2.8 million just to have the KPMG accounting firm perform a financial autopsy on this turkey, aka an audit.

The people associated with the GMHI project, have left the building. They include the former mayor, Karen Farbridge, and Chair of the GMHI Board of Directors; former Chief Administration Officer and Chief Executive Officer of GMHI, Ann Pappert; Former Chief Financial Officer Al Horsman; City Solicitor, Donna Jacques and Jasmine Urisk, who at the time, was Chair of the board of directors of Guelph Hydro. Other peripheral managers have also departed at all levels of the City of Guelph Corporation.

These include members of the city administration, Guelph Hydro, GMHI and Envida Community Energy Inc. and Guelph Hydro Electric Services Inc. (GHESI), the operating division of Guelph Hydro. In addition, GMHI and Guelph Hydro entered into contracts to supply power and co-generation thermal heating and cooling system.

These contracts were never fulfilled and the city has negotiated settlements, it is reported.

The Guelph corporate family of companies

So here is the cast of operational participants, all belonging to the City of Guelph’s corporate family.

GMHI was set up under the express direction of former Mayor Karen Farbridge. She took on the job of Chair of the GMHI board of directors in 2011. She handpicked her board thereby maintaining complete control. At the time of formation the assets to be managed included the Guelph Junction railroad.

Her mission was to implement the CEI announced in 2007. It was the product of a series of meetings with many of the leading citizens in the city described as stakeholders. They included members of the city administration, Union Gas, Guelph Hydro, business and industrial representatives, the University of Guelph, School Boards and the Guelph Chamber of Commerce.

It was an all-star cast that produced the agreement and thrust of turning Guelph into a world-class jewel of conservation, self-sufficiency in power, renewable energy sources, total management of waste and the gradual reduction of the use of fossil fuels to reduce the effect on climate change.

It was dreamy, heady stuff that stirred the environmental souls of those participating. But little happened for four years until the corporate vehicle, GMHI was established in 2010. In 2013, the Farbridge-dominated council approved moving Guelph Hydro unto GMHI.

The wheels of this ignoble experiment started to come off in 2009 when Guelph Hydro’s subsidiary, Ecotricity Corporation reported a loss of $3,945,000. The report said the loss was due to declining methane gas from the Eastview landfill. An impairment charge of $2.984 million was taken that year.

Update: Guelph Hydro has paid to take over the Eastview gas generating plant paying some $550,000 for it. Now which city corporation gets that money?

What is the interpretation of an ”impairment” charge? If the recoverable amount of an investment is less than its carrying value, then the asset is deemed to be impaired. The value must be written down to the recoverable amount.

It’s not difficult to understand that when assets are wriitten down, that’s real money lost forever.

There is more on this to come

Suddenly, the door was shut to public participation. Only a few politicians and civil servants were in on the plan’s execution.

It is now believed that Guelph Hydro was the banker for GMHI. The first step was to have Guelph Hydro form Envida Community Energy Corporation to be the hands-on builder of new projects, including installing solar panels on the roof of the Sleeman Centre and several public building throughout the city. Envida now owes millions in debt to GMHI.

The audited GMHI balance sheet revealed a startling statement that concerned two senior unsecured debentures taken out by GMHI totaling $103.612 million as of December 31, 2016. The largest was for $65 million, due 2030 and no interest of the debenture has been paid for two years, increasing the principal due by $8.612 million. The other debenture is for $30 million and is due in 2045. Both these obligations carry interest rates of 4.012 per cent and 4.112 per cent respectively.

The source of these debenture loans is described in the audit as the CDS&CO. As both are unsecured, the loans were made because of the City of Guelph’s owneship of GMHI and Guelph Hydro. It is difficult to imagine any financial institution committing $95 million without the assurance of repayment by the city. Regardless, the loans are unsecured. One can only conclude that a corporate relative within the city’s corporate family guarantees the liquidity of GMHI. The audit also revealed that a $20 million credit facility was arranged for GMHI but the source is not revealed. As of December 31, 2016, there has been no draw down on that facility by GMHI.

It is now clear that there was a lot of money flowing between various city-owned corporations. It was a five-year irresponsible mismanagement of public funds that has left the citizens with a $157.422 million price tag with no benefits to show for it. And, also there remains no possibility of repayment of rapidly depreciating assets.

Adding up the numbers

The balance sheet of GMHI shows assets of $230.596 million of which $162.653 million is composed of property, plant and equipment. Conversely, in my opinion, many of these assets are depreciating and failing to provide adequate cash flow to allow GMHI to pay its bills and continue to exist. The real cash liabilities of $163.474 million closely match the value of the total assets. The inclusion of shareholder equity of $67.122 million, according to the audit as a liability, is enough to match the total assets of $230.596 million to balance the books.

In my opinion, the shareholder’s equity, and that’s you and me, is virtually worthless because there is not enough cash from operations and assets to allow redemption of the shares. The record now shows that GMHI is so intertwined between various city-owned corporate entities that disclosure of the facts is an expensive and difficult task.

It would appear the debenture funding came through Guelph Electric Services Inc., the operating arm of Guelph Hydro. Envida was involved in other projects including the District Energy nodes set up in the Sleeman Centre and Hanlon Business Park.

Through all this GMHI activity, the public had no clue as to what was happening with their money. Item: Hydro bills for the 55,000 clients of Guelph Hydro increased electricity fees by 42 per cent in four years. In the past year the billing has decreased.

Today, Guelph Hydro reports a total of $228.3 million in assets. Its long-term debt is listed as $94.3 million and net income for 2016 was $7.1 million. It would take 13.28 years of $7.1 million in net income to repay it. Amazing coincidence! That’s 2030 the year the $65 million unsecured debenture is due for redemption.

Would you or I want to merge with a utility that carried an impaired debt of $94.3 million? How does the city merge or sell Guelph Hydro with that problem?

Now this is when it gets interesting. In May 16, 2016, Pankaj Sardana, CEO and CFO of GMHI, said there was an impaired charge to GMHI of $68 million. He explained that this was provided by a group of investors, without naming them.

Accounting for those pesky two unsecured debentures

But on the audited GMHI consolidated balance sheet there is a liability of $95 million composed of two unsecured debentures, one being $65 million and the other $30 million. The auditor reported the source of the debentures was CDS&CO. Remember this is now an impaired asset.

It is apparent from the audit by KPMG and the Guelph annual 2016 financials that Guelph Hydro has assumed the hit on the debentures and lists $94.3 million as debt.

Is it coincidence that the GMHI debenture debt has morphed over to Guelph Hydro who lists it as debt? Why would Guelph Hydro, well established with earnings of $7.1 million report debt of $94.3 million? If these figures are accurate, according to official public audits and financial documents, then the total GMHI loss includes the worthless shareholder equity, $63.122 million and the Guelph Hydro debt of $94.3 million totals $157.422 million.

On a historical note, some members of the Gang of Seven city councillors walked out of a closed session in January 2016, preventing council to continue its business because of a lack of quorum. Interviewed later, Coun. Phil Allt said their action was to “protect the staff and the corporation.”

Wonder how that worked out for them now that the details of the GMHI debacle is being revealed?

 

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Audit of GMHI and Guelph Hydro reveals $161.483 million losses by the municipal holding corporation

By Gerry Barker

June 22, 2017

What follows are highlights of a devastating audit by KPMG of Guelph Municipal Holdings Inc. (GMHI) and Guelph Hydro. The audit revealed a total of $161.483 million that was wasted by the Farbridge administration’s secret and abortive attempt to force the city to make Guelph self-sufficient in terms of electricity and other spin-offs.

One of the most startling statements concerned two senior unsecured debentures taken out by GMHI totaling $103.612 million as of December 31, 2016. The largest, due 2030, was for $65 million and no interest of the debenture has been paid for two years, increasing the principal due by $8.612 million. The other debenture is for $30.000 million and is due 2045. Both these obligations carry interest rates of 4.012 per cent and 4.112 per cent respectively.

The source of these debenture loans are described in the audit as the CDS & CO. As both are unsecured, the loans were made because of the City of Guelph’s ownership of GMHI and Guelph Hydro. It is difficult to imagine any financial institution committing $95 million without the assurance of repayment by the city. Regardless, the loans are unsecured. One can only conclude that a corporate relative within the city’s corporate family guarantees the liquidity of GMHI. The audit revealed that a $20 million credit facility has been arranged for GMHI but the source is not revealed. As of December 31, 2016, there has been no draw down on that facility by GMHI.

The balance sheet of GMHI shows assets of $230.596 million of which $162.653 million is composed of property, plant and equipment. Conversely, in my opinion, many of these assets are depreciating and failing to provide adequate cash flow to allow GMHI to continue to exist. The real liabilities of 163.474 million closely match the value of the total assets. The inclusion of shareholder equity of $67.122 million, according to the audit, is enough to match the total assets of $230.596 million to balance the books

In my opinion, the shareholder’s equity, and that’s you and me, is virtually worthless because there is not enough cash from operations and assets to allow redemption of the shares. This enterprise is so intertwined between various city-owned corporate entities that disclosure is inevitable.

This party needs wrapping up ASAP to avoid future cost blowouts.

This misguided project has been held up by the ability of Guelph Hydro to be the bank for GMHI. A search of the mysterious issuer of $95 million in debentures has been unsuccessful so far.

This audit reveals just how serious this experiment was mismanaged; how Guelph Hydro, wholly owned by the city, was sucked into the blind ambition of a mayor determined to turn the city into a world-class leader in power self-sufficiency.

It turned out to be a dismal, waste of the public’s resources and abuse of the public trust.

The audit performed by a respected auditing and financial management firm, KPMG, cost $2.8 million in 2016 and $2.5 million in 2015. These two audits totaling $5.3 million, were the cost of measuring the financial details of the failed projects initiated by the Community Energy Initiative (CEI) promoted by the former mayor as far back as 2007.

Here’s a note from the auditor’s report concerning fraud risk: “The audit team rebutted this presumption due to: “The majority of revenues are driven directly from the purchases of hydro with little judgment over revenue recognition required by management.”

Yes I know, I had trouble following that comment.

From 2011 to 2014, former Chief Administrative Officer of the city, Ann Pappert, served as Chief Executive Officer of GMHI. One would conclude in that position, both the former mayor who was chair of GMHI and Ms. Pappert would be in a position to know about the degree of “judgment over revenue recognition required by management.”

Keep in mind that this entire operation was cloaked in secrecy. It only started coming out of the closet when the GMHI CEO and CFO, Pankaj Sardana, reported the costs of poor planning and management of GMHI and its partner Guelph Hydro (GH).

May 16, 2016, Mr. Sardana and CAO Pappert both signed the document that revealed the estimated loss of GMHI to be $26.6 million. Ten days later Ms. Pappert resigned.

The utility’s operating arm, Guelph Hydro Electric Systems Inc., included the wholly owned Envida Community Energy Systems that was virtually broke. It owed $11 million to GMHI with no ability to even pay the interest of the debt. It had been involved in establishing the rooftop solar arrays on a number of public buildings; the setting up of the District Energy Nodes linked to the cogeneration system to supply hot and cold water to selected buildings.

But it was interrupted by the defeat of the former mayor in the October 2014 civic election by Coun. Cam Guthrie. It started an investigation about the role of GMHI and the link with Guelph Hydro. Now, a year and a half later, the truth is known about the cost of $161.403 million.

The unraveling of the GMHI and Guelph Hydro axis started shortly after the defeat of the former mayor.

The audit examining GMHI/Guelph Hydro operations for 2015 and 2016, commented:

“The district energy segment has continued to experience negative cash flows which are projected to be insufficient to recover the carrying value of the related assets.

In four years, the GMHI management failed to recognize their primary District Energy scheme was failing to meet profitability. Yet they kept spending public money of future large-scale projects including building two large natural gas-powered electricity generators in the city to achieve power self-sufficiency.

“Management has assessed Envida’s district energy property, plant and equipment for impairment and evaluated the cash flows associated with the Hanlon Creek Business Park, Galt District Energy (Sleeman Centre), and West End Community Centre. Based on value-in-use net present value calculations, management has determined that the carrying value of all the nodes are fully impaired.”

We now learn according to the audit, that there were not just two District Energy Nodes (pumps) in the Sleeman Centre and Hanlon Creek Business Park but a third in the West End Community Centre. The impaired value of the three is $12 million.

“Further, based on the obligations for contracts in place and the related estimated unavoidable costs of meeting the obligations exceeding the economic benefits to be received by approximately $50K annually over the life of the contracts, a provision has been recorded for $540,000 (18 years).”

This is another example of financial mismanagement by GMHI based on false assumptions.

“Management’s cash flow projections were based on the business plan for the segment for the upcoming years. Their analysis took into account factors including the remaining contract periods for agreements in place with current customers (approximately 18 years), history of revenue and expenses to date, and the useful lives of the equipment. Further, based on current plans and direction from the Board, the analysis includes only minimal additional investments required to service current customers.”

Why then did the experience and track record of the GMHI Board and that of Guelph Hydro, make so many devastating mistakes that have resulted in the loss of millions of public funds?

The audit statements include an estimate of future employee benefits totaling $10.297 million. Again, the citizens of Guelph will be paying for this for years.

Why Did GMHI send $1.5 million to the city each year, (total $9 million) when it consistently lost money?

How can GMHI or the city afford to repay that $103.612 million in debentures owed to CDS & CO, the lenders?

Who are the owners of the CDS & CO?

With the shareholders equity of $67.122 million be written off in the years ahead, impairing the city’s ability to carry out the ten-year capital-spending plan?

CAO Derrick Thomson has already stated the capital plan is $170 million short to provide for major capital projects, including the South End recreation centre, new downtown Library and infrastructure demands.

Is the real goal of the Strategic Options Committee (SOC) charged with seeking candidates to sell Guelph Hydro or merge it with another utility, or to raise capital to recover the losses incurred by GMHI?

When will those councillors who served on the GMHI board of directors plus another independent member now serving of the SOC, be held accountable for what happened?

The audit documents can be found on the city website under the heading Agenda June 28.

It is the most shocking report that I have ever witnessed in my years of journalism. The secrecy resulting in an abuse of power should be a wake-up call for all citizens. The council should be held accountable to maintain the public treasury and never allow this to occur again.

This makes the $23 million cost overrun construction of the new city hall look like penny ante compared to the $161.403 million spent on this rape of the public purse.

The audit is first step. Now we know what happened, What is need is an independent investigation into how it happened and the impact on the citizens. More important, question those responsible and make them accountable.

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NO SALE: Is the city selling Guelph Hydro to recoup losses by a previous administration?

By Gerry Barker

June 12, 2017

Part Two: Selling the crown jewel of Guelph

When will the Mayor tell us the truth about why we are spending thousands to sell Guelph Hydro in the next 12 months?

It is one of the most expensive and devious plans to capture the equity of Guelph Hydro that has an estimated book value of $125 million. On the surface, when reading through the 48 pages of plans and goals of the council-appointed Strategic Options Committee (SOC), it would have you believe this is the right thing to do.

Council appointed five people to represent the city in selling Guelph Hydro. The committee lost two members between October and April. Included was co-chair Pankaj Sardana, CEO of Guelph Hydro, who was replaced by the Guelph Hydro board chair, Jane Armstrong. A public representative, Ron Puccini, stepped aside to be replaced by Douglas Auld.

Chief Administrative Officer Derrick Thomson remains, as co-chair of the SOC. Is Mayor Guthrie an ex-officio member of this committee?

Before going any further, this is a sale of all or parts of Guelph Hydro. To dress it up as a merger is mere window dressing. Perhaps that’s why Mr. Sardana was removed from the SOC because he warned about the sharing of responsibilities as a result of a merger, does not have a successful track record. History in Ontario has shown that local community-owned electricity distribution system mergers don’t always work well because of the cultural clash between the parties of the merger.

We should mention that the SOC plan points out that the Province has encouraged the consolidation of small (Provincial designation) municipally-owned power distribution systems to create more efficient systems across the province. This is NOT mandated but suggested.

Why the push to amalgamate local power distribution systems? The McGuinty and Wynne governments granted juicy 20-year overpayments to corporations to produce solar and wind turbine renewable power. Now it has attracted interest in corporate ownership power distribution systems. These deals have cost power consumers millions and left Ontario having the highest cost of power in the country.

“It isn’t easy being green,” Kermit the frog.

Without hesitation, the beneficiaries of these deals include both Liberal provincial governments and those corporations that have benefitted from their largesse.

One of the members of SOC said that the distribution of power is changing, predicting that most homes in the future will have electricity storage units in their garages, powered by solar panels. The cost of this is astronomical for most people. Why the rush to sell off Guelph Hydro, lose any semblance of control and costs as it now it provides economic benefit to the 53,000 current customer base?

Those self-sufficient storage units have a definite future but are only cost efficient for the wealthy among us. It will take years to become a common reality.

But it is a prime rationale among an element of civic leaders who foisting their opinions, were bolstered by outside consultants including the core of the SOC.

Here’s a sample of what the SOC is planning:

SOC RECOMMENDATION:

  1. THAT the Strategies and Options Committee (the “SOC”) of Guelph Municipal Holdings Inc. (“GMHI”) be directed to conduct further discussions, engage in further due diligence, and prepare preliminary business cases to assess potential mergers between Guelph Hydro Electric Systems Inc. (“Guelph Hydro”) and potential merger partners.
  2. THAT the SOC continue its communications and community engagement to inform its work.
  3. THAT the SOC report back to Council in early fall 2017 with the results of further discussions and due diligence, communications and community engagement and a preliminary business case, including recommendations regarding next steps.

            The four phases leading to selling Guelph Hydro

The SOC plan is divided into four phases. Following the June 13 meeting, the next phase is Part 3 to be reported to council in October, or thereabouts.

Here’s one of the reasons citizens should be concerned. Two members of the SOC, in my opinion, have a conflict of interest.

Note in the recommendation above that the SOC is the offspring of the Farbridge Folly that created Guelph Municipal Holdings Inc. (GMHI). We now know that it cost citizens close to $100 million, so far. This appears to be a desperate attempt by the Guthrie administration, to convince citizens to support the sale of Guelph Hydro. We say: NO SALE!

Getting back to those two SOC members. The former mayor appointed Mark Goldberg as an independent member to the GMHI board of directors. Did Mr. Goldberg support the GMHI projects that lost $26.6 million? What is he doing on the SOC? Is he part of the salvage crew out to sell a profitable, locally owned Hydro Distribution system to cover up the total failure of the Community Energy Initiative (CEI)? It is now clear that the former mayor sold the merits of the CEI to an unsuspecting public. Then buried its operations in closed sessions of the board.

Or, let’s hear from SOC member Guelph Hydro Deputy Chair, Robert Bell, who in answer to a question by Coun. James Gordon about how the public feels about the sale of Guelph Hydro replied that he was an expert in mergers and acquisitions, (M&A) and knew more about it than the general public.

That arrogant answer confirms the takeaway that this is a contrived set-up to sell the publicly-owned Guelph Hydro in part or all-in, to pay off the debts of previous administrations.

Well, those two men, for different reasons, seem to have their minds made up.

This is a very serious political play in which, with respect, may result in Mayor Guthrie’s ongoing support for the sale, being figuratively bitten in the derriere come Election Day. His fair-weather friends on council could blame him for either the success or failure of the Hydro sale proposal. As he is Mayor, it’s a lose, lose situation no matter what happens.

It’s not too late to regain the support of the majority of the public by disassociating himself from continued support of the sale.

Here is the SOC schedule of how we can say bye-bye to Guelph Hydro before the next election.

SOC says: “If, in the fall, Council directs the SOC to pursue the next phase of the process, details about potential merger partner(s) will be shared with the public. At that time, the SOC will seek public input on the proposed merger. More public and stakeholder engagement will occur to generate that input.”

GS Comment: Just how are the SOC and its partners Guelph Hydro and City Council going to inform the public during this “process?” There is a ground swell of objection among many citizens that this phase is not going to sell. So far the attempts to communicate this to the real stakeholders, the citizens of Guelph, has been an abject failure. But read on to see the proposed timetable of selling the utility.

SOC says: “Phase 1 (Complete)

“Explore options; begin community consultation, present findings and recommendations to Guelph City Council in early 2017.

SOC says: “Phase 2 (March to June)

“Scan the industry for potential merger partners. Consider publicly-owned utility companies likely to provide value to Guelph Hydro customers, the City and the community.”

GS Comment: Phase 2 is the topic of the June 13 meetings including a closed session of council starting at 4 p.m. and the public open meeting at 6:30 p.m. at City Hall. Let’s get this clarified. Guelph Hydro supplies electricity to 53,000 customers. No one in this city or Rockwood is without power. This should make them the stakeholders in this plan. The City of Guelph owns this utility and history shows that the citizens want to continue owning it. The SOC should conduct a poll by an independent polling organization to measure public support for selling Guelph Hydro. The result may save citizens the cost of pursuing this project.

SOC says: “(June to fall) If City Council votes to explore further: engage specific targets, develop a preliminary business case and financial analysis, outline impact on shareholders rate payers, discuss governance, compare to maintaining full ownership, and make recommendation to City Council.”

SOC says: “Phase 3 (fall to winter)

“If Council decides to pursue a merger: enter into memorandum of understanding, announce the parties involved, continue community engagement, begin exclusive negotiations, conduct financial, legal, operational and regulatory due diligence, develop merger and shareholder agreements, finalize rate impact and make recommendation to City Council.”

GS Comment: And during this phase when does the public have its say? Where is the business plan underlying any proposal?

SOC says: “Phase 4 (late 2017 to 2018)

“If City Council approves the transaction: submit a MAADs (?) application to the Ontario Energy Board (OEB) for approval, develop implementation plan and establish leadership and governance of the new utility. Following OEB approval the transaction would close, the parties would enter into the shareholders’ agreement, and the merger would be given full legal effect.”

GS Comment: Just in time to create a huge issue in the October 2018 civic election. This is an attempt to wrap up the before the election and deny the public the right to dissent.

            Recommended next phases of developing the sale:

SOC says: “Given the potential cost of developing complete business cases with multiple parties, the SOC recommends developing preliminary business cases with the most promising candidates and making a recommendation to Council in early fall 2017. This approach is a cost effective way to provide Council with more information while being fair and respectful to potential merger partners.”

GS Comment: The Guelph Hydro board affirmed the recommendations made at the outset of this report at its May 29, 2017 board meeting. None of them were elected to represent the public’s interests. So, why now? Why is this plan being presented to the citizens who are not collectively in favour of selling Guelph Hydro? Here’s more of the sale plan.

Value for the City of Guelph
SOC says: § Realizing the best financial return and overall value.

GS Comment: Again what is the real purpose of this proposal? Is the city in such financial shape that we have to sell Guelph Hydro to pay for the financial mismanagement of the past ten years? Is it fair to say that if Guelph Hydro is sold that it can recover that “impaired” asset that it loaned GMHI and now sitting on the city books, can be recovered? One would believe that had to be a condition of any sale.
SOC says: § Supply electricity efficiently and cost-effectively.

GS Comment: Isn’t that what is being delivered today?
SOC says: § Contribute capital funds for reinvestment.

GS Comment: Ah! The truth is starting to come out. What reinvestments are they talking about? Is it reduction of debt? Paying down the Police Headquarters $34 million renovation? Providing $400 million for the aging infrastructure? There is no shortage of projects but because of the financial mismanagement, the cupboard is essentially bare.

It is welcome news that the city has finally hired Trevor Lee, an experienced professional who has the financial accreditation to bring responsible order to our city’s finances. The evidence exists that successive councils relentlessly continue to jack up property taxes and user fees to cover up bad management and questionable decisions.
SOC says: § Support long-term community planning and economic development.

GS Comment: There has been little effort to address the high overhead costs of running a city. What has this sale got do with economic development? How will it create jobs and at the same time protect Hydro employees? How can citizens be assured of cost controls if the utility is sold or merged? How much has this proposal cost year to date? Who is paying those costs? What operational guarantees are included in this proposal that affect all Hydro customers?

What does the SOC mean when it says it will engage in “open, honest communication with community and industry stakeholders?” This and past administrations have a terrible track record of operating in closed sessions without transparency and accountability doing the public’s business. The record of the previous GMHI board of directors conducting its business in an open and accountable fashion is a sick joke.

City councillors Karl Wettstein and June Hofland were members of the MHI board for four years and today accept no responsibility for the financial disaster. SOC member Mark Goldberg is another former GMHI board member who has never commented publicly about his role on the board.

A good place to start is opening all SOC meetings to the public. Making all electronic communications pertaining to the sale among SOC, its consultants and members of council available to the public. The one exception is discussions regarding proprietary information of bidders.

Regardless, in my opinion, this proposal was tried in 2008 and was rejected by a majority of council including supporters of the former mayor. I see no reason why this won’t happen this time. Sorry, NO SALE

Frankly, city council approved this methodology of selling Guelph Hydro. It’s time for a serious rethink of the project.

Now council owes the citizens a specific reason for creating this proposal to sell Guelph Hydro. That includes full financial disclosure of the costs and benefits to the citizen stakeholders.

This is only Act One of the Theatre of the Absurd

Until that closes, we still say: NO SALE.

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How the city plans to sell Guelph Hydro, something that Farbridge failed to do

By Gerry Barker

June 8, 2017

Today it’s Part One. Monday Part Two will be published

Nine years ago, former mayor Karen Farbridge attempted to convince city council and citizens to merge Guelph Hydro with systems in Hamilton and St. Catharines. The mayor had a comfortable majority of followers on council, so what could go wrong?

Well, it did as council turned it down. It was the only time I can recall that the mayor lost a major battle. Looking back, it occurred only because the people almost unanimously rejected the proposal and the councillors heard them. It was a rare occasion where the people had the final say.

The mayor needed the money that a sale of Guelph Hydro would provide. The first priority was to pay the $22 million toward the federal and provincial government’s special infrastructure plan. Under the plan, Guelph would pay one third, as would each of the senior governments. Some $66 million was approved and spent on a variety of shovel-ready projects in the city.

But the mayor’s plan almost failed because of the citizen’s revolt against selling Guelph Hydro. Instead, the mayor, who sat on the Hydro board of directors, notified the board that council was calling a $30 million note that Hydro owed the city. That solved the city’s share of the infrastructure plan and there was a little left over that was spent on a time clock in the Sleeman Centre and $2 million building bicycle lanes on Stone Road between Edinborough and Gordon Streets.

This all happened in the first three years of the Farbridge administration.

Shortly following her re-election in November 2010, the mayor set up Guelph Municipal Holdings, Inc. (GMHI), a corporation wholly owned by the city. The mayor was chair of the company and controlled the board of directors by naming four councillors, Lise Burcher, Todd Dennis, Karl Wettstein and June Hofland. Two independent directors were appointed.

The company had assets including Guelph Hydro and the Guelph Junction Railroad. GMHI sent a dividend of $1.5 million to the city each year. The last known total was $9 million before the roof fell in with the revelation in May 2016 that GMHI had lost $26.6 million and had never made a profit.

With a startup in late 2011, in five years, little was known about its operations as the meetings were held in closed session.

In addition to the losses, there was a large loan taken out of Guelph Hydro for $65 million that was described by former GMHI Chief Executive Officer, Pankaj Sardana as impaired. In the 2015 city financial statement the loan was listed as $69 million as there had been no repayment by GMHI. That loan is now on the city books listed as an asset. This will eventually have to be written off.

GMHI spent money on solar panels on some public buildings, two gas-fired District Energy pumps, costing $11 million to supply hot and cold water to a handful of downtown and Hanlon Business Park buildings. It was an abortive co-generation scheme to use the pumps to pump the water in underground pipes to the buildings and generate electricity.

For four years, GMHI worked in the dark led by the former mayor and former Chief Administrative Officer Ann Pappert.

The campaign to sell the city’s most valuable and profitable asset

Next Tuesday, June 13 starting at 6:30 p.m. city council, as GMHI shareholders, representing the citizens of Guelph and will hear a review of the project to sell Guelph Hydro by mid-2018, before the city election in October. Prior to the meeting, council will meet in closed session to discuss the all-important details of the project, far from the madding crowd.

Last October, council approved commencing an investigation by the Strategic Options Committee (SOC) composed at the time of Chief Administrative Officer Derrick Thomson as chair, CEO of Guelph Hydro, Pankaj Sardana as co-chair, and Robert Bell, Hydro board member,.Two citizen members, Mark Goldberg and Ron Puccini were also named.

According to the Energizing Tomorrow website, only Mr. Goldberg and Mr. Puccini live in Guelph.

There are no elected representatives on this committee. There are two individuals, Mr. Sardana and Mr. Bell who are closely associated with Guelph Hydro.

So, we can conclude that this operation not only includes the SOC but also Guelph Hydro Electric Systems. The Board of Directors of Guelph Hydro Electric Systems included: Ms. Jane Armstrong. Ms. Judy Fountain, Robert Bell, Bruce Cowan, Ted Sehl, Rick Thompson and Ms. Jasmine Urisk.

Under no circumstances am I suggesting that these folks were complicit in the GMHI financial disaster.

There does not appear to be checks or balances or direct oversight of this potential disposal of the most valuable asset of the city’s assets. Also, the public has had little to say since formation of the SOC. Granted, council must have the final say but its members are not directly involved in this exercise being handled by the SOC and its advisors, a consultant and a Toronto law firm.

It also comes as a surprise that there are certain members of Guelph Hydro Electric Systems who had exposure to GMHI financial disaster that cost the city $26.6 million. These include Jasmine Urisk, Ted Gehl, Jane Armstrong, Judy Fountain and Robert Bell.

Mr. Goldberg of the SOC served on the GMHI board of directors. Mr. Sardana, co-chair of the SOC, was formerly CEO and CFO of GMHI.

Then came an announcement. Mr. Sardana was replaced as co-chair of SOC by Hydro Board chair Jane Armstrong and Mr. Puccini resigned to be replaced by Douglas Auld.

On Monday, June 12, look for Part Two that details the strategy to complete the sale of Guelph Hydro by mid 2018

In the meantime, here is an unedited portion of the 48 pages publish on the city website, of the proposal to be approved June 13 by council acting as shareholders of GMHI.

As determined in Phase 1, Ontario’s energy landscape is changing, and mid-sized utilities like Guelph Hydro are looking for better ways to:

  • Meet customer expectations;
  • Take advantage of modern technologies;
  • Cover costs of delivering safe, reliable electricity service;
  • Fund local infrastructure maintenance and upgrades; and
  • Prepare and respond to more frequent and severe storms.

I draw your attention to item four – Fund local infrastructure, maintenance and upgrades.

So do we sell a profit-making asset to fund years of neglect of city infrastructure?

I don’t believe this for one minute. As I will explain in the next part of this two-part series, the proceeds resulting from the sale of Guelph Hydro will be primarily used to pay down the accumulated debt of GMHO and the $69 million note owed to Guelph Hydro.

We have never been informed if GMHI spent that loan money and on what?

There are so many questions needing answers.

Part Two will analyse and comment on the nuts and bolts process of moving ahead with this sale of Guelph Hydro.

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Headline of the week: Mayor chooses Taco Bells over sale of Guelph Hydro

By Gerry Barker

February 20, 2017

Last week the news was a mixed bag of burritos. Mayor Guthrie exclaimed in print that Guelph was getting two Taco Bell restaurants. It was an artful attempt to deflect a critical personal defeat by using the trivial Taco annoucement ignoring his abortive support of selling Guelph Hydro.

And all this time we believed things at city hall couldn’t get any worse.

Wednesday night, in a special meeting of council, there were two main discussion points on the agenda. On was to receive the report of the Strategic Options Committee’s (SOC) recommendations for the disposition of Guelph Hydro.

The other was to discuss the future of Guelph Municipal Holdings Inc. (GMHI). As it turned out, there was no discussion or conclusions reached about that defunct organization that has cost taxpayers an estimated $96 million.

When the former mayor and chairperson of GMHI officially added Guelph Hydro to its short list of municipally owned properties, it created a deliberate comingling of assets. That resulted in a ruptured financial debt of epic proportions coming about three months after the defeat of the mayor. By March 2015, Mayor Guthrie became the GMHI chair and was joined by Councillors Karl Wettstein and Cathy Downer, and the GHMI board was fired.

2015, the year the truth started coming out

That was in the spring of 2015, a year of faceless fumbling including the awarding, in a closed session of council Dec. 10, of $98,202 to the top three senior executives of the administration. That was followed December 14 by another closed session when council approved an Indemnification Bylaw. It essentially protected any employee or elected official, by paying their legal bills if sued by any citizen or corporation. This bylaw’s timing, as it turned out, played a role in protecting the top three managers from any procedure brought against them by the public.

That GMHI/Guelph Hydro investigation included a long period of behind-the-scenes checking of the linked GMHI and Guelph Hydro books. In fact, the process took 14 months.

The public was never told whom in the administration, or outside consultants, performed the autopsy on GMHI and Guelph Hydro or if financial experts conducted the process. What was eventually learned was devastating in terms of the citizen’s liability to pay the bills.

Fast forward to May 16, 2016

This was the day that outgoing Chief Administrative Officer, Ann Pappert, and CEO and CFO of GMHI, Pankaj Sardana, reported some of the details of the financial implications created by the GMHI Board of Directors including the former mayor. Ten days later, Ms. Pappert left the city job.

As guelphspeaks.ca has reported on the details of the May revelations, we will move on to July 13, 2016. The city staff produced a detailed, no punches pulled, report showing where most of the money went and how it was spent.

Two current councillors, Karl Wettstein and June Hofland, received a stipend to attend the GMHI board meetings for four years. Yet, on Wednesday, both voted to sell Guelph Hydro. Why? Did they know about the financial mess GMHI was in on their watch but never said anything? Was this the silence of the lambs?

Here’s the real punch line

In September, the council appointed a committee of five called the Strategic Options

Committee (SOC) to investigate the future of GMHI, Guelph Hydro and the Community Energy Initiativem created by the former, mayor in 2007.

Little did anyone know what the GMHI plans were, how they were determined and what the business plan was to develop two District Energy Nodes (gas-fired pumps). Both were designed to perform a number of tasks. First, a contract was signed to supply ten megawatts of power to the grid from each Node. That never happened. Then contracts were completed to connect the two large Tricar downtown condominiums with hot and cold water. There has been no mention of the city’s liability in regard to these service contracts.

Next, a system of underground pipes was connected to nearby buildings, five at the Sleeman Node and one in the Hanlon Business Park node. Cost of these Nodes was $8.7 million. Cost of this co-generation piping is presumed to included in the $2.6 million GMHI admitted losses.

This was the dream of the former mayor to generate power and supply hot and cold running water to those connected buildings. Only recently, it was revealed that GMHI was also planning two large natural gas-fired generating plants, one downtown and the other in the Hanlon Park. In fact, land for these plants had been secured.

Thoughts for your consideration: How was all this financed? Who knew of the sources of funding? How did this affect your tax bills and electricuty charges for four five years? Why were there no checks or balances concerning this waste of public monet that was shrouded in secrecy?

Most of the GMHI players are gone

Only two councillors remain as survivors of the GMHI financial disaster, Karl Wettstein and June Hofland. There is more on them later.

Wednesday, the Mayor, much like his predecessor in 2008, urged council to accept the SOC recommendation to sell Guelph Hydro.

It was soundly defeated. With only the Mayor, Councillors Mark MacKinnon, Karl Wettstein, Phil Allt and June Hofland supporting it, the sale of Guelph Hydro is off the table.

Now, during its five months of deliberations, why did this committee invite the public to offer opinions on the sale of hydro or a merger with another utility? The answer is simple: If you know the answer, why pay attention to the outcome? The response was overwhelmingly negative. Yet the SOC recommended it. The cost of six months of this SOC operation was $100,000.

But there was agreement to review the recommendation and investigate further for other “options.” Council was told that would cost an additional $500,000. The SOC says it will report mid-2017.

Are we not chasing moonbeams here? The public has already spoken about the sale and is lukewarm about a potential merger with another electric distribution organization. Even the SOC co-chair, Pankaj Sardana, warned that mergers are not always successful and the culture clash between merged utilities warrants serious consideration before buying in. Remember, it is the provincial government that is promoting amalgamation of publicly owned power distribution centres.

This is nothing but a political move to allow municipalities to free up cash. Already most of the muncipally-owned Electric Distribution Untilities have been snapped up by private corporations. Then see the value and it explains the comments of Mr. Sardan that mergers don’t always work.

Before the SOC continues it task, the public should be told how, when, and to whom the money is to be spent.

In my opinion, the SOC should wrap up the Community Energy Initiative, the over-riding influence of the demise of GMHI and its quest to make Guelph self-sufficient in use of electricity.

Let the next council decide the direction these energy issues should take.

Why the urgency to sell Guelph Hydro?

So why is the Mayor anxious to sell Guelph Hydro? He has a king-sized financial problem on his watch that 100 Taco Bells can’t solve. He wants to open his 2018 re-election campaign with a clean boatload of money to build the South End recreation centre and the Wilson Street parkade.

With a book value of an estimated $150 million, the sale of Guelph Hydro would have solved a lot of pressing demands for funds.

There are other solutions to reforming the administration. The city overhead is choking growth. When you are faced with a loss of $96 million, there are only three ways to solve it:

Enter an aggressive, cost cutting of operations planned by an experienced and qualified financial expert, or sell off your assets to pay for the shortfall. There is another option, pay it off by using the city’s Standard and Poor’s credit rating and borrow more money (see cost cutting above).

Spending another $500,000 seems like a last ditch effort to salavage the reputations of former GMHI participants who, collectively, must share the responsibility of failure..

The $23 million Urbacon settlement costs are are penny ante compared to GMHI’s flight from financial reality.

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Tonight, it’s time to tell the truth about the failure of GMHI and Guelph Hydro

By Gerry Barker

February 15, 2017

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Tonight’s meeting, starting at 6 p.m. at city hall, will be a challenge for council and the administration to tell the truth about the huge losses encountered by the Guelph Municipal Holdings Inc. (GMHI) and Guelph Hydro. And include future liabilities to the taxpayers.

It’s time for the administration to level with the people and tell them specifics about the multi-million losses that the Community Energy Initiatives cobbled together by the former mayor. Her agenda was to make Guelph a world-class leader in energy efficiency and its environmental bedfellow.

Here’s what we do know.

On May 16, GMHI CEO and CFO Pankaj Sardana, along with former CAO Ann Pappert revealed that GMHI had accumulated losses of $26,637,244 million. Both officials signed the report tendered to city council. Ms. Pappert resigned 10 days later.

On January 12, it was 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. The cost of these plants and the two parcels of land needed to build them have not been disclosed.

Here are 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. The Sleeman Node makes some $127,000 a year.

Next, we are not told 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. Again, there are no details of the cost to citizens. What does that commitment accomplish in perpetuating GMHI, at the public expense?

At this point, we should be told of the total and ongoing cost of these misguided projects now and in the future

Here’s what we don’t know.

Because of the operational secrecy employed by GMHI over four years, there are still many questions that need answers. The ultimate hypocrisy employed by GMHI was sending a so-called $1.5 million 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.

In polite circles, that would be described as a “Ponzi” scheme. Paying off the city or the city-owned Guelph Hydro with its own money.

Because the former mayor and chair of GMHI, did not allow public participation in her management of GMHI, we have been handed one of the most serious financial

operating deficits in the city’s history.

Then there is that $65 million borrowed from Guelph Hydro by GMHI. In his May report, Mr. Sardana admitted that neither GMHI nor Envida Community Energy, a subsidiary of Guelph Hydro, had any financial resources to even pay the interest on that 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. Simply, there are no hard assets underlying this $69 million loan because GMHI is essentially bankrupt.

So, the city takes on this debt and lists it on its books 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 by fitire councils.

The questions remain, where did the money go? Was it spent? Is it a legitimate asset of the city? Is it no longer on the Hydro books?

Is it possible that the city financial managers have conjured a plan to keep the loan off the hydro books because the council committee is preparing us for the sale/merger of our electric distribution system?

The temptation of getting its hands on the proceeds of a sale on Guelph Hydro that could reap more than $150 million to solve all its wasteful spending problems and mismanagement of our affairs.

We are not the lost tribes of Carden Street. We are all the citizens impacted by this impending bad decision.

Make no mistake. This plan is in a full court press to selloff the jewel of our city assets to right the wrongs of the past.

My advice? Only the people can stop it by pressuring the council by email, telephone, Twitter and Facebook to say no and demand the truth of what has happened to our city.

If you turn up tonight at 6 p.m. in force, council will listen.

If council fails to listen to the people, then they are all in peril in October 2018 of being re-elected.

That I can guarantee.

I know there are some coucillors who understand the ramifications of tonight’s decisions. But the majority of progressives can be defeated by the people.

I don’t know about you, but this is a no-brainer. Stop, tell the truth and lets start the process of returning Guelph to fiscal responsibility and meet those targets that almost all people want that are bring denied.

You know what to do.

 

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Citizens will hear the future of Guelph Municipal Holdings Inc. & Guelph Hydro Wednesday night

By Gerry Barker

February 13, 2017

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Important note: The sale or merger of Guelph Hydro is scheduled for Wednesday night February 15, commencing at 6. p.m.  The fate of GMHI will also be discussed the same night. Sorry for the inconvenience. My advice still stands, please plan to attend the Wednesday meeting and make your voices heard. GB

On Wednesday, expect a different tactic employed regarding disposal of Gyelph Hydro.. A five-person committee, headed by CAO Derrick Thomson, is asking council to approve the sale of Guelph Hydro with the committee having the power to do so.

This time the method is different from 2008 when then Mayor Karen Farbridge was defeated in attempting to have council approve the merger with two other local distribution facilities in Hamilton and St. Catharines.

This is nothing but an end run to capture capital gain from the sale or merger, take your pick but someone is going to pay for it,

How can this committee, that has one member of council on it, Bob Bell, be given the power to dispose of the city’s most valuable, profit making asset?

How can the committee gain such power when the future of the Guelph Municipal Holdings Inc. misadventure into a $96 million disaster, hangs over the city like a vulture setting up his evening meal.

Ask yourself, where does the city, the one without a Chief Financial Officer for more than two years, plan to use this potential cash bonanza? Reduce the debt? Pay-off the $65 million hydro loan now sitting on the city books as an impaired asset. That’s because the borrower, GMHI, chaired by former mayor Farbridge, has no money to even pay the interest of the Hydro loan.

Apparently, the Wednesday agenda will discuss extending the future of GMHI to be targeted until mid year.

Are the potential Hydro sale/merger proceeds going toward the police HQ renovations? Or a new downtown Library? Or the South End recreation centre? Those items total capital spending of $140 million.

Is this prudent management of city assets? We live in a city that has higher operating and capital spending budgets than Cambridge and Kitchener, some 50 per cent higher. The disappearance of senior managers since 2014 has made matters worse. Our taxes are among the highest out of 445 municipalities in the Province.

Even more interesting, the Thomson committee debated for five months. They asked for public input and the response was overwhelming against the sale/merger of Guelph Hydro.

The committee also gave citizens little time to appear before council to comment on the committee recommendation to allow it to sell or merge Guelph Hydro. Is this fair?

This is nothing but a gigantic sham to shut down public protest and grab the value of Guelph Hydro estimated to be $150 million.

* If you want someone else to control your electricity costs, don’t show up Wednesday night.

* If you believe what this Thomson committee was told by outside consultants about the declining value of Guelph Hydro and the future of turning your home into a storage site costing thousands of dollars, then don’t show up Wednesday night.

* If you believe that your water bills are going to be reduced if Guelph Hydro is sold, don’t show up Wednesday night.

* If you believe that the proceeds gained by selling off Guelph Hydro will lower your taxes, don’t show up Wednesday night

* If you have faith that council will table the committee recommendation, don’t show up Wednesday night.

It’s time to call a halt to the sloppy and inefficient management that has been denuded of talent. Instead, it lurches on without reducing the city’s gargantuan spending policies that always are directed at the wrong goals at the expense of the necessary goals.

This is the citizen’s opportunity to protest this recommendation that lacks the credibility of public power.

If council passes the recommendation, say goodbye to public trust, power and the city’s most valuable asset.

Addendum

In my opinion, Councillors Karl Wettstein and June Hofland should not participate in discussions regarding Guelph Municipal Holdings Inc or the proposed sale/merger of Guelph Hydro. Their role of serving on the GMHI board of directors for four years and participating in the $96 million dollar losses, linked to Guelph Hydro, of that city-owned corporation, creates a conflict of interest.

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