Special Meeting Will Discuss Lack of Return on Investment in District Energy, Plus LIVE BLOG!

City Hall will tackle the always contentious energy file in a special meeting tonight at 6 pm. Two reports are on the agenda: the Financial History of the GMHI Group of Companies and Current Issues, and the GMHI 2016 Restated Budget, and the former will reveal that the City may have to write down $8.7 million in investment into the District Energy assets in Hanlon Creek Business Park and Downtown Guelph.

According the report, which started making the rounds over the weekend, the Hanlon Creek Business Park District Energy System will see $5.1 million in write downs, and the Downtown Guelph District Energy System will see $3.6 million. That doesn’t mean that the City will be out of pocket for another $9 million, these projects have already been paid for. They were, however, supposed to generate revenue for the City commensurate to the invest made in them, and that has not been the case.

More bad news? Sure, the report will also show that since 2006, a total nearly of $10.6 million in tax losses have been accumulated by Guelph Municipal Holdings Inc. (GMHI), the corporation created to oversee all of Guelph’s major assets including Guelph Hydro. Those losses may be made up in future years, but they have an expiry date 20 years after the completed fiscal year, meaning at that point the City takes the loss permanently. Meanwhile Envida, the subset of GMHI meant to diversify Guelph’s sustainable energy supply, owes almost $12 million in loans and may need to sell assets like Southgate solar assets and the Eastview Landfill Biogas to cover them. Forgiving the loans, which came from GMHI, may be another possibility.

If this seems like a massive info dump of bad news all at once, that’s understandable. New oversight of GMHI was initiated this year with Mayor Cam Guthrie, Councillor Karl Wettstein and Councillor Cathy Downer forming a three person board; CAO Ann Pappert was assigned the role of Interim CEO of GMHI to provide the necessary authority and oversight to implement the directions of Council. The effort is to promote more transparency and efficiency in the GHMI and the organizations and assets it’s overseeing.

The second report coming to the meeting will be a restated budget for the GMHI for 2016 owing to its restructuring. That report remains on the consent agenda, and has not been pulled for discussion.

Follow the live blog from tonight’s meeting below:

Guelph City Council Meeting – May 16, 2016

Live blog from the *special* meeting starting at 6 pm

  1. We’re getting started with the council meeting.
  2. Will be going back into closed meeting for CAO contract.
  3. A special resolution in regards to the other item in closed meeting to be brought up later. It’s about IMACO site on Beverly St.
  4. Cllr Hofland look for legal opinion on point #3 to looking for formal direction. Prefers to keep council at arms length on contract decision
  5. Legal says that it doesn’t matter if its CAO or council that cancels, the corporation is still liable. There’s no individual liability.
  6. …Unless there was something wrong in the decision making.
  7. Cllr Piper asks if councillors are actively involved in firing a contractor, could they be called in a lawsuit?
  8. There is potential to be named as witness, but for charges there’s an indemnification by-law.
  9. You would have had to have done something for personal gain to be personally libel says city lawyer to Cllr Allt’s Q.
  10. It would be unusual for council to take on responsibility for cancelling a contract themselves. Usually comes from staff recommendation.
  11. “This is not an insignificant change,” says Cllr Wettstein.
  12. Wettstein: need to know pros and cons, the risk – not so much the size and numbers.
  13. “I’m far from ready to be comfortable making some of those changes,” he says. “This is not a comfortable decision to take for granted.”
  14. Wettstein is wearing his “developer’s hat” on that one.
  15. Cllr Salisbury asks CAO if these are the best things for our organization? Is it staff recommended?
  16. CAO Pappert: 4 changes meant to provide greater clarity, something she’s worked on with the mayor.
  17. The point is to focus on the corporate implantation of plans, says Pappert.
  18. Paper says she crafted language around what council wanted to discuss. Changes were made short notice.
  19. Salisbury says he’s hearing that it may be premature to make this decision. Staff should be involved to discuss implementation.
  20. Salisbury asks the mayor the rationale, “What is it we’re trying to fix?”
  21. “I think city council should ultimately be accountable to the city of Guelph for those types of decisions.” – Guthrie.
  22. Salisbury: “At this point, you don;t think that’s the case and that this is the solution?”
  23. Guthrie says that the CAO and the Mayor (at the time) “knew full well what was going on with Urbacon”
  24. “Oversight is absolutely our final mandate” says Salisbury, but still think’s this might have come together hastily.
  25. Guthrie “finds it funny that a referral would go back to staff” at this time. “You know full well” why this is coming forward.
  26. Guthrie says he only heard back from Cllr MacKinnon in the last week on this.
  27. “Yet again, I feel there’s a narrative that the mayor’s doing something that’s not in order,” says Guthrie.
  28. “I’d be happy to have all these conversations” before this comes before the public, says Guthrie.
  29. “This is the best practice for Guelph […] Given the history of what’s happened here,” says Guthrie on best practices.
  30. Salisbury: “If this our will we’ll make it work, but is this what’s best for community?”
  31. “I’m not asking to kill it, I’m asking to defer it,” says Salisbury.
  32. “I want to get consensus on this,” says Guthrie. Proposes to refer it to May 24 meeting.
  33. Clr Downer: “I can support it as it is, but I think there’s more that needs to be said.”
  34. Cllr MacKinnon: “This would only come up if the CAO wants to cancel a contract, and prior to that looking for formal direction.”
  35. MacKinnon: I don’t need another couple of weeks to know that this is a good idea.
  36. “I think it’s prudent, I think it’s reasonable, and I don’t think the citizens of Guelph would be against us.” -MacKinnon
  37. Cllr Piper says she didn’t respond b/c she didn’t have any amendments, and the email asked for amendments.
  38. Saw it for the 1st time on Friday, this is the 1st chance they could talk about it together, says Piper.
  39. Piper praises mayor/council/staff for capital projects manager position.
  40. Piper says she would like to know how this will affect council role and responsibilities. That will have to be amended concurrently.
  41. “I want us to try and come together on this.” says Guthrie.
  42. Referral motion for June 13, moved by Cllr Bell and Gibson.
  43. Wettstein wants to comment before the motion, he also responded to the email
  44. “We have a significant number of critical decisions we delegate to staff.” says Wettstein.
  45. “If we’re going to get involved with this, we have to understand how.” says Wettstein.
  46. Wettstein says that the best decision with the Urbacon matter was cancelling that contract. Sick of it being used as political football
  47. Wants to know the implications of facing two litigations on cancelling a contract, like one from project manager and another fr architect.
  48. Cllr Salisbury asks if its for the referral of the all thing, or just the last point.
  49. Vote on the referral: 4-9. Bell, Billings, Gibson and Guthrie voted for.
  50. Allt moves the first three clauses and asks that they be separated.
  51. #1 – g)To attend meetings of City Council, Planning Council and Committees of Council as required or as delegated, with the right to speak
  52. but not to vote. The CAO’s right to attend excludes matters specific to CAO Contract and Council’s deliberation of the results of
  53. Clause #4 – g) To secure formal direction from City Council prior to the cancellation of any capital projects classified as Tier 1 or 2.
  54. Salisbury asks if there’s a “solid planning rationale” for this. Mayor calls the vote.
  55. Resolution: Staff be directed look at mixed use development for IMACO property incl affordable housing.
  56. Exciting #Guelph council resolution tonight directing staff to pursue a mixed used development on #IMICO inclusive of affordable housing.
  57. “We’re going to pretend we’re wearing a different hat now,” says Guthrie. A share holder hat in GMHI.
  58. “I think the story that’s going to unfold this evening is a complicated story.” says Pankaj Sardana, CFO, GMHI / CEO, Guelph Hydro ESInc
  59. Story goes back to changes made by Mike Harris gov’t in 1998.
  60. @Ward1Guelph Big leap forward. Great news for Ward 1…Thanks for your leadership on this file. #IMICO
  61. “These investments aren’t small,” says Sardana about District Energy.
  62. This only makes sense when you combine heat and power, Sardana says on District Energy.
  63. “We couldn’t find the turmoil load we needed to make this viable,” says Sardana. Need the right size, density, etc.
  64. “We may not have these nodes in Guelph,” Sardana says.
  65. The accounting rules say the city has to write down these investments, Sardana says.
  66. Sardana pauses for questions. Gibson opens it up.
  67. A significant “anchor tenant” is needed to maximize return on investment, something like IBM in CA.
  68. The customer base will not meet these contracts in the forcible future, Gibson asks. That is correct, Sardana says.
  69. “This was not the vision we intended to have,” says Gibson. To more forward w/o an anchor tenant “is not sound business.”
  70. 1800 sq feet is what’s needed to make it viable, Sardana says.
  71. Definition of Thermal Load: Thermal load is defined as the temperature that causes the effect on buildings, such as…
  72. outdoor air temperature, solar radiation, underground temperature, indoor air temperature and the heat source equipment inside the building.
  73. There’s no environmental benefit w/o a thermal outlet, Gibson says to clarify.
  74. “This is going to be a tough question for some members of council” GMHI the controlling shareholder for the organization?
  75. Allt asks who was it that made the decision on unregulated energy decision b4 2014? Came thru GHI (Guelph Hydro).
  76. “We were not siloed,” says Sardana about decisions made prior to 2014.
  77. $300K credits each as security deposits for downtown and HCBP. If we can’t honour contracts could lose down payment.
  78. What analysis was done in advanced, asked Billings.
  79. The analysis was done thinking we would get the load. “If we could do it again we never would have embarked on this,” Sardana says.
  80. Billings: What’s the likelihood of the asset reversal.
  81. The only way to write up the assets is to build the CHP. Chances of that are nil.
  82. “We believed that we had strong business cases, but in hindsight the numbers show that’s not to be expected.” Sardana,
  83. “It’s not that we’re going to rip up the assets and take them away.” says Sardana. There’ll still be revenue, not enough to cover investment
  84. Customers will be covered till the end of the contract.
  85. Sardinia believes that there will not be further write downs.
  86. Guthrie gets clarity. HC is written off, but downtown is being written down. The assets are still there & operating.
  87. This is not unprecedented, says Sardana. Alberta right now writing off oil assets b/c of low price.
  88. Bell – We’re writing off half of it b/c that’s the proper accounting way to look at it, any ongoing enviro benefits to the network?
  89. Sardana “I don’t see any environmental benefits per se.”
  90. Projection of 5K new residential units downtown = to 4M sq ft. Wouldn’t that be anchor tenant downtown, Bell asks.
  91. If not all of those customers sign on to District Energy system, then that becomes problematic, says Sardana.
  92. Haven’t signed on not b/c of cash issue, but b/c it’s expensive to get hooked up.
  93. “We didn’t have any money,” says Sardana. $15M for the piping, another $30 for the plant.
  94. 2M sq feet in each needed to start, but in order to make contracts viable 4M was needed. That was discovered along the way.
  95. MacKinnon asks if tenants are saving money at least right now. Sardana says they are.
  96. “If we need to clean up, let’s do it now,” says Sardana on timing.
  97. “The picture is really, really crystallized now, so it’s time to move on.” says Sardana.
  98. Piper says there maybe public perception that there was “imaginary customers” there were projections that showed it could have worked.
  99. There were convos with Sleeman, the Hospital, U of G. Trying to attract thermal loads from biz development standpoint.
  100. If we get loads in next 6-8 months it could still work. Just not likely, says Sardana.
  101. Envina was meant to be an “enabler” was never meant to do it on its own, says Sardana.
  102. “All is not lost here. There is some value that we’re trying to work with.” says Sardana.
  103. “If I don’t have to pay taxes I will, legally,” says Sardana.
  104. There is a small load that Envida has to RBC, they have to pay that off, but may require asset sales.
  105. That will done through a “rigoreous business case.”
  106. Can’t expand the temporary plant anymore, the permanent one (at cost of $25M) would have to be built if another large tenant comes on @ HCBP
  107. @robertroutledge I wasn’t watching him the whole time b/c I’m typing but no.
  108. Billings why the drop from $16.9M to $11.8M for Envida?
  109. GMHI converted some of the debt to equity, says Sardana.
  110. Companies were set up with all debt financing. It was all inter-company borrowing.
  111. Envida is servicing the debt, paying interest on it.
  112. The solar is making *some* money, asks Billings.
  113. GHESI’s not being asked to do anything yet, says Sardana. Something we’re examining.
  114. MacKinnon asking if there’s a way to know if rate payers have been harmed.
  115. Sardana says they haven’t, hydro rates have not gone up b/c of this.
  116. Says the various boards were careful to make sure that rate payers were not harmed.
  117. Positive dividends would have flowed up to the city.
  118. Wettstein notes the difference between oversight and decision making.
  119. Wettstein wants to make it known that every board leading into amalgamation were aware of their responsibility.
  120. “We wanted to do the right things for this community,” says Sardana. That caused some of the complexities to emerge.
  121. Wettstein wants “this poor people” to be recognized for working through the growing pains of 2013/14.
  122. Wettstein wants “this poor people” to be recognized for working through the growing pains of 2013/14.
  123. “I’m not here to play the Blame Game,” says Allt. Could be “Guelph’s Avro Arrow.”
  124. Will District Energy be a significant player in the province? asks Allt.
  125. It’s not going away, and technologies are changing, says Sardana. Perhaps should have gone smaller.
  126. @JasonDodgeWard3 I think it’s more a case of “too many cooks in the kitchen” at some point along the timeline.
  127. Allt asks CAO for clarity, this has been “a tremendous puzzle” as a new councillor.
  128. Pappert: Working on long term modelling to see if there’s a future for DE. That report is coming back in June.
  129. Allt asks if some of the confusion relates to the economy/loyalty of boards and whether they can get info from boards.
  130. Sardana clarifies if info isn’t shared b/c of fiduciary responsibility? Allt: Yes.
  131. To his knowledge, says Sardana, all minutes asked for have been provided.
  132. It’s a conundrum for the city, especially for councillors that were 2-3 different hats.
  133. There are benefits of a micro-CHP project. Some can be as small as fridge.
  134. Allt asks about players in the mix.
    Sardana says it a Q for in camera.
  135. Bell wants to separate blame from cause. Hydro did not do any of this, says Sardana.
  136. Bell blames 2 causes: We embarked on journey w/o tech knowledge, and appeared to not have the right financial lens.
  137. “We attempted to do too much well beyond our capacity,” says Bell. 2 DE projects plus solar.
  138. That was a concern for the GHI board, says Sardana. The people and financial capacity.
  139. “They were equally concerned about the way info was coming to them” says Sardana. “It’s a rigid, contractual market.”
  140. “Boards have to get their heads around complex pieces” quickly, says Sardana.
  141. We really needed to get a handle on the thermal loads in this city, says Sardana. “We should have had that picture upfront.”
  142. Gibson asks about thermal energy strategy in 2012: what GH, Envida and GMHI to yes despite the info shortfalls?
  143. Sardana notes again that if they had to do it all over again, they would have got the anchor tenant first.
  144. Gibson: We didn’t sound the market correctly. “Perhaps it speaks to political expediency,” he says.
  145. “Do you believe there was moral interference in this process?” Gibson.
  146. How much should have been spend on DE? asks Billings. Feasibility costs should have been done, coming to $1M.
  147. Billings points out everyone said no to being anchor tenant, was $13 million wasted?
  148. That’s tough to answer, says Sardana. With the benefit of hindsight yes, but that wasn’t intention.
  149. “We’ve been trying, but they haven’t worked” says Sardana.
  150. No more comments or questions from council. Mayor’s turn.
  151. Guthrie frames it as “What did you know, and when did you know it?”
  152. @adamadonaldson Correction. Moral suasion and pressure, yes. Interference, no. Sardana’s words.
  153. Sending quarterly statements to GMHI, says Sardana. Went over annual budgets with GMHI board.
  154. Mayor asks Sardana to clarify “push to the wall” comment.
  155. It was a matter of signing the customer, or not, pushed in order to get another contract. Board was pushed to the wall on lots of decisions
  156. Mayor asks for a motion to receive report. Hofland and MacKinnon
  157. Bell expresses disappointment. Wished that city could have figured out DE, thought it was viable.
  158. Bell is afraid that what has happened now is that there are things that will not come to fruition.
  159. “There’s no denying that we need to do something, and we want to be able to make the decisions that are prioritized in the proper sequence.”
  160. “If we can’t do that then we don’t have the ability to do anything at all, and that would satisfy some in the community.” Bell says.
  161. Bell thankful for clarity from previous GMHI board.
  162. Allt also thanks staff. Been trying to deal with DE for sometime and its not going to go away.
  163. All users will be absorbing the cost of conventional energy options soon anyway. Let’s build it better, says Allt.
  164. “There should be a full pause stop on DE,” says Gibson. Shouldn’t be giving the community hope.
  165. The DE failure lead to failed transparency and loss of tax dollars in the community.
  166. “At times it’s been difficult to stand where I stand on this file,” says Gibson. He supported DE during elxn.
  167. “Real results-based climate change initiatives should not be done in the back room.” Gibson.
  168. Hopes council will lead through this “inherited” failures, says Gibson. Hopes it’s the last.
  169. Piper says that an impression is left that council is divided on this, but they’re all trying to work their way thru it.
  170. Piper says there’s still confusion in the community between CEI and DE. DE is a component of CEI.
  171. “We acknowledge some of this decisions that were made and we change the process to make sure it doesn’t happen again,” Piper.
  172. Piper is happy to see that it’s all out in the open, and are part of the “difficult” learning process.
  173. “A full spectrum of political interests” were trying to make something happen back in 2010, says Wettstein.
  174. In your first year, you’re the only one that can deal with hindsight, says Wettstein of the past.
  175. Wettstein open to seeing long term plan in June and community wants to see it. Pessimism is real, legitimate…
  176. Keeping politics out difficult, says Wettstein, 70% of comments tonight political.
  177. Mayor will ask for motion to both accept the report and refer it back to June 13 to get more community involvement.
  178. “This is a big weight of me, personally,” says Guthrie. “It’s nice to have it out in the open now.”
  179. Vote to receive the report passes 12-0. Salisbury not in the room.
  180. Gibson moves to have the report read at June 13 meeting so that it could be voted on as a council.
  181. Allt point out that council is also shareholder for Guelph Junction Railroad. Are they establishing precedent for double presentation?
  182. Guthrie says he believes its a transparency issue considering $8 million shortfall.
  183. Downer moves that minutes from in camera meet in November 23 be made public too. First mention of the GMHI problem.
  184. The point of the meeting was options given to council, but their may have been mention of names and contracts that will have to be redacted.
  185. Pappert says that info from November meet will provide important foundational information.
  186. MacKinnon says he can’t vote for the motion b/c he can’t remember what was in the slideshow. Informed consent the issue.
  187. Guthrie confirms motion with Downer. In camera minutes and accompanying materials with necessary addictions.
  188. Vote for the release of in-camera materials passes 11-1. MacKinnon voted against.
  189. Downer mentions on Feb 29, council got a decision chronology at an in-camera meet. Wants to make that public too (with redactions).
  190. Guthrie says that he’s feeling a bit like MacKinnon, so he’s taking a moment to look at the materials
  191. Gibson wants to see verification from third party before releasing it to the public “as gospel.”
  192. Guthrie would rather lean on the side of making everything in-camera public. That makes two of us.
  193. There are things going on “deeper”, says Piper. Still more to come, but this is a “very high level chronology.”
  194. Passes 9-3. Gibson, MacKinnon, and Van Hellemond against.
  195. Salisbury will vote no b/c he wasn’t in the room. Asks to know the motion. “I’m familiar with that he says.”
  196. Motion to adjourn the share-holder meeting and restart the in-camera meeting.

 

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