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OPINION: Neal McNamara, The Hydro Edition – Part 2

Microgrids and the Mayor's Plan recalling the Hydro Loan ..... this is where the rock meets the hardplace and where good ideas go to die.

In my last article of 2017, I addressed some concerns and deficiencies noted in the financial statements at North Bay Hydro. To recap, their debt went up $22 million, executive salaries increased over 11% and are trending towards a 50% pay increase in less than five years, and they wrote off $1.26 million in uncollected bills.

Later that week the president of North Bay Hydro, Todd Wilcox, advised the media that the $1.12 million losses that they reported to the Ontario Energy Board date back to 2008 and were nothing out of the ordinary, just years of write-offs that piled up….. ok but that still leaves $140,000 missing and unaccounted for between what was reported in their financial statements versus what was reported to the Ontario Energy Board. So which is it Todd, did North Bay Hydro write off $1.12 million or was it $1.26 million?

So now that we are caught up, let’s take a look at the upcoming solar microgrid at the YMCA and the controversial Hydro loan recall.

The Microgrid.

First, solar projects can be a good thing, if its done right. However, the solar energy microgrid going up at the YMCA is not really one of those good things. Our local hydro is incurring millions of dollars in debt to get the project up and running, and it will cost millions of dollars more to keep it running.

Mayor McDonald has recently stated the city’s contribution to the project of $260,000 will be “effectively paid back” in the first year because the YMCA will save $200,000 a year on their electric bill. Well, I hate to disagree with the Mayor, but the fact is that any potential cost savings will be entirely cancelled out when North Bay Hydro increases all of our hydro bills to make up for the loss of the $200,000 a year in revenue that they would have otherwise received from the YMCA.

So who’s right on this one, McDonald or McNamara?..... well you only have to look at your water bills and recall the smart water meter program and how well that’s gone to find your answer. Our water bills and rates have increased every year since the meters were introduced.

First, it was millions of dollars to install the water meters and will cost us millions of dollars more to maintain it all. Now, remember, these meters were to help us conserve water and put less strain on the water sewer system. So in 2016, because the conservation efforts that the city tirelessly promoted worked “too well”, they increased the water bills. Then in 2017, increased summer rain resulted in less demand, and they increased our water bills again. Well, this hasn’t worked out very well so far has it?

So is it wise for North Bay Hydro and the city to take on millions in debt plus interest costs and operational costs to save $200,000 a year on the electric bill at the YMCA which then gets passed on to the rest of North Bay hydro customers to pay? I don’t think that’s wise. Not at all.  

Charge your Tesla here.

It’s putting the cart before the horse touting the benefits of having electric car charging stations built into the YMCA microgrid before even the provincial infrastructure is laid out anywhere in Northern Ontario. Whoever thinks that tourists or local electric car owners (if any) are going to come up and park their electric cars for 1 to 3 hours at the YMCA to fully charge their electric cars (for a fee) is not thinking…. clearly. Fool me once, shame on you. Fool me twice, it’s still, shame on you.

Now for every dark cloud, there is a silver lining and the one possible benefit which I do like about the microgrid is the “potential” that it could provide a powered emergency centre in case of disaster or mass power outage throughout the city. Safety is always #1 in my book, but I can’t say I have much faith that it will translate from concept to realization at this stage.

The Hydro Loan of Doom.

Lastly, I have spoken publicly about the negative impact calling in the Hydro loan has had in the loss of $1 million dividend per year to the city and the incursion of real debt to the bank.

Instead of a never-ending $1 million payment to the city every year, the Mayor called in the hydro loan in 2016, forcing hydro to borrow from the bank and the city has now spent all the repaid millions to maintain its ever-increasing overspending levels and to artificially lower property levy increases during the last 3 years of councils term. 

The Moody’s credit agency, other city councillors, and the North Bay Taxpayers Association have all stated in some form or another that the Mayors plan and subsequent recall of the hydro loan was a bad plan for North Bay’s future, “short-term gain with long-term pain”, and did nothing to alleviate the city’s overspending and revenue problems it is seriously challenged with. That pain is going to kick in next year in 2019 by the way along with massive debt issuance and property levy increases.

The Mayor's plan had called for the CAO to find $200,000 in savings each year and a review committee to look for efficiencies across the city’s departments. It’s been three years, so there should be at least $600,000 in savings, right? Nope. Instead, the last CAO found himself a $200,000 “corporate advisor” paycheck, the new CAO hasn’t done much either because he’s still new to the city and apparently still trying to get the lay of the land, meanwhile the city and hydro’s combined total debt is now at $100 million, and Councillor Maroosis and his committee still hasn’t found any efficiencies or made a single recommendation to council.

Instead of finding ways to increase revenues and cut costs over the last few years, the “Mayors plan” wasted over $20 million maintaining unsustainable spending levels and has only postponed the hardship that’s going to hit the taxpayers and the next city council. Think iceberg meets Titanic. So get ready for 5-10% property tax increases that are coming just to maintain current spending levels thanks to a lack of planning and poor fiscal leadership.

The best solution as it concerns the hydro loan would be to undo the loan (or redo the loan so to speak) and re-establish the dividend. The city can take a loan for that amount, payback our hydro, who in turn will resume the $1 million annual payments to the city, in perpetuity, so that over the long term, the next 25, 50, 100 years, North Bay and its citizens will receive dividend payments of $25 million, $50 million, and $100 million respectively.

Or better yet, use the $64 million in over-collected property taxes and fees wasting away in the multitude of city reserve accounts and losing value every year to inflation to payback the hydro loan and restore the $1 million dividend. That would save over $9 million in borrowing costs.

The city and hydro will be better served by having the $1 million hydro dividend restored and saving $9 million in bank interest charges, versus what has happened, the “selling off” of our hydro asset (ie. Recall of the hydro loan). It is possible to have short term gain and long-term gain with no or little pain, but only with a new way of thinking and innovation. We can start another year, but without a new mindset, we’re still going to get the same old results.

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Neal McNamara

About the Author: Neal McNamara

Neal McNamara is an entrepreneur, investor, and former Military Police studying business at Nipissing University
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