Did London Hydro undervalue its debt by $30 to $40 million? Board of directors remains tight-lipped

A letter to city council has raised serious questions about the financial state of London Hydro.

Now, some councillors would like a response from the public utility.

In his letter dated Oct. 13, auditor and accountant Cedric Gomes warned, “There appears to be several errors in London Hydro’s 2022 financial statements.”

He lists his concerns as:

• The company’s debt being undervalued by $30 to $40 million
• Misleading descriptions in the financial statements
• Inadequate disclosures relating to the company’s long-term debt and related instruments

“Council needs to investigate the state of London Hydro‘s financials because there’s reason to believe that things might not be as rosy as we want to think,” Gomes told CTV News London.

Gomes was unsuccessful in his application to join the board of London Hydro.

However, in preparation for an interview with the board back in June, he reviewed the public utility’s 2022 Annual Report.

He then notified the board that his review uncovered what appears to be a massive undervaluing of its $168-million debt.

“London Hydro appears to have valued that debt assuming interest rates will stay at a low fixed rate for the next decade,” he explained. “Anyone who has a variable rate mortgage will tell you that’s not the case. When you value it at current rates, the value of that (debt) goes up by $30-$40 million.”

London Hydro’s board members have yet to respond his concerns raised at the June interview, so Gomes has sent detailed letters to council and London Hydro’s auditors at KPMG.

The city is the sole shareholder in London Hydro.

The publicly-owned utility pays an annual $5 million dividend to city hall which offsets costs in the municipal budget.

The letter has raised questions for some city councillors.

“I think a response to that letter is warranted, given the nature of what was said. I look forward to seeing that letter on an upcoming committee agenda,” said Coun. Sam Trosow.

Coun. Susan Stevenson added,” It’s between the professionals to discuss (the letter) and get back to us. I’m looking forward to hearing the answer.”

London Hydro is being tight-lipped about the letter’s allegations. The director of public relations and communications told CTV News London that it would be inappropriate to respond until after city council’s Strategic Priorities and Policy Committee (SPPC) has had an opportunity to consider the letter.

Gomes urged the hydro board to be accountable, “They are not volunteers. They’re paid tens of thousands of dollars of taxpayer money to ensure that the financials are proper.”

He remained steadfast that he no longer wants a seat on the board — his concern is for hydro customers and the city.

“I notified the board within nine days of those financials being released. I immediately took action even though I knew it would harm my chances of being appointed to the board. But I did it because it’s the right thing to do,” he said.

The next meeting of council’s Strategic Priorities and Policy Committee is on Oct. 31.