Letter to council questions amount of debt owed by London Hydro

An unsuccessful candidate for London’s hydro board warns city council that the public utility under-reported the size of its debt by more than $30 million.

But it’s an accusation the CEO of London Hydro flatly rejects.

Chartered professional accountant (CPA) and businessperson Cedric Gomes sent a letter to city council on May 23 expressing concern about the debt declared in the annual financial statement of London Hydro.

“In the 2022 financials, the company [London Hydro] disclosed a [debt] of $168 million. That same debt, at the same point in time, is now valued at approximately $200 million — indicating the company’s debt was previously undervalued by $32 million.”

“To put $30 million in context, London Hydro’s entire profit for last year was about a fifth of this amount,” Gomes told CTV News London.

“There’s no change in the [debt] number…no change,” said London Hydro CEO Vinay Sharma, who added the 2022 and 2023 financial statements are consistent in their debt reporting.

Sharma said that a debt swap agreement with a bank ensures a fixed amount (principle plus 2.15 per cent interest) will be repaid by the end of the agreement’s term, whereas the annual financial reports show how changing interest rates impact the values at a single point in time.

A letter sent by Cedric Gomes to London City Hall about London Hydro on May 23, 2024. (Source: Cedric Gomes)

“We will in 10 years pay back $200 million. Not a penny more, not a penny less, but in-between the term of this contract we report what is happening in the market,” he added.

Gomes said that the financial documents fail to meet proper accounting practices, “If you’re changing the number in the next year‘s financials, which is what they did, you need to explicitly say, ‘This is what we changed and this is why we changed it.’”

Sharma told CTV News London that the debt reported in 2022 didn’t change in the 2023 document, “If you were to scan year over year our annual reporting, you will find very consistent reporting — $200 million of real debt.”

The city is the sole shareholder of London Hydro.

The public utility pays an annual dividend to city hall that offsets costs in the municipal budget.

“Council needs to ensure that there’s transparency and accountability in this process,” urged Gomes.

A letter sent by Cedric Gomes to London City Hall about London Hydro on May 23, 2024. (Source: Cedric Gomes)His letter makes four recommendations to council ahead of the London Hydro Annual General Meeting (AGM) next week:

• External legal counsel be engaged to investigate whether any of the board directors have violated the Business Corporations Act
• A new slate of directors or a partial slate be appointed
• The board be provided with training on best practices for governance and fiscal management
• These issues call into question the board's competencies and judgement. I therefore recommend this committee take a more active oversight role in key board decisions, such as the hiring of London Hydro's next CEO. This could be accomplished through a new shareholder declaration

Last year, Gomes was an unsuccessful applicant to fill a vacancy on the hydro board.

He first raised concerns about the utility’s financial statements during that interview process.

His letter states that he no longer wishes to be on the board.

Sharma said Civic Administration and council ensure the utility’s financials are independently audited.

“The auditors that audit our books are appointed by city council,” he said. “The auditors that audit us have found everything has been consistently reported.”

London Hydro will present its 2023 Report on Finance to a council committee on May 28.