Ontario’s Outlaw Premier Plots to plunder Hydro One

The Globe and Mail reported early March 10th that Premier Wynne’s Ontario government is looking carefully at selling off a portion of Hydro One.

The government has not yet decided exactly how much of the company to sell off beyond the initial IPO proposal, or whether the private sector would ultimately own a majority of the company’s equity, sources said. Much of that would depend on how the initial sale goes.

…The developing proposal is said to have the blessing of Ms. Wynne’s powerful lieutenants: Deputy Premier Deb Matthews, Finance Minister Charles Sousa, Energy Minister Bob Chiarelli and Infrastructure Minister Brad Duguid.

By the afternoon of the 10th the Globe was adding to the tale:

The Premier said Tuesday that word of the IPO plan “has gotten into the public realm prematurely” and she has not made a “final decision” on whether to pursue it.

“Whatever we do, we are going to control prices. We are going to make sure that the regulatory regimes that will protect people in this province stay in place,”

CTV reported the Premier “said no final decision has yet been made.”

The Premier is shown saying,

“We are going to be able to track the projects that we are building. People are going to be able to look at how much money is coming in and where that money is going to be sent.”

If that doesn’t get a “bullshit” from you, you’ve been asleep for years.

The current Minister of Energy, a former Minister of Energy, the Finance Minister, The President of the Treasury Board and the Premier are all in support of a plan that ignores the law.

Here’s a(nother) law Ontario’s government isn’t interested in; The Electricity Act, 1998.

Proceeds of disposition

 50.3  (1)  All proceeds payable to Her Majesty in right of Ontario in respect of the disposition of any securities or debt obligations of, or any other interest in, Hydro One Inc., a corporation established under section 50, a corporation or other entity established under section 50.1 or an arrangement made under section 50.1 shall be paid to the Financial Corporation,

(a) less any amount that the Minister of Finance considers advisable in connection with the acquisition of such securities, debt obligations or interest, including the amount of the purchase price, any obligations assumed and any other costs incurred by Her Majesty in right of Ontario; and

(b) less the amount of any costs incurred by Her Majesty in right of Ontario in disposing of the securities, debt obligations or other interest. 2002, c. 1, Sched. A, s. 10.

I don’t think this covers spending the proceeds of sales on new brooms for transportation – or any other infrastructure project.

The Financial Corporation referred to in the act is the Ontario Electricity Financial Corporation (OEFC) – which is technically the successor to the old Ontario Hydro before it was carved up in preparation for the flailing attempt at a market introduced in 2002. It used to post annual reports within about 6 months of the end of its fiscal year. They’re 2 years behind posting annual reports to their website already,with their next fiscal year-end less than 3 weeks away.

Numbers for the OEFC can be found, however, in the Public Accounts of Ontario published by Ontario’s Ministry of Finance. For the year ended March 31, 2014 the OEFC showed assets of $17.61 billion and liabilities of $27.391 billion.

The nine billion, seven-hundred and eighty-one million dollar difference is known as the unfunded liability.

It’s why the law exists demanding if an asset is disposed of the proceeds pay down the debt of the OEFC. The debt of the OEFC is something Wynne and her predecessor have been totally oblivious to. Since inception, the OEFC has deemed as paid to the Province of Ontario the first $520 million of revenues from Hydro One and Ontario Power Generation (OPG) to be servicing a note paying Province of Ontario for $8.885 billion at 5.85%. Any proceed above that should reduce the unfunded liability.

chart3

And it has.

But only by booking an IOU from the Province of Ontario to the electricity sector.

The last time the province paid the OEFC from the profits of OPG and Hydro One was 2003, prior to the election of a Liberal government.

Since that election the “Due from Province of Ontario” asset has been growing – to $3.865 billion as of March 31, 2014 and due to a record combined income year in 2014, likely to around $4.75 billion by now. While collecting 5.85% interest from OEFC (far above their own financing costs since 2006), Ontario ignores interest on the money they ignore owing the OEFC.

Anybody think a government that ignores the province’s laws in planning is good for the money they owe the OEFC?

We’ve moved from the “stranded debt” under the Progressive Conservatives to “stranded assets” under the Liberals.

chart_12 (4)

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9 thoughts on “Ontario’s Outlaw Premier Plots to plunder Hydro One

  1. From the Public Accounts 1-113 Note 6:

    ” the Province can recoup all costs associated with its
    investments in electricity subsidiaries on a cumulative basis before any income can be recognized by OEFC.” – Who made up this rule and why?

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    • Interesting question. I’ve located the earliest instance of the particular wording in a “Due from Province of Ontario” note in the 2005-2006 Annual Report of the OEFC (it’s note 5 there).
      This makes it coincident with the introduction of the global adjustment mechanism. Dwight Duncan was the Minister of Energy at the time.

      The next sentence after the words you quoted, from the 05-06 annual report, is:
      “Consequently, no dedicated income transfer has been reflected in these financial statements”

      I’m not sure what you’re getting at.

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  2. They’re saying they can pay it all as a lump sum at the end and not pay interest on the money in the meantime, right? It makes me angry that the province would slip its hand into the back pocket of electricity customers. If this was Arrested Development, the OEFC would be the banana stand… There’s always money in the OEFC… Interest free.

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  3. The Canadian Union of Public Employees (CUPE) bought a legal opinion that did give prominence to this point, but expands on it considerably (the full opinion is 13 pages long)

    The purpose of s. 50.3 was made clear in an Explanatory Note released by the government on first reading:
    “If the Crown disposes of the securities or debt obligations or any of these corporations or entities, or disposes of any other interest in them, the net proceeds must be paid to the Financial Corporation. Net payments in respect of capital must also be paid to the Financial Corporation. These obligations are out in section 50.3 of the Act. They terminate when Part V of the Act is repealed.”

    As well, s. 84.1(3) of the Electricity Act repeal provides that: “No proclamation shall be issued [to repeal Part V]… unless, in the opinion of the Minister of Finance,substantially all the debts and other liabilities of the Financial Corporation have been retired or defeased”.

    CUPE news release: https://cupe.ca/government-plan-sell-hydro-one-would-run-afoul-law-says-legal-expert

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  4. The 2015-16 Budget is now out and it includes a section,
    “Impact of Proposed Hydro One Initial Public Offering on Residual Stranded Debt”
    I believe this is saying after Hydro One is sold there will still be a debt and an OEFC. My interpretation of the current law is that as long as the OEFC exists, the proceeds go to the OEFC.
    The budget says the government, “is proposing steps to clarify and ensure that the benefits of selling shares in Hydro One are recognized by OEFC to contribute to the continuing reduction of its unfunded liability. Doing so would also help to offset impacts on residual stranded debt from a reduction in the projected present value of future dedicated revenues to OEFC related to Hydro One.”
    There would be no residual stranded debt by the time the first tranche of shares is offered in fiscal ’15-16, so in fact he’s talking about creating a residual stranded debt by reducing the revenue stream from government assets (Hydro One): the government is likely to claim it is only necessary to pay off a residual stranded debt, which it will calculate as whatever figure it emotes necessary – but leave an unfunded liability and claim that means it hasn’t yet recouped “all costs associated with its investments in electricity subsidiaries on a cumulative basis” – so as to avoid eating the $5 billion owed the OEFC – which is in fact already spent.

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