Wynne government reneges on the promise of the electricity act

Ontario Premier Kathleen Wynne’s government has betrayed 15 years of debt collection from Ontario ratepayers in completely perverting the Electricity Act to increase efforts, begun with Premier McGuinty, to turn the sector into a net subsidizer of government spending.

In the 1999-2000 Annual Report of the Province of Ontario the government of the day laid out the basic principles behind electricity restructuring:

• Keeping electricity prices in Ontario as low as possible
• Recovering any stranded debt identified as a result of the restructuring from the electricity sector, and not from taxpayers
• Maintaining maximum value in the electricity sector until stranded debt is retired or defeased; and
• Creating a structure where investments are undertaken on a sound commercial basis.

The government of today is carrying on the tradition started by the McGuinty government before it. Rates for winter electricity were announced yesterday and the increase over the previous winter is the highest ever. At over 12.6%, it’s only a little higher than the average of 9% over the past 8 years. While the public generator, Ontario Power Generation, has been a significant contributor to recent price increases, most of the increases came from the contracting of private supply after an Ontario Minister of Finance, Dwight Duncan, specifically planned for using OPG’s largest assets to level pricing: “Fixed prices for a large part of the energy consumed in the province would keep the overall blended price for electricity relatively stable.”

Giving government the ability to contract regardless of cost did not keep prices stable, as subsequent years displayed.

The most recently announced contract may be the most irresponsible yet (it’s one helluva competition). The abandonment of any intent to undertake investments “on a sound commercial basis” is clear in the contracting of 28 megawatts of hydro capacity to be constructed on New Post Creek. Whatever the hidden contracted cost is, it’s enough to justify spending $300 million for 28 MW of capacity. At that price the Darlington refurbishment would justify $41 billion in spending, and the public generators on the Niagara river system would be valued at $26 billion.

Procurement since the Green Energy Act and the related disastrous feed-in tariff (FIT) program has been everything but value-based, from trendy renewables at any cost to the influence peddled selection of FIT winners, the race-based contracting of Post Creek might strike some as an improvement.

The one area Ontario couldn’t be accused of vacating the principles behind the restructuring of the Electricity sector is in recovering “stranded debt” from taxpayers. Starting from $38.1 billion in liabilities backed by what was deemed to be only about $20 billion in assets, government accounts recognize (as of March 31, 2015):

• $4.3 billion increase in the government’s asset value of Hydro One
• $4.9 billion increase in the government’s asset value of OPG (omitting nuclear funds)
• $2.4 billion “nuclear risk funding liability” eliminated
• $3.8 billion reduction in now fictional Power Purchase Agreement liabilities
• $3.5 billion in OPG asset value from earning of Nuclear Funds
• $12.7 billion collect from debt retirement charges

That is $31.5 billion, with $12.7 billion produced from the $8.9 billion in net value the government kept on it’s books.* The original restructuring gave the shell company left with the “unfunded liability” other tools to service the debt. It’s books show:

• $9.3 billion collected from payments in lieu of taxes
• $13 billion in interest payments received.

It requires a great deal of effort to believe $53 billion collected over the increasingly lower interest rate period of the past decade and a half could not retire $20 billion of debt.

The “Electricity Industry Restructuring” section of the 1999-2000 Annual Report ends with:

The stranded debt from electricity restructuring to be recovered from ratepayers of $19,787 million is shown after net provincial debt. This disclosure recognizes the fact that ratepayers, not taxpayers, are responsible for the stranded debt of the former Ontario Hydro.

The principle was to work both ways:

Consistent with the Government’s commitment to keep electricity income in the electricity sector, net income of OPG and HOI in excess of the Province’s cost of investment in its electricity subsidiaries will be set aside for the retirement of OEFC’s debt.

The Wynne government’s machination around selling off Hydro One have invalidated 15 years of revenue collection justified as an attempt to retire debt; debt the Wynne government has reneged on attempting to retire.

The morally, and possibly financially, bankrupt government intends on collecting another $2+ billion in debt retirement charges.

The decent thing to do would be to refund the first $13 billion collected under a false pretense.