Ontario’s financial accountability officer confirms Ontario will be worse off financially following Hydro One sale

The Toronto Star’s Robert Benzie is reporting the Toronto Star has seen a report on the sale of Hydro One concluding:

“In the years following the sale of 60 per cent of Hydro One, the province’s budget balance would be worse than it would have been without the sale…”

I would have been surprised had he concluded anything other than that.

I’ve written extensively on the sale, recently stating this regarding the financial shenanigans driven by the head of the unelected Premier’s Advisory Council on Government Assets:

It seems the only value Ed Clark’s team has added to Hydro One has come at the expense of future government tax revenues.

The money in, money out, scheming with Hydro One is intended to provide “Deferred Tax Benefit”, and the government has stated it’s grabbing the entire “Deferred Tax Benefit” gained to pay into the Trillium Trust, which is the provincial government’s fund for The Greater Toronto Area’s transit.

From the October 9 Ministry of Energy news release accompanying the release of an updated Hydro One Prospectus:

Based on the [proforma financial statement in Hydro One’s updated prospectus], an estimated deferred tax benefit of $2.6 billion would result in a benefit to the Province, at consolidation, of about $2.2 billion, based on the Province having about an 85 per cent share of Hydro One following the IPO….
As this deferred tax benefit results in a net fiscal gain, the Province proposes to credit it, along with other net fiscal gains, into the Trillium Trust.

The province intends on spending what Hydro One will save from reducing future taxes – ie. avoidance of providing the government with taxation revenue.

NDP MP Peter Tabuns’ questioning revealed more on this point in questioning at the Committee of Estimates:

Mr. Peter Tabuns:
On October 10, a government backgrounder said, “The province remains on track to dedicate approximately $4 billion to the Trillium Trust and $5 billion towards debt repayments, as outlined at the time of the 2015 budget.” The same backgrounder said that these dedications would include a $2.2-billion one-time fiscal gain from an enhanced, deferred tax benefit resulting from the revaluation of its fixed asset. Am I to understand that the $4-billion total includes this $2.2 billion, or should the backgrounder have said that the government is now on track to dedicate a total of $6.2 billion to the Trillium Trust?
Mr. Serge Imbrogno: No, the $4 billion would include the $2.2 billion.

The government’s intent for $4 billion to fund transit thus includes only $1.8 billion that isn’t a deemed gain from tax avoidance measures – and $1.8 billion happens to be about what the government will essentially steal from business consumers in extending the debt retirement charge through 2018. The intent is to make both ratepayers and taxpayers worse off in order to fund local transit projects for constituencies the general government finds important.

One short side-note on those Committee minutes – in the form of a tweet I posted yesterday:

I’m not sure why there’s a lawyer in the committee that is misleading elected members of the legislature, but there’s no concern for ratepayers here – Hydro One’s customers (I’m one) largely support public ownership, and it’s not because we lack the smarts of Toronto’s lawyer’n class.

It’s nice that Ontario’s new financial accountability officer understands the province will be left in worst financial shape due to selling off Hydro One, but it’s not clear the Premier has the ability to understand finances – and it’s not clear she has the best interest of the province as her priority.


The report from the Financial Accountability Office has now been published

Some notes:

The report contains a section with various methods of evaluating Hydro One’s value – mostly placing it above the actual value in the share offer. This suggests, to me, Ontario would have collected far more for the asset if not for the bizarre positioning to retain control of the company while selling 60% of it.

The report allocates a full “owing from the province of Ontario” asset on the OEFC’s books as being due to Hydro One- which is an iffy proposition in my opinion:

Since the cumulative net income of OPG (after deducting interest costs of investment), is negative from 2000–2014, the FAO attributes the entire asset to Hydro One, which is equal to $4,903 million.

The difference is quite different in the past 10 years – with OPG producing $1.4 billion above costs (as well as the government declaring on its consolidated books another $3+ billion on the performance of Nuclear Funds (for decommissioning and spent fuel management).

This doesn’t significantly impact the report’s logic, except it distorts future projections of sector income available to pay down sector debt.

The FAO’s section “4/4/3 Impact on Residual Stranded Debt” old data is used. In writing on the impact of the proposed sale on calculations of OEFC debt I tried to focus on the “unfunded liability” and ignore the “residual stranded debt.” The FAO uses a figure for the residual stranded debt of $2.6 billion which is as of March 31, 2014 when the unfunded liability was $9.7 billion: by March 31, 2015 the unfunded liability was reported as being down to $8.2 billion and it would require unlikely acrobatic skill from Ontario’s pudgy finance minister to present a figure for 2014-15 above $1.3 billion for the residual stranded debt.

To clarify:

from 2012-13 to 2013-14 we know the unfunded liability dropped $1.5 billion and the residual stranded debt was dropped $1.3 billion

from 2013-2014 to 2014-2015 we know the unfunded liability dropped $1.6 billion but no update has yet been provided on the residual stranded debt – however it seems logical it should fall by at least the $1.3 billion of the previous year.

Correcting for the omission of 2014-15 data makes the math quite different for the FAO’s calculation of the RSD on Nov. 1, 2015:


With this oversight corrected the FAO would not show a residual stranded debt remaining.

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