The Ontario PC party put out some tweets that tweeked my interest yesterday, on payments due to a court ruling.
The parties in the case included those in a ruling I wrote about in May’s Ontario appeals court upholds sentence of higher costs for ratepayers – but the hit on ratepayers in the case I wrote about IS estimated at over half a billion dollars.
After watching an exchange between Premier Kathleen Wynne and Leader of the Official Opposition Brown, I decided to see what they were on about.
It turns out I knew most of what they were on about, it was just hard to be certain as neither of them did.
Two new pieces of information since I wrote on the court case in May:
- the case was appealed to the Supreme Court
- additional payments/penalties were paid to compensate for more months of generation. 
The Ontario PC party seems totally unaware what the nature of the case is, and it seems blissfully oblivious to the fact the latest $94.7 million payout was not the first payment, nor will it be the last if the court case fails – and Northland is only one supplier getting the payouts as a result of the court case against the Ontario Electricity Financial Corporation (OEFC).
The exchange in the legislature doesn’t reveal:
- the payment is less than 20% of the cost impact of the court judgement
- the OEFC is a shell corporation
- the control of the OEFC is essentially under the Minister of Finance 
- the contracts involved in the court case originate prior to 1995, under Premiers Peterson (Liberal) and Rae (New Democratic Party) 
- the court case is due to changes in payments due to calculations changed with the introduction, for 2011, of the Industrial Conservation Initiative (ICI – or Class A global adjustment mechanism)
Congratulations/commiserations if you made it through viewing those seven minutes and twenty-two seconds.
I’ll briefly cover the content they are attempting to discuss – without trying to re-explain all of what I wrote on in May.
- A long run of Progressive Conservative governments were displaced in the 1980’s by Liberal and NDP governments – it was these governments that initiated the end of Ontario Hydro by forcing that entity to contract generation from private companies. Those contracts are now called the non-utility generator contracts (NUGs)
- The breakup of Ontario Hydro through the Electricity Act of 1998 (during the Harris, PC, government) created 5 entities: 4 with assets, some with debt, and one primarily to hold the leftover debt. That one is the Ontario Electricity Financial Corporation (OEFC), which is the single entity considered the legal successor to Hydro One. As such, it is the entity being sued as what is considered to have been breached is the contracts signed with Ontario Hydro.
- The OEFC was left with the debts not backed by assets. The first annual report by the OEFC noted this “stranded liability at $19.1 billion, but expected much of that to be recovered through profits at the new companies (notably Hydro One and Ontario Power Generation) and payments in lieu of taxes (PIL). It did not expect $7.8 billion of the debt was recoverable this way – which resulted in a Debt Retirement Charge (DRC) being added to ratepayers’ bills. Over half of the $7.8 billion to be recoverd by the DRC could be attributed to a deemed $4.286 billion liability of NUG contracts – including the NUGs the courts recently awarded another $500 million.
- Nobody works at the OEFC – meaning they have zero full-time equivalent employees.
- Recent law changes allowing the government to raid the value of Hydro One essentially wiped out any future accountability for the OEFC’s finances. It is now a shell run for the convenience of the Finance Minister.
In responding to leader of the Opposition Brown the Premier lectures, “What happened 10 years ago, what happened 15 years ago, does matter in terms of this electricity system…” In this case 10-15 years ago is relevant only in that the Global Adjustment was introduced in 2005. The relevant contracts are over 20 years old, and the Global Adjustment changes at the root of the court case were introduced for 2011. So mostly the Premier’s answer is about the period of irrelevance between pertinent times.
What I found more interesting the Premier’s insubstantial deflections was Brown’s implication that lawyers are a waste of money:
We know the cost of the judgment, but, Mr. Speaker, can the Premier tell us how much she has ordered the government to spend on legal fees? Please show some clarity on this endless waste we’re seeing that’s being put on taxpayers and ratepayers.
Mr. Brown, knows neither the cost nor the substance of the judgement.
I spent quite a significant block of my personal time reading legal, and other documentation, to produce an article I hoped would both inspire an appeal, and provide content to allow better lawyers to present a better case – preferably supported by better efforts from the regulator (who sent only consultants to court), and some effort from a system operator that, it seems to me, consistently fails to differentiate between irrelevance and impartiality.
Does Mr. Brown believe:
- The cost of export excess supply belong in industrial electricity rates in Ontario?
- The cost of green energy procurement, including solar panels at over $800/MWh, belong in industrial electricity pricing in Ontario?
These are the most significant base reasons that decades old contracts are getting another $500 million, out of ratepayers, at the direction of the courts.
I think that’s wrong, and I would argue all the way to the Supreme Court the holders of aged contacts that have already been an enormous burden on the province should not have a veto on industrial electricity pricing.
Mr. Brown thinks lawyers are a waste of time.
Maybe he’s right.
He is a lawyer.
 Here’s what I noted, in May, from a Northland Press release:
Northland estimates its share of past and future lost revenue over the life of the relevant agreements would have been approximately $225 million (originally estimated to be $200 million) had the Court found in favour of OEFC. Since the original decision by the Superior Court, the OEFC has made increased contractual payments of approximately $25 million for the period starting February 2015, consistent with the Superior Court’s interpretation of the contracts. Subject to the right of appeal referred to above, Northland anticipates that its share of the remaining lost revenue from the period prior to the original decision, approximately $90 million including interest, will be paid in the coming months, and going forward, rates under the contracts will be indexed according to the interpretation confirmed by the courts, consistent with the rates that have been applied since February 2015…
My interpretation: when the Non-Utility Generators won the initial case, the IESO starting paying out monthly based on the rate formula enforced (I argue stupidly) by the court (this is the $25 million). The IESO did not pay out at the adjusted rate for the period from the now-disallowed change in calculation method, and the current payment is in fact for that (from January 2011 to May 2015). By the time all of contracts now held by Northland reach their end dates, the company calculates the court will have raised their revenues by $225 million.
Note the approximately $90 million anticipated in May became $94.7 million in this October 21st press release:
Northland Power Inc. (“Northland”) …announced today that its wholly-owned subsidiary, Iroquois Falls Power Corp. and Northland’s managed facilities, Cochrane Power Corporation and Kirkland Lake Power Corporation (collectively, the “Northland Applicants”) have received retroactive payments ($94.7 million net to Northland) from the Ontario Electricity Financial Corporation (OEFC).
 Fortunately we can show an MPP being diligent in committee questioning of the Ministry of Energy’s Deputy Minister Imbrogno, who dances around questions about calling in the OEFC – if you share my sense of humour, you might get a chuckle out of Mr. Tabuns’ questioning (NDP):
Mr. Serge Imbrogno: Mr. Tabuns, the OEFC is an agency of the Ministry of Finance. I think those questions would properly be directed to the Ministry of Finance. We’re not the experts on the OEFC accounting.
Mr. Peter Tabuns: So you don’t have anything to do with the OEFC?
Mr. Serge Imbrogno: Well, for full disclosure, I am on the OEFC board, but—
Mr. Peter Tabuns: Oh, well, how handy. How fortuitous.
Mr. Serge Imbrogno: But having said that, I think OEFC or Ministry of Finance staff would be better able to answer those questions related to the assets, the liabilities and the revenue flows. I don’t know if that has been changed in previous years, but I think it’s better directed at the OEFC.
Mr. Peter Tabuns: Can we have someone from the OEFC brought here to speak to this matter?
Mr. Serge Imbrogno: I don’t know what the protocols are for someone to come in from a different ministry to speak to items.
Mr. Peter Tabuns: I’ll ask the Chair and the Clerk.
The Chair (Ms. Cheri DiNovo): Sorry?
Mr. Peter Tabuns: The minister and the deputy minister say they can’t speak to the Ontario Electricity Financial Corp.—which has a huge amount to do with your ministry. You’re selling off Hydro One, apparently to pay down debt. You collect money, a debt recovery charge. This is supposed to be dealing with debt that is raised through the electricity sector. I think it’s reasonable to ask questions about the OEFC in this context.
The Chair (Ms. Cheri DiNovo): Really, it’s up to the minister or the deputy to respond as they see fit. We have no power to compel them to respond on issues that they don’t want to respond on.
 The specific contracts were listed in the original court case – Northland isn’t listed, but now owns some of these: