OPG’s 2017 results grate

Yesterday Ontario Power Generation released their 2017 Financial Results:

Ontario Power Generation Inc. (OPG or Company) today reported net income attributable to the Shareholder of $860 million for 2017, compared to $436 million in 2016.

That must be considered a great number in the context of the income history at OPG as it’s the highest they’ve ever accomplished. The apparently excellent results may leave some wondering what critics commenting on the sector have been braying on about. I, a critic, have reviewed the results and found some things to bray about.

OPG annual financial results

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Can 20 year contracts be amortized over 30 years?

written by Gary Mooney, and reproduced here with permission.

I contacted the Ministry of Energy by phone to ask if 20-year electricity generation contracts – e.g. wind and solar — were going to be extended to match the government’s new 30-year amortization period for capital expenditures.

The answer that I got back was:

* There will be no negotiations to extend contracts at this time.

* But generators will be offered the opportunity to continue producing electricity beyond the 20-year point, at the market price (or a negotiated price, not sure which was mentioned).

This is consistent with Minister Thibeault’s comment, in justifying a longer amortization period, that wind turbines have a useful lifetime of 30 years.

The idea of an extension of wind contracts will be a major concern to those living with turbines, as they have been expecting that the problem will go away after 20 years. And worse, if there are no negotiations now, these folks will have to live with uncertainty for anywhere from 10 years (the earliest contracts) to 20 years.

To make an extension of the amortization period work, the province needs continued power generation over the whole period out to thirty years, either:

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Federal Liberals should bail out stupid Ontario counterparts on northern transmission debacle

I really don’t mean this to sound ugly – but it is about race-based political policy, so I won’t waste too much time prettying it up either.

Brian Hill has produced another report on the Global News site: Ontario hydro customers could pay $650 million to connect remote First Nations communities:

Despite recent promises from the federal government of more than $185 billion in infrastructure spending over the next decade, Ontario electricity customers could soon be on the hook for up to $650 million toward the cost of connecting 16 remote First Nations communities to the province’s electricity grid.

I’ve written on this transmission line, and want to recap here, hopefully as an addendum to Hill’s work, and to demonstrate how stupidly Ontario’s novice Minister of Energy, Glenn Thibeault, proceeded with this project.

A timeline, for context:

1297824433728_original-1
image from National Post

On March 10 the government announced contracts for a number of totally unnecessary renewable energy projects, including one for a wind project unwelcomed by a large majority of Dutton-Dunwich residents. That contract was won based on points received for First Nations participation in the bid -participation largely from northwest reaches of the province.

On June 27th the first Directive from a new Minister Glenn Thibeault to the Ontario Energy Board was to come up with Options for an Appropriate Rate Assistance Program for On-Reserve First Nations Electricity Consumers.

On July 14th Minister Thibeault says high electricity bills in rural Ontario were not a crisis.

On July 29th the government of Ontario announces the project:Read More »

Wynne government reveals unintelligent carbon pricing

The press release begins:

To build on the work already underway to fight the effects of climate change, Ontario is laying a foundation to join the biggest carbon market in North America by introducing new legislation today that, if passed, would ensure that proceeds from the province’s cap and trade system are transparently reinvested into green projects and actions that will reduce greenhouse gas pollution.

There’s no shortage of people railing against any tax, but I’m not vehemently opposed to a carbon tax/price. Stéphane Dion launched his appeal for his Green Shift policy during 2008’s election campaign with:

The Liberal Green Shift plan is as powerful as it is simple: We will cut taxes on those things we all want more of such as income, investment and innovation. And we will shift those taxes to what we all want less of: pollution, greenhouse gas emissions and waste. 

I wasn’t opposed to that – I didn’t know it would accomplish much of anything, but a carbon tax instead of a payroll tax, or a beer tax, is not something I would get too worked up about. However, I have written on two objections to a carbon tax: the inability to price externalities, and the funding of thoughtless spending with revenues.

In stating,  “proceeds from the province’s cap and trade system are transparently reinvested into green projects ,” the Wynne government loses my confidence in their scheme.Read More »

Sousa Debt and the DRC

Ontario’s finance minister, Charles Sousa, delivered a budget yesterday, and within that document described the current electricity sector debt situation:

Ontario Electricity Financial Corporation (OEFC) estimated results for 2015–16 show an estimated excess of revenue over expense of more than $3 billion, which would reduce OEFC’s unfunded liability (or “stranded debt of the electricity sector”) from $8.2 billion as of March 31, 2015, to below $5 billion as of March 31, 2016. This would be the twelfth consecutive year of stranded debt reduction.

For those that haven’t been following the Wynne government’s raid of electricity assets, a quick refresher is in order.

Ancient history: Ontario broke up it’s “power at cost” utility in 1998, revaluing assets and creating a “stranded debt” along with a corporation to oversee them with tools developed specifically to address the RSD. These tools included payments in lieu of taxes (PIL) from the electricity sector, the profits of the successor companies, and prospective revenues from the sale of those companies. All of those tools were not expected to address the stranded debt – the portion they could not address was called the residual stranded debt (RSD), and it was to be paid off with a debt retirement charge of 0.7 cents/kilowatt-hour on all Ontario bills. (see Stranded Debt – Abandoned Responsibility)

Recent History:

  1. Wynne listens to Bay Street advisors on selling off the public utility, without regard to the law’s stipulation, “All proceeds… in respect of the disposition of any securities or debt obligations of, or any other interest in, Hydro One Inc… shall be paid to the Financial Corporation [OEFC]
  2. The government decides to proceed with that asset sale, promising in last year’s budget, “to sell off a 60 per cent stake in Hydro One to raise $4 billion, which will then be spent on building public transit.”
  3. The government rewrites the electricity act and Finance Minister Sousa layers nonsense upon nonsense to hide the obvious – that he is raiding hydro (summarized in Wynne deserves no credit for dumbly selling Hydro One)
  4. The province’s new financial accountability officer shows the province could be worse off for disposing of shares in Hydro one – I write that if the officer had used the most recent figures, he’d not show a remaining “residual stranded debt”
  5. The government’s bill 144 eliminates the concept of a “Residual Stranded Debt” to allow it to continue to charge business 0.7 cents per kilowatt-hour, and the Minister of Finance is freed of the bothersome need to justify the charge (described here)
  6. The government’s fall financial statement advises the government will renege on amounts due to the OEFC (sector profits since 2005) – while claiming proceeds from the disposition of the public utility are used to pay down sector debt, it is deceitfully removing sector assets

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After the boom – what?

The following is written by my father. I post it, in part, for my sons.

It has been a while since David Foot introduced us to the boom babies (Canadians born 1946 to 1964) and the sociological, economic and other significant implications of this cohort. They are still significant.

Only relatively recently have they exercised control over the biggest governments in Canada – the Federal Government, British Columbia, Alberta, Ontario and Quebec. At the turn of the millennium all of these governments were headed by people born prior to the boom. During this millennium, four of the five jurisdictions have had governments led by boom babies.

How have the boom babies been doing? It’s difficult to say but one measure would be the change in the ratio of debt to gross domestic product during their administrations.Read More »

Sousa returns to Duncan’s lying ways in raiding electricity debt charge revenue

Today’s economic statement from Ontario Finance Minister Sousa should be the last time we get data to demonstrate his theft of residual stranded debt charge revenue. I’ve written on this many times, so in this post I just want to cover the latest farcical accounting, but I’ll provide one more overview of what the “residual stranded debt” was meant to be, and how a charge of $7/MWh (0.7 cents/kilowatt-hour) ended up on electricity bills to address it.

Ontario Hydro was broken up with the electricity act of 1998, and the successor company left with the financial burdens was the Ontario Electricity Finance Corporation (OEFC). It’s a shell company that held about $20 billion more in liabilities than it had in assets (this is known as the OEFC Unfunded Liability). In order to pay the liabilities the OEFC was provided revenue tools; specifically payments in lieu of taxes (PIL) from sector businesses, and profits (above a certain number) from Hydro One and OPG – two successor companies of Ontario Hydro.

The Unfunded Liability that was not capable of being retired through PIL and sector revenues was called the “Residual Stranded Debt”, and to address that debt the residual stranded debt charge was added to our bills.

I was anticipating today’s lie, and here’s how it was pictured:

OEFCcapture

Let me explain how this is a lie.Read More »

finance minister claims he could be worse

a primer for yesterday’s News Release from Ontario’s Ministry of Finance

The Office of the Auditor General of Ontario reported on the Ontario government’s flippant disinterest in accounting for the Debt Retirement Charge (DRC) in its 2011 Annual Report:

Given that the DRC has been collected from electricity consumers for almost a decade and that more than $8 billion in DRC revenue has been collected during that time, our view is that the Minister should make a formal determination of the outstanding amount of the residual stranded debt in the near future and make this determination public.

Subsequently, the Ontario budget of 2012 included a section on the Residual Stranded Debt – which the DRC was introduced to retire:

residual stranded debt is estimated to be $5.8 billion as at March 31, 2011… the residual stranded debt is estimated to be $4.5 billion as at March 31, 2012. Residual stranded debt is estimated to further decline to $3.6 billion as at March 31, 2013.

“$3.6 billion as at March 31, 2013”

The next budget knew less, reporting the $4.5 billion as of March 31, 2012, ignoring March 31, 2013 and preparing to extend the DRC as simply a tax with:Read More »

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.Read More »

Tabuns extracts unsatisfying answers on Hydro One sale

NDP MPP and Energy Critic Peter Tabuns has been asking some very pertinent questions on the sale of Hydro One, particularly the $2.6 billion the government has given Hydro One which matches a $2.6 billion “Departure tax” that will be due when the company ceases to have an ownership that is greater than 90% public.

From October 6:

Mr. Peter Tabuns: I’m going to go back to the $2.6-billion payment that Ontario makes to Hydro One for their departure tax.

Supplementary estimates show that $2.6 billion is coming from the Ministry of Energy and will go to Hydro One. Is that correct?

and so on, until this one passage I will interpret – by highlighting the key words and adding my commentary:

Mr. Serge Imbrogno: I’ll just say that the $2.6 billion goes towards paying down the stranded debt, so that transaction is targeted towards stranded debt. Putting in the additional capital increases our value, and then when we sell the portion of Hydro One, that’s what we’re using to put towards infrastructure. That’s maximizing the amount we can get for infrastructure from that transaction.

The “stranded debt” is not a line item that can be paid down. It is a calculation made by subtracting the assets of the Ontario Electricity Financial Corporation (OEFC) from the liabilities.

Current assets of the OEFC include a note from the government representing, in part the original owner’s equity in Hydro One, and ~$5 billion due from the province of Ontario.

due to confusion between “stranded debt” and “residual stranded debt”, I prefer to use the term “unfunded liability” instead of stranded debt, which matches its appearance on the OEFC balance sheet.

Mr. Peter Tabuns: In part you’re maximizing it

Mr. Serge Imbrogno: So we’ll be paying down the stranded debt and we’ll be reinvesting the proceeds in infrastructure

Mr. Peter Tabuns: But you’re maximizing by reducing the cash that we have available. You’re not going to be paying down more debt than you would have otherwise. Your goal, as stated previously, is $5 billion for debt reduction. Correct?

Mr. Serge Imbrogno: That’s not changing. The $2.6 billion is separate from paying down the debt related to the transaction

Mr. Peter Tabuns: So actually $7.6 billion will be plowed into debt reduction in the aggregate. Correct?

The Unfunded Liability was reported as $8.185 billion as of March 31, 2015 – since which time another ~.5 billion of debt retirement charges were collected. If this were true, there is no unfunded liabilityRead More »