FIRST POSTED: SATURDAY, APRIL 12, 2014 06:30 PM EDT
Premier Kathleen Wynne. Dave Thomas/Toronto Sun
As for Premier Kathleen Wynne’s claim Conservative leader Tim Hudak slandered her in his comments about her role in the scandal, we’ll leave that for the courts to decide. If it ever gets there.
But regardless of that claim and of what the ongoing Ontario Provincial Police investigation finds, what we already know about the Liberals in the gas plants scandal, first under Dalton McGuinty and now under Wynne, is a disgrace.
The public has a right to expect a higher standard of conduct from their governments than that no one goes to prison.
They have a right to expect their money is being spent wisely and transparently, neither of which happened in this disaster.
Instead, the Liberals wasted up to $1.1 billion, according to the provincial Auditor General, by canceling two unpopular gas plants in Oakville and Mississauga, leading up to the 2011 election.
They did so because they were scared they would lose up to five seats if they didn’t.
After the vote — in which the Liberals fell one seat short of retaining a majority government — McGuinty announced he was resigning as premier and prorogued the Legislature, to avoid questioning about what the Liberals had done.
Under pressure from Tory and NDP MPPs on the justice committee looking into the scandal, came the infamous Liberal “document dumps” of thousands of pages of government data related to it.
During that time, the Liberals repeatedly pledged they had released all relevant documents before announcing they had found more.
One reason was the absurd computer filing system the Liberals used to store information on the gas plants negotiations, calling it everything from Project Apple, Banana and Fruit Salad to Vapour and Vapour Lock.
Both McGuinty and Wynne testifed they were unaware of the rapidly escalating costs of the scandal, which the Liberals estimated at $230 million before the Auditor General put the price tag at up to $1.1 billion.
When Legislative Speaker Dave Levac, a Liberal MPP, made rulings on the gas plant scandal the Liberals didn’t like, Liberal aides discussed among themselves — unsuccessfully as it turned out — how to get him to toe the party line.
They also tried to divert attention from the scandal by promoting stories like their decision to ban tanning beds for those under 18.
Information and Privacy Commissioner Dr. Ann Cavoukian angrily complained the Liberal government had not only inappropriately deleted e-mails she suspected were related to the gas scandal — now the subject of the OPP investigation — but misled her about what had been done.
Simply put, if the Liberals are re-elected given all we now know about this scandal, what won’t they do to us the next time?
Tales of skyrocketing household hydro bills are commonplace across Ontario. And understandably everyone — even with modest bills — should worry for the simple reason that it’s only going to get worse.
Thanks to the Liberal government’s “long-term energy plan,” Ontarians can count on their electricity rates going up 33 per cent over the next three years. And within five years, the average monthly bill of $125 will rise to $178 — a 42 per cent increase
For individuals and families, it’s going to be a huge burden. But what’s sometimes forgotten is that soaring energy costs are having a serious impact on the economy. According to the Association of Major Power Consumers of Ontario, the province already has the highest industrial rates in North America.
Based on 2012 power prices, AMPCO — representing almost 40 of the largest power consumers in the province — says Ontario industries pay 7.6 cents to 9.4 cents for a kilowatt hour for electricity.
That’s higher than the average prices of 5.6 cents a kWh in New York, 5.4 cents in six New England states, 4.5 cents in 14 jurisdictions in the Pennsylvania-New Jersey-Maryland region and 3.2 cents in a group of 15 Midwestern states. The average price paid by large industrial power users in Toronto is nearly 11 cents per kWh, according to a Hydro-Québec 2013 survey. That compares with 4.8 cents in Montreal, 5.45 cents in Chicago and 8.12 cents in Detroit.
Based on the Wynne government’s long-term energy plan, industrial rates in Ontario will increase 30 per cent by 2018.
AMPCO has made it very clear: If businesses don’t like their hydro bills, the blame lies directly at Queen’s Park.
In fact, provincially set hydro costs have increased nearly 50 per cent under the Liberal government’s watch. The reasons are myriad. The Green Energy Act — the centrepiece of the old long-term energy plan — has proven to be overly expensive and controversial. And each year about $1 billion is spent to pay for the stranded debt that was left over after the breakup and restructuring of Ontario Hydro.
According to the auditor general, the province also sells electricity exports for less than they’re worth. Between 2005 and 2011, the loss was $1.8 billion. And then there’s the more than $1 billion the government needlessly spent to move two gas plants for no other reason than to save Liberal seats in the last election.
AMPCO believes that cheaper electricity rates in other jurisdictions pose a threat to existing industries and new job creation.
“We really feel like the government needs to act … given the risk we see of further losses of industrial load (hydro use) in Ontario, and the problems that will lead to,” AMPCO president Adam White told the Toronto Star recently.
White is also urging the government to allow businesses to tap into the surpluses, “instead of paying for it to be wasted, or exporting it to be consumed outside of Ontario at next to nothing.”
“We think it’s a better policy choice to have that power priced to attract investment and sustain production and jobs in Ontario,” White added.
At best, the Liberals’ energy policy is a mess. It has failed to deliver affordable hydro rates that are fair to families and serve as an incentive for businesses investment.
The next election will provide Ontarians with the opportunity to send a simple message to all the parties — it’s time for an affordable energy plan in this province.
Chris Young/The Canadian PressOntario Finance Minister Charles Sousa: Don’t worry, we’ll spend every extra cent.
Ontario’s Liberal government is not keen on reminding voters of its links with former premier Dalton McGuinty — current Premier Kathleen Wynne can’t bring herself even to mention his name. But the Liberals remain committed to his support for recycling: On Friday they revealed hopes of recycling an old McGuinty plan to sell off billions of dollars of assets to help finance new “investments.”
“We’re going to evaluate the best use of these assets as well as the maximum potential of the respective Crown businesses,” Finance Minister Charles Sousa told the Economic Club of Toronto, putting the best corporate spin on the plan. “We are going to determine which business the government should be owning and what it shouldn’t.”
A panel will be set up under Ed Clark, CEO of the Toronto-Dominion Bank, to evaluate properties and other holdings, and identify any that “may no longer serve a public good.” Sousa cited shares in General Motors the province acquired when it helped bail out the automaker in 2009. Other possibilities include utilities Hydro One Inc. and Ontario Power Generation Inc., and perhaps even the LCBO, the monopoly liquor operation that paid the province a “dividend” of $1.7 billion last year.
JASON KRYK/ THE WINDSOR STARMcGuinty: Wasn’t that my idea?
Continuing in business-speak, Sousa added: “To maximize the value of these assets to the province, they will look at measures such as efficient governance, growth strategies, corporate reorganization, mergers, acquisitions, and public-private partnerships.”
“The council will give preference to continued government ownership of all core strategic assets.”
Hmm, interesting. So rather than just let the stuff sit around gathering dust, Mr. Clark has been recruited to figure out ways to run them better or sell them off. Giving preference to “government ownership” of “core strategic assets” means nothing, since the government can declare anything core or non-core, depending on how it feels.
None of the money is to be wasted paying off debt. Heaven forbid. Last thing a province owing $288 billion, and adding to it at a rate of $11 billion a year, would want to do is reduce debt. No, the money will be reinvested — i.e. spent — on new projects the government can tout whenever it is forced to go to the polls, which could quickly follow its May budget.
Though Mr. Sousa wasn’t eager to remind anyone, his plan echoes a similar scheme floated by Mr. McGuinty three summers ago. The idea then was to combine the LCBO, Hydro One, OPG and the Ontario Lottery and Gaming Corp. into one big “super corporation” and sell off parts of it to raise money. Mr. McGuinty was just as strapped for cash as the Wynne government, and similarly didn’t want that to stop him pledging new spending plans.
“We want to the take the proceeds out of assets we already own and invest them in other assets to make some legacy investments,” an unnamed Liberal said at the time, sounding a lot like Mr. Sousa. It was rumoured that SuperCorp would be headed byDavid Livingston, then the CEO of Infrastructure Ontario. Mr. Livingstone later became Mr. McGuinty’s chief of staff and is now under investigation by police on allegations of overseeing a mass purge of emails about the $1.2 billion gas plant scandal. It’s the embarrassment of that allegation that has Ms. Wynne unable to mention her predecessor by name.
SuperCorp — which was supposed to raise up to $12 billion — never happened. The plan was fiercely opposed by government unions, which fear being severed from the friendly confines of government employment and faced with a less malleable private sector employer. Mr. Sousa may find his scheme equally unpopular, at a time when the minority Wynne government is particularly keen to keep organized labour onside, and depends on the New Democratic Party to keep it in office. NDP MP Peter Tabuns quickly questioned Sousa’s plan, suggesting it mirrored a Progressive Conservative privatization plan, just at a slower rate.
The Liberals are looking for any means to pay for transit expansion and other infrastructure expenses, without raising taxes. Ms. Wynne has pledged to push ahead with badly-needed transit projects in the Toronto region, but has since ruled out most of the primary means of raising revenue to pay for it. In that context, an old plan must look better than no plan at all.
One of the issues that came up during last week’s cross-Province hydro bill protest was the debt retirement charge and why, like Ontario’s own version of Bleak House, it just goes on and on and on, and never seems to get paid off in full?
Parker Gallant has examined the books, the news releases, the ministerial pronouncements and more, and has the answer for you.
The Auditor General’s (AG) report released December 10, 2013 highlighted some of the problems inherent with taxpayer owned Ontario Power Generation Inc. (OPG), particularly its above market human resource costs.
Unfortunately the report didn’t ascribe specific costs to Ontario ratepayers. The report noted power generation levels had fallen considerably over the past decade but again failed to cite the reasons. Despite those human resource costs, OPG is still Ontario’s low cost electricity generator as noted in their press release of March 6, 2014 wherein they state their average revenue per kilowatt (kWh) in 2013 was 5.7 cents versus 9.9 cents per kWh for private sector generators.
The $6.2 billion “Revenue Tool”
The AG’s report had a follow-up to a 2011 audit report on Ontario Electricity Financial Corp. (OEFC) which noted Minister of Finance, Duncan, should update the “residual stranded debt” (RSD) and asked “when electricity ratepayers might expect to see the DRC [Debt Retirement Charge] fully eliminated.”
Collection of the DRC from ratepayers commenced after Ontario Hydro was restructured (1999) and the first Annual Report from OEFC described stranded debt and RSD as follows:
“As at April 1, 1999, the present value of these revenue streams1. was estimated at $13.1 billion, resulting in an estimated $7.8 billion of residual stranded debt.”
Those “revenue streams” were described as “dedicated electricity revenues” and included anticipated future income and future “payments in lieu” of taxes to be paid by successor companies and the local, municipally owned, electricity distributors.
The statement from 1999 said “stranded debt” was $20.9 billion but future revenue from OPG and Hydro One plus PIL (payments in lieu of taxes) from OPG and Hydro One and municipal electricity distributors would generate $13.1 billion in the future 8/9 years and the DRC from ratepayers would eliminate the RSD of $7.8 billion. The “stranded debt” was subsequently reduced to $19.4 billion as it was adjusted for $1.5 billion of additional assets transferred to OEFC. The latter did not alter the RSD as it remained at $7.8 billion.
To Recap:
Total Stranded Debt $ 20.9 billion
Less: Additional Assets $ 1.5 billion
Net Stranded Debt $ 19.4 billion
Less: Future earnings & PIL2. $ 11.6 billion
Residual Stranded Debt3. $ 7.8 billion
Add:2012 ADJUSTMENT $ 6.2 billion
Revised Residual Stranded Debt $14.0 billion
The action taken by the Finance Minister as a response to the AG’s 2011 “audit” was to arbitrarily backdate and revise the “revenue streams”, reducing them by $4.4 billion for the year ended March 31, 2004 and $1.8 billion for the year ended March 31, 2011 increasing the “RSD” by $6.2 billion thus extending the period the DRC would remain on ratepayers bills. Those adjustments were made in Finance Minister Dwight Duncan’s 2012 budget as he rewrote the Province’s financial history!
Since the OEFC’s year-end of March 31, 1999 future earnings and PIL have generated “Excess Revenue” of $10.9 billion. The $10.9 billion in revenue is “excess” to the $520 million in annual interest ($6.8 billion since 2000) costs on the $8.9 billion that the Province owes OEFC for the price of acquisition of OPG and Hydro One.
OEFC via its annual reports has indicated that up to the March 31, 2012 year-end they have collected $12.8 billion as a result of the “Debt Retirement Charge” (DRC). The writer estimates that another $950 million has been collected up to the end of March 31, 2014 meaning $13.8 billion has failed to pay off the original $7.8 billion of “Residual Stranded Debt” due to Minister Duncan’s $6.2 billion adjustment.
What Minister Duncan did was burden each of the 4.5 million ratepayers with $1,400. of new debt that could extend the appearance of the DRC on our electricity bill for another 6 or 7 years!
The original “Stranded Debt” of $19.4 billion made up of the two subsets: $11.6 billion to be repaid from “Future earnings and PIL” plus the $7.8 billion of “Residual Stranded Debt” to be repaid from the DRC, has generated revenues of $24.7 billion (see 2. and 3. above) yet has only reduced the $19.4 billion to $11.3 billion as noted in Finance Minister Sousa’s 2013 Fall update. Put another way, it has taken $3.00 of ratepayer funds to repay each $1.00 of debt or $24.7 billion to repay $8.1 billion!
Why?
Connecting the dots:
From all appearances it seems that the Finance Ministry ignored the requirements of the “Electricity Act, 1998” (Act)which, under part 62, “Use of revenues,” states:
“Despite the Financial Administration Act, the revenues received by the Financial Corporation [OEFC] do not form part of the Consolidated Revenue Fund and shall be used by the Corporation for the purpose of carrying out its objects. 1998, c.15, Sched. A, s. 62.” Well, they weren’t!
As one example the OEFC March 31, 2012 financial statement under assets lists the following: “Due from Province of Ontario $2,750 [million]”. This asset is listed as a “current” asset but it has been growing since 2008 at a rate of over $500 million annually and should be classified as “past due”. It represents a large part of the “Excess Revenue” (2. above) that the province should have paid to OFEC in compliance with the Act. Carrying that receivable on their books requires OEFC to finance it at an average borrowing cost of 5.86% and an annual interest expense of $161 million. Both the interest and the excess revenue should have been paid to OEFC by the Ministry instead of by the ratepayers. Coincidentally, Hydro One has paid $1.2 billion in dividends to the province since 2008 but it would appear that instead of passing those to the OEFC they simply used them as part of the Consolidated Revenue Fund. Why has the Finance Ministry ignored the Act that created the OEFC?
Another example is the “Guarantee Fee” levied by the Province on OEFC’s debt and “guaranteed” by the Province. From year end, March 31, 2000 until year end March 31, 2012, guarantee fees were $1.9 billion. Based on the debt “guaranteed” by the province in 2000 ($21.7 billion) it appears the “guarantee fee” escalated from less than 1/10thof 1% in 2000 to 1.75% based on the much lower amount ($7.9 billion) “guaranteed” by the province in 2012! Why?
As an aside to the above, the amount of debt outstanding and owing by OEFC has increased from 2003 (when the Liberals assumed power) when it was $26.8 billion to 2012 when it was $26.9 billion and while the province benefited from reduced borrowing rates (currently averaging 4%) the effect on OEFC’s debt has shown only a modest reduction from 6.78% in 2003 to 5.86% in 2012! Why?
It is worth noting that the Province owes OEFC $8.9 billion for the purchase of OPG and Hydro One after the breakup of Ontario Hydro (acquired in 1999 for that debt) at book value. As of December 31, 2013 their combined “Shareholder Equity” was $15.4 billion for a gain of $6.5 billion. To put that in perspective the Province has earned .67 cents for every dollar they borrowed (to acquire OPG and Hydro One) while sticking ratepayers with the interest carrying costs. Ratepayers on the other hand pay $3.00 for every $1.00 of the “stranded debt reduction they didn’t play any role in creating! Why doesn’t the Finance Ministry execute a debt swap for that $8.9 billion and save ratepayers $520 million in interest carrying costs?
In the $6.2 billion of adjustments to the “RSD” the Minister ignored Liberal policy changes affecting OPG’s ability to generate revenue and PIL. Ignored were: directives to OPG to build “Big Becky” ($1.5 billion), convert Atikokan to biomass ($170 million), proceed with the $2.6 billion Mattagami project, etc. Those projects will impact ratepayers producing expensive power only occasionally needed. The Liberal policies ignored the financial impacts! Why?
The “greening” of Ontario’s generation via the GEA meant OPG was forced to close coal plants (negative impact $473 million) and as renewable energy (wind and solar) entered the grid, OPG were forced to spill hydro–without compensation. Increased capacity and falling demand had a negative effect on the wholesale price (HOEP) of electricity. OPG’s unregulated generation, (coal and 3,700 megawatts of hydro) were affected. Tracking OPG’s unregulated coal and hydro generation from Jan. 2009 to Sept. 2013 discloses production of 95.9 terawatts (TWh). Had OPG received the average cost of production (HOEP + Global Adjustment) instead of HOEP, their revenue would have been $3.6 billion higher and those dollars would have reduced the stranded debt. Why choose OPG as the whipping boy?
The AG should not have lauded the Finance Minister for adjusting OEFC’s books in her review and instead should have castigated him for hiding a huge dollar grab from ratepayers. The Liberals found a “Revenue Tool” of $6.2 Billion and hid it from Ontario’s ratepayers!
That $6.2 billion “sleight of hand” took care of: the gas plant moves, the ORNGE scandal, the Toronto subway funding, the PRESTO/MetroLinx mess and a big chunk of the PanAm Game’s cost all on the backs of Ontario ratepayers. Where would the Provincial deficit be today and in the future without the planned $6.2 billion in future revenue generated by the “Debt Retirement Charge”?
Ontario’s ratepayers and taxpayers should hope the upcoming Spring budget from Minister Sousa is examined closely by the opposition parties to ensure the Liberals don’t pull another “sleight of hand” and another “revenue tool” grab!
SEAN SPEER AND MILAGROS PALACIOS, GUEST COLUMNISTS
FIRST POSTED: WEDNESDAY, APRIL 09, 2014 06:33 PM EDT | UPDATED: WEDNESDAY, APRIL 09, 2014 06:44 PM EDT
Ontario Finance Minister Charles Sousa with Premier Kathleen Wynne. BRYAN KELLY/QMI AGEN
The economic news coming out of Ontario is far from positive.
The province’s economic and fiscal position is weak and a new analysis released by the Ontario finance ministry suggests its economy will remain sluggish for the foreseeable future.
Despite this mounting evidence Ontario needs a new course with respect to economic and fiscal policy, the government continues to insist the province is “on track today and in the future.” This description belies the evidence.
The time has come to face Ontario’s economic and fiscal realities and start to enact a new agenda that stabilizes the province’s poor public finances and encourages more capital investment and job creation.
Ontario’s economy has performed relatively poorly in recent years across a range of economic measures. From 2003 to 2012, real gross domestic product (GDP) per person grew by an average of only 0.3% annually, the lowest growth rate among all provinces.
Ontario’s average income (real GDP per person) plunged to $2,710, lower than the national average in 2012, down from $612 above the national average in 2003.
The finance ministry’s latest report on Ontario’s long-term economy suggests these trends may continue for years. Its own projections estimate Ontario’s economic growth will lag behind the rest of Canada (Canadian provinces excluding Ontario) for the next 20 years.
One of Ontario’s challenges is its poor government finances, a symptom of both undisciplined spending and a weak economy.The government has run budget deficits in seven of the past 10 years and expects to remain in deficit until at least 2017-18.
One of the consequences is a rising government debt which has almost doubled over the past decade and is now the highest provincial net public debt of all the provinces, and the second-highest net debt as a share of the economy.
Debt interest payments now consume 9.1% of total government revenues and are projected to be the fastest-growing expenditure in the budget over the next three years.
Growing debt interest payments — particularly if interest rates rise above current historic lows — risk crowding out spending on other priorities.
The government’s long-term report also raises concerns about the province’s fiscal prospects.
An aging population (the government estimates the number of seniors living in Ontario will double by 2035) will put pressure on the health-care system which already consumes more than 40% of total program spending.
The report notes health-care spending on seniors is about three times higher than the average for the overall population.
In the absence of reforms, health care will continue to consume a growing share of public resources.
Despite these challenges, the government is not moving in the right direction.
Recent developments suggest it intends to continue growing spending on the types of policies that have contributed to the problem, such as high deficits and a new round of corporate subsidies.
Ontario needs a bold plan that puts the government’s finances on a better footing and sets out a pro-growth agenda, including tax reform and changes to labour policy.
The Ontario government can look to the 1990s examples of the Liberal government in Ottawa and the NDP in Saskatchewan, which made tough choices to restore fiscal discipline and improve economic competitiveness.
The recent news out of Queen’s Park ought to be a wake-up call to the short and long-term challenges facing Ontario.
The province needs a better plan. Here’s hoping next month’s budget delivers it.
— Guest columnists Speer and Palacios are economists with the Fraser Institute
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