Hydro rate-cut will ultimately cost $21B, watchdog warns
Liberal government’s “Fair Hydro Plan,” which lowers electricity bills by 25 per cent, will ultimately zap Ontarians to the tune of $21 billion over the next three decades: province’s budget watchdog.

TheStar.com
May 24, 2017
Robert Benzie

Short-term gain on your hydro bill could translate into long-term fiscal pain.

The Liberal government’s “Fair Hydro Plan,” which lowers electricity bills by 25 per cent, will ultimately zap Ontarians to the tune of $21 billion over the next three decades, the province’s budget watchdog has found.

In a 15-page report released Wednesday, Financial Accountability Officer Stephen LeClair said the scheme will cost the province $45 billion over the next 29 years while saving ratepayers $24 billion for a $21-billion net expense.

But LeClair warned his estimates are only applicable if “the province is able to achieve and maintain a balanced budget over 29 years.” The cost of the subsidy could balloon to between $69 billion and $93 billion if the government has to borrow to pay for it.

Finance Minister Charles Sousa balanced the books last month after nine years of deficits.

The average monthly hydro bill of $156 per household will drop to $123 once the 25-per-cent cut takes effect next month.

Recent public opinion polls suggest the Premier Kathleen Wynne’s Liberals appear to be benefiting from the forthcoming lower electricity prices, as two recent surveys show they are closing the gap with the front-running Progressive Conservatives.

Both the Tories and Andrea Horwath’s New Democrats oppose the Liberals’ rate-cutting measure.

LeClair acknowledged it will keep homeowner’s electricity costs lower than they would have been over the next decade, although they will be slightly more expensive after 2027.

“Although eligible electricity ratepayers are projected to achieve overall savings of $24 billion, the savings is not distributed evenly over time,” the independent legislative officer wrote.

“From 2017 to 2027, electricity costs are projected to be lower under the (Fair Hydro Plan) compared to the status quo (for a total savings of $33 billion), while after 2027, electricity costs are projected to be higher under the FHP compared to the status quo (for a total cost of $9 billion),” he continued.

“This results in net savings of $24 billion over 29 years.”

The budget officer questioned why the government is bankrolling the cut through its electricity utility Ontario Power Generation, which keeps the debt off the province’s books, but could mean an additional $4 billion in interest costs.

Auditor general Bonnie Lysyk said she will also be doing a separate report on the hydro rate scheme later this year.

Lysyk is concerned, as is LeClair, about the way the government is funding the cut.

“The government will do what the government will do; my job is to opine on whether the actions taken — the transactions recorded — are in accordance with public sector accounting standards,” she told reporters at Queen’s Park.

Last Thursday, Energy Minister Glenn Thibeault introduced legislation for the plan, promising it would spread the costs of big-ticket electricity system improvements in the past decade over a lengthier period of time.

Thibeault likened it to “refinancing a mortgage” to have lower payments now, while acknowledging there will be additional interest payments over the longer term.

“We’ve always said that the proposed Fair Hydro Plan will cost more over the long-term, but it will share the costs of our investments more fairly over a longer period of time, and lower bills, by 25 per cent on average, starting this summer,” the minister said Thursday.

“It’s important to remember that the FAO’s projection of electricity costs reflects a point-in-time estimate that demonstrates how we can ensure greater fairness and affordability in the short and medium term,” he said.

“Later this summer, our government will release the next Long-Term Energy Plan, which will take additional costs out of the system and address affordability over the long-term.”

Thibeault insisted any rate increases would be held at the rate of inflation — about 2 per cent — over the next four years.

However, a leaked cabinet document obtained by the Tories — and dismissed by the Liberals as an early draft of the plan — said rates would rise steeply, starting with 6.5 per cent in 2022 and topping out at 10.5 per cent in 2028, when average monthly bills would be $215.

“Kathleen Wynne’s unfair hydro plan is a sham. The government’s own numbers confirm it and independent experts confirm it. Rates are going up. Period,” PC leader Patrick Brown said in a statement.

“It’s time for Kathleen Wynne to stop covering up the truth: under her plan, our hydro bills will go up. Everything will cost more. This will have a devastating impact on household budgets and the economy,” said Brown.

NDP MPP Peter Tabuns (Toronto Danforth) said “the impact is greater than we feared” of subsidizing ratepayers.

Tabuns conceded voters “may be lulled by it,” but cautioned that eventually someone has to pay the piper.

“As we talk to people and as the word gets out that, in fact, (Ontarians are) going to be paying a lot more, the credibility of this (rate-cut) bill is going to start to sink,” he said.

“There’s no question that people feel a real hunger for some relief, but they don’t like the idea they’re going to be hit hard in a very short period of time.”