Ontario’s 25-per-cent cut to hydro rate carries $4B pricetag: watchdog
Auditor general Bonnie Lysyk warns Liberals’ 25-per-cent hydro rebate could cost an additional $4B over the next 30 years.

TheStar.com
Oct. 17, 2017
Robert Benzie

Ontario’s financial watchdog is sounding the alarm over the Liberal government’s 25-per-cent cut in residential electricity rates.

Auditor general Bonnie Lysyk estimates the scheme, unveiled last May, could cost Ontarians an additional $4 billion in interest charges over the next 30 years.

In Lysyk’s latest salvo against the provincial government in her ongoing accounting dispute with Queen’s Park, she expressed outrage at how the hydro rebate will appear on the books.

“The accounting proposed by the government is wrong,” said the auditor general, decrying the use of U.S. accounting standards that enable the Liberals to bankroll the rate cut through the new government-owned OPG Trust.

Because the trust will have to borrow money at a higher interest rate than the province pays, Lysyk estimated there will be an extra $4 billion in charges over 30 years for a total of $39.4 billion.

But that is not reflected on the provincial treasury’s annual bottom line because electricity ratepayers, not taxpayers, will cover the tab.

“They had to come up with something that would not derail the government’s promise to present balanced budgets for 2017-18 and the next few years,” she said Tuesday.

Energy Minister Glenn Thibeault insisted “there was no fast one being pulled at all.”

Thibeault noted the government wanted electricity subsidies to be charged to the rate base, not the tax base, and stressed the similar accounting practices used in Alberta, Texas, New York, Minnesota, and other jurisdictions.

“Electricity financing should remain within the electricity system,” he said.

Facing a massive outcry over soaring hydro rates in many parts of the province, Premier Kathleen Wynne moved forward with generous rebates.

Last Jan. 1, Wynne removed the 8-per-cent provincial portion of the harmonized sales tax from electricity bills. That was followed by an additional 17-per-cent cut that took effect over the summer.

The government has justified borrowing money to pay ratepayers by likening it to refinancing a mortgage to enjoy lower payments over a longer time.

Thibeault, who will unveil Ontario’s long-term energy plan on Oct. 26, said the hydro rate cut merely “smoothes the costs of those investments out over a longer period of time.”

His comments came after Lysyk tabled a 53-page special report on the Liberals’ plan.

Her concern echoes that of province’s financial accountability officer who predicted, in May, it could cost the province $45 billion over the next 29 years by saving ratepayers $24 billion for a $21-billion net expense.

But a 56-page KPMG analysis prepared for the Independent Electricity System Operator (IESO) concluded the government’s accounting was fine.

The government also rejected some of the base assumptions in Lysyk’s report.

“Since 2003, nearly $70 billion has been invested in the electricity system, including more than $37 billion in electricity generation to ensure the system is clean and reliable,” the Ministry of Energy said.

“The majority of the province’s electricity generators operate under 20-year contracts. Despite the report’s assertion that it is ‘not at all’ certain if these generating assets will be operating beyond their contract lives, third-party experts have confirmed that many of these generators will be able to continue to operate,” it said.

“This means that generating assets are expected to have ongoing, useful life and benefit future ratepayers by reducing the need to finance the development of new generating assets.”

As well, the province said the so-called “peak debt,” or the total borrowing costs, over the 30-year lifespan of the Fair Hydro Plan has been adjusted downward from $28 billion in March to around $20 billion.

Lysyk has been sparring with the government over accounting practices for more than a year.

The original actuarial dispute stemmed from a difference of opinion over whether the government should include, in its bottom line, its share of assets from the teachers’ and public servants’ pension funds it co-sponsors.

A government-appointed panel of accounting experts sided with Queen’s Park in determining the pension assets should be allowed to count toward the bottom line.

But Progressive Conservative Leader Patrick Brown accused the Liberals of using “shady accounting methods and cooking the books for politically motivated reasons.”

Brown said the hydro cut was a “re-election ploy” to help the Grits in the June 7, 2018 campaign.

NDP MPP Peter Tabuns (Toronto Danforth) said Lysyk has exposed “an Enron-style accounting scheme whose sole purpose is to hide this truth from the public.

“The auditor general has confirmed that Kathleen Wynne’s hydro borrowing scheme will cost Ontarians $40 billion, and that Kathleen Wynne will charge families $4 billion, just for the accounting tricks she’s using to cover up just how bad this plan is,” said Tabuns.