Saturday, October 31, 2015

Wynne’s Long Term Power Rate Plan: Transit Tax on Electricity

Amidst a storm of controversy yesterday at Queen’s Park surrounding a damning report from the new Financial Accountability Officer, the government yesterday reaffirmed that it is going to extract $4 billion from the proceeds of the Hydro One sale to spend on other government programs. Ontario Premier Wynne’s damn-the-torpedoes implementation of her plan for Hydro One suggests that to the extent that she has a long term plan for electricity, it is to add a transit tax on top of existing charges.

Ontario ratepayers, many of whom are now paying the highest rates in Canada, might be surprised to find that their existing rates are not high enough to cover the power system’s existing full costs, let alone the higher costs coming soon. Consider that other than Hydro One, the Ontario government has two major electricity agencies, OPG and Ontario Electricity Financial Corporation (OEFC). OPG has been cash flow negative since it was created and shows no sign of turning that around. OPG’s bloated but non-performing $17.6 billion investment in property, plant and equipment gets worse by the year. OEFC started life in 2000 with overall liabilities valued at $38.1 billion, of which $4.3 billion was expected losses on the old Ontario Hydro non-utility generation (NUG) contracts. Net of the NUGs, OEFC’s opening liabilities were therefore $33.8 billion. As of March 31, 2015, the fair value of OEFC’s liabilities (which no longer include NUGs) amounted to $31.1 billion (See the Ontario Public Accounts p. 1-118.) While the nominal value of OEFC’s liabilities has barely budged in 15 years, the underlying value of OEFC’s assets, particularly in OPG, has declined substantially.

The notion that a $4 billion so-called “windfall” can be extracted from Ontario’s liability-laden power system without punishing consumers is nonsense. As Mike Hilson and I have previously argued, all of Hydro One’s value (and more) is spoken for. Any proceeds of the Hydro One sale shifted from the power system to other government spending (and more) will have to be replaced by new charges on consumers and/or taxpayers.  (more...)


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