Electricity and the Liberal Hansard History, Chapter 8

How to turn a contingent liability into a $3.9 billion revenue gain!
This is chapter 8 in a series by Parker Gallant:  Chapter 1;  Chapter 2:  Chapter 3Chapter 4Chapter 5, Chapter 6,

On June 22, 2004 the Legislature was in session and the electricity sector again commanded a fair amount of attention. Some of the day’s discussions were self-congratulatory while others expressed concern that the direction the Liberals were taking the sector would cause rate increases. On the latter point Mr John O’Toole (Durham) posed this question to the Premier:

Premier you must be familiar with your budget speech on page 23, there’s a little chart that says, “Includes one-time revenue gain of $3.9 billion related to the projected elimination of the liability for non-utility generator power purchase agreements in 2004-05.”, “Minister, I’d like you to explain this to the House. Where does the revenue of $3.9 billion come from, or is it simply an additional burden on the taxpayers? What I’m understanding it to be, if I look at the question clearly, is that you increased the electricity rates — we understand that — in April, and I understand now that you’re going to increase the electricity rates for the second time — another broken promise. Is this what I can read from this obscure comment on page 23 here?”

Mr. O’Toole was referring to the “NUG” contracts many of which were due to expire in the next few years. The Liberals appeared to have taken a contingent liability of the Province and turned it into a $3.9 billion revenue gain in their budget. The response from Dwight Duncan Minister of Energy, was:

No, we’re not raising the price again.” “The non-utility generator contracts are electricity contracts. Liability for them will rest with ratepayers. This is consistent with our policy to have consumers pay the true cost of electricity. Our goal in doing this is to free up the money for health and education. These are the priorities that Premier McGuinty and Minister Sorbara put into the budget. We have to clean up the mess you left in health care, the mess you left in education and the mess, frankly, that you left at Ontario Hydro. It’s not easy but we’re doing it, and we’re going to make sure the legacy you left is wiped out and fixed once and for all.”

The “one-time revenue gain of $3.9 billion” appears to have been a sleight of hand, creating no new revenue, it simply removed the “contingent” liability from the province’s balance sheet. NUG contracted parties (originally by Ontario Hydro) became the responsibilityof the Province after the breakup of Ontario Hydro and the Liberals sought to transfer that responsibility to ratepayers via OEFC. No new revenue appeared. As proof of that we point to a directiveissued by Brad Duguid, Minister of Energy dated November 23, 2010. The directive contains explicit instructions to the OPA to renew contracts with 31 NUG generators. On pricing the directive was ambivalent except to note; 
The New Contracts should endeavour to ensure that a greater share of the payments to the NUG Facilities is recovered through the Hourly Ontario Electricity Price, and to minimize the portion of revenues to be recovered through the Global Adjustment.” 
Trying to locate the archived files for the GA on the OPA website is impossible but a visit to the IESO site shows more information however, it doesn’t break out the NUG contract costs (to the GA) until 2008. In that year the NUG contract amount passed on to ratepayers was approximately $470 million and by the end of 2011 the NUG costs charged to the ratepayers, via the GA, had grown to $1.1 billion.

The response from Minister Duncan drew another question from MPP O’Toole:

Some of what you’re saying, that this liability rests with the ratepayers, that’s just what the point was. It’s really another rate increase. The people of Ontario should be prepared for a second whack on this issue.” MPP O’Toole went on; “I would like to say that your commitment to closing the five coal-fired plants is a laudable objective. I completely support it.” and noted: ‘However, it’s another Liberal promise, so you must be a bit concerned when not one expert in the industry believes you.” and closed with this question;Would you resign if you fail to shut down any one of the five coal-fired plants? Will you put your resignation and your promise on the table here today, or is it just another broken promise?”

Minister Dwight Duncan’s response was:

No, I won’t resign on that, number one. But what I will do, and we’ll be outlining this: I don’t know what experts you’re listening to, but the people of Ontario expect us to move on that commitment and to help clean up air quality. Let’s talk about what the Ontario Medical Association has said in terms of lives lost as a result of smog and air pollutants. Unlike you, we’re not going to give up. We’ve set an ambitious target and we’re going to move heaven and earth to achieve it. Let me tell you something else about that government. That is the government that said it would lower prices, and when they put their policy in place, prices skyrocketed in an unprecedented fashion, to the point where the government of the day had to then put a cap on price that was paid for by the taxpayers of this province to the tune of $1.8 billion. We’re moving quickly to clean up the mess that government left in the energy sector, and we’ve set ambitious targets on coal. We will move heaven and earth to achieve them.”

Declining to “resign” was either a smart move (because he was being circumspect) or an admission that the Minister was not up to snuff on his portfolio and didn’t want to be held accountable for his twice uttered remarks that set “ambitious targets”, “to move heaven and earth”. In any event, some 8 years later some of those coal-fired plants still provide the province with the peaking power that it needs on muggy summer days when the wind isn’t blowing. The “lives lost as a result of smog and air pollutants” (still wafting into Ontario thanks to westerly breezes from US states like Michigan and Ohio) presumably still cause lives to be lost. It would appear that Minister Duncan has indeed delivered “just another broken promise” which most Ontarians now seemingly accept as part of the ruling Liberal Party.

The laudatory remarks on this particular day came from Minister Duncan prodded by a fellow Liberal who first castigated the opposition. The following is a sample of that exchange and the hypocrisy and hyperbole that comes with patting yourself on the back;

Mr Peter Fonseca (Mississauga East):My question is for the Minister of Energy. Some of the greatest challenges our government faces are those in the electricity sector. Years of mismanagement and inaction by the previous two governments have made the need for change and decisive action even more urgent. On April 15, you outlined some of the government’s plans for change in this sector. Minister, with the legislation that you have introduced in this House, how is our government ensuring this sector is put back on solid footing after years of Tory neglect?”

One must wonder if MPP Fonseca had foreseen the (since cancelled) erection of a gas fired generation plant in the provincial riding he then held (as per the “regulations”) would he have provided Minister Duncan with such a nice lead in question. Minister Duncan, set up in such a fashion; jumped on the presumably pre-rehearsed question with vigour as the following would suggest:

Hon Dwight Duncan:What we know for certain is that if we had continued on the same path, we would not be able to power the growth in our economy that’s coming forward. Our electricity sector would have ceased to be the great enabler that it’s been throughout most of Ontario’s history. We are putting Ontario back on a solid footing by taking a balanced approach. First of all, we lifted the cap. Second, we’ve now introduced legislation that will redefine the sector, and it provides for public ownership, provides for a new Ontario Power Authority and provides for a new Ontario conservation bureau. These initiatives, wrapped up with the Premier’s commitment on conservation, wrapped up with the Premier’s commitment to close the coal-fired plants in this province, represent a dramatic shift that will provide price stability and reliability of electricity and help the sector become the great strength it was once before. That vision is laid out by the Premier and is incorporated in our first bill, and we believe that at the end of four years prices will be stable, supply will be stable and the people of Ontario will be far better served by their electricity sector.”

and to another question from MPP Fonseca went on:

With the bill before the House today, we are looking beyond the next four, eight and 12 years to ensure a reliable, sustainable and diverse supply of power at stable, competitive prices for generations to come. We’re taking action, because the McGuinty government recognizes that the health of this sector is vital to ensuring Ontario’s economic prosperity.”

The foregoing is what most would consider sweeping statements delivered from a politician with conviction who would deliver on his promises. Unfortunately what we have is the antithesis of what Dwight Duncan said he would deliver. We have a shrinking economy, an electricity sector that has ceased to attract investment (outside of wind and solar subsidized investments), unstable supplies of electricity and a sector that has driven many Ontarians into energy poverty. It is obvious, in hindsight that the Honourable Dwight Duncan didn’t recognize the implications of his undertakings and how it would affect “the health of this sector” to ensure Ontario’s economic prosperity”

Some plan! “Beyond the next four, eight and 12 years” have pretty well passed and Ontario’s economic prosperity looks to remain firmly in the group of “have-not” provinces and just how this “sleight of hand” will “free up the money for health and education” ministries is a complete mystery.

Some legacy!

Parker Gallant, January 29,2012

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