Selling the furniture: what’s behind the Wynne government sell-off

SOLD! OPG HQ sale makes the profit report look good, but …

Back in April 2015, the Wynne-led Ontario Liberal government announced they had created the Trillium Trust and would be selling off assets to generate $130 billion dollars that would be allocated “across the province over 10 years to fund projects in public transit”.

The news release for the announcement stated an additional $200 million generated from the sale of the GM shares would be placed in the trust; it also announced plans to sell off Hydro One.

OPG’s 2nd Quarter report was released August 11, 2017. The media paid no attention despite a very successful quarter, reporting an after-tax profit of $307 million — well up from $132 million of the comparable 2016 quarter.

But if you look deeper into their results, you learn $283 million of the reported profit came from the sale of their head office.

What the OPG results signify is that profitability from their share of total Ontario power generation (52.2% or 18 TWh/terawatt hours out of the total 34.5 TWh) for those three months in that quarter produced only $24 million in after-tax profit. OPG blamed the reduced income on lower nuclear power generation.

I think there is much more to the story.

OPG, as I have said before, has become the “whipping boy” for the Ontario Liberal government and apparently it still is, as observations will confirm comparing their 2017 quarterly results with those of the same quarter in 2007. Here’s proof.

Renewables and Conservation
It would be remiss to not mention first that both the addition of renewable energy such as wind and solar (in excess of 6,700 MW) were granted “first to the grid” rights thereby superseding much of OPG’s (previously called “unregulated”) hydro (3,629 MW as of December 31, 2007) as well as other generation such as Lennox, an oil/gas fueled generating station with a capacity of 2,100 MW which is seldom called on to produce electricity. Likewise, biomass-converted coal plants in Atitikokan (180 MW) and Thunder Bay (165 MW) are idle most of the time. The other issue is the fact that consumption in 2007 was reported by IESO as 152 TWh; by 2016 that had dropped by 15 TWh (enough to supply about 1.7 million average households for a full year) supposedly due to conservation, but more likely due to the high prices.

Ten years later
Now let’s look at the ten-year comparisons for the 2nd Quarter.

  • Gross revenue in 2007 for the quarter was $1,393 million versus $1,146 million in 2017; a drop of $247 million or 17.7% and for the first six month (2017 versus 2007) was $691 million lower (-22.9%)
  • Spilled hydro generation in the 2nd Quarter of 2017 was 2.6 TWh (enough to power about 290,000 average households for a year) but not mentioned in 2007
  • Water fuel taxes in the 2nd Quarter of 2017 were $97 million to generate 8.2 TWh whereas in 2007 the 9.3 TWh generated resulted in water fuel taxes of only $67 million
  • Electricity generated in the 2nd Quarter of 2017 was 18 TWh (-25.4%) versus 25.4 TWh in the same quarter of 2007 and for the comparable six months generation was down from 54.2 TWh to
    36.6 TWh a drop of 17.6 TWh or more than the 2007/2016 consumption decline of 15 TWh
  • Payments in Lieu of Taxes (PIL) in the 2nd Quarter of 2017 were $97 million versus $29 million in the comparable 2007 Quarter.
  • Operations, maintenance and administration costs dropped from $776 million in the 2nd Quarter of 2007 to $711 million (-8.4%) in the comparable 2017 Quarter however the average costs of generation per kWh (kilowatt hour) increased from 4.6 cents/kWh to 4.83 cents/kWh
  • OPG were also listed as a participant in the recent “cap and trade” auction of “Greenhouse Gas Allowances” but their purchase or cost of allowances was not disclosed

All this suggests only a few ways the Ontario Liberal government and the Energy Ministry are removing money from ratepayers’ pockets to fund the Consolidated Revenue Fund, etc.

The sale of OPG’s head office is another. The fact that OPG produced an after-tax profit of $283 million by the sale of its head office will do nothing to reduce electricity rates as the following note from the 2nd Quarter 2017 report states:

“Pursuant to the Shareholder Declaration and Shareholder Resolution, and as prescribed in the Trillium Trust Act, 2014, OPG is required to transfer the proceeds from this disposition, net of prescribed deductions under the Act, into the Province’s Consolidated Revenue Fund.”

What that means is, the pre-tax profit on the sale of OPG’s head office of $378 million (including the PIL or payment in lieu of taxes) will do nothing to reduce electricity rates and instead will be applied to the budgetary deficit. Perhaps some of it will be spent on transit projects or even to pave a road in a (Liberal) riding.

The profit on the sale of OPG’s head office plus all the other payments extracted from them could have gone a long way to defray the costs that the Fair Hydro Plan will accumulate and which we will have to pay for in the near future.

Next up for OPG to sell off: per the Shareholder declaration from former Energy Minister, Bob Chiarelli is “the Lakeview Site”, comprised of an approximately 67-acre portion running along the shoreline and along the southwesterly portion of the Lakeview Site and the adjacent water lots, more particularly identified” and “the remaining approximately 110 acres of the Lakeview Site”.

The Wynne-led government is doing its best to sell off any remaining assets owned by Ontario’s taxpayers to the detriment of ratepayers.

Parker Gallant,
September 18, 2017

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Author: parkergallantenergyperspectivesblog

Retired international banker.

10 thoughts on “Selling the furniture: what’s behind the Wynne government sell-off”

      1. Specifically, Mr. Whitely explains in this video why he has used the term ‘Ponzi’ scheme to describe the deferral of charges, for political advantage, passing them ultimately onto our children and grandchildren.
        Everyone needs to realize this.

        Like

    1. Sorry, I hadn’t watched the presentation by Whiteley. What he describes is much like a ponzi scheme or the shell game. Keep moving the money around. The NP has an interesting article this morning about the launch of a lawsuit against the provincial government related to the Global Adjustment calling it a tax. Worth a read: http://business.financialpost.com/commodities/energy/an-unconstitutional-tax-ontario-electricity-fee-targeted-by-rail-companys-legal-challenge

      Like

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