Ontario’s IESO: electricity customers should be concerned

The province’s power agency has been found to use incorrect accounting methods and actively obstruct oversight… that’s a worry, considering their other goals

March 26, 2018

The Independent Electricity System Operator or IESO, which is responsible for managing Ontario’s electricity system, has again been called out on its abilities. Unlike prior occasions, this time the criticism is related to the manner in which the IESO engages in “irregular and improper accounting” discovered in a special audit and reported by the Ontario Auditor General.

From the report by the Globe and Mail: “Bonnie Lysyk, the Auditor-General, informed the province’s public accounts committee last week of problems uncovered during the audit, which began late last year and is now nearly complete. Her concerns included incorrect accounting, deceptive and obstructive behaviour by the IESO’s board and management, and poor financial controls.”

The dispute is related to the Fair Hydro Plan and the accounting treatment that surrounds it. Ms. Lysyk noted the accounting structure was designed to avoid including the costs on the province’s books thereby allowing the government to “falsely claim” it had a balanced budget. The claim was disputed by the Minister of Energy who said the practices are not new and are used in other jurisdictions and “endorsed” by major auditing firms.

The cost of the Fair Hydro Plan just to the end of February is in excess of $1.6 billion and is carried on the books of an OPG “trust” subsidiary — that means the debt incurred will not show on the Province’s books as debt.

Recovery of the monies will, however, become a future burden for Ontario’s electricity ratepayers, who will have to ante up the funds to repay it and the interest it accumulates. The Financial Accountability Office suggests it would be a minimum of $40 billion and perhaps as much as $90 billion depending on if the province manages to balance its budget.

Ms. Lysyk noted, according to the Globe story, “When a board or management in any other province recognizes that an AG’s office has issues with their accounting, they would have handled it differently,” the committee was also told, “They basically treated, I think, my audit team like we were subservient to KPMG. In terms of the law in Ontario, that would be the reverse.”

The AG ordered the IESO special audit when IESO’s auditors would not respond to queries about potential accounting changes and, when their financial statements were published, they used some radically different accounting practices. Those practices were used immediately for the Fair Hydro Plan.  IESO’S Chief Financial Officer, Kimberly Marshall did not consult or notify the AG prior to adopting those practices!  As a result, and because of the refusal by management and the board to sign key documents, the AG’s office was unable to provide an audit opinion.

Many followers of the electricity sector have expressed issues with IESO’s inability to provide correct or timely information related to the generation and consumption of electricity so it should come as no surprise the Auditor General is faced with the same dilemma on financial accounting issues.

IESO also has responsibility for managing data required to pay generators for their power and using data from smart meters.

It should be disconcerting to all ratepayers, big and small, to realize IESO are also spending hundreds of million to bring us a smart grid.   A concern is that IESO may be working with MaRS Data Catalyst (liberally supported by the current government) who note, “We are working with industry, regulators, consumers and government to get that data into the hands of innovators in a secure, private and usable way to drive energy conservation and spur economic growth.

All ratepayers should be concerned as IESO may once again decide to use  different standards when it comes to protecting ratepayers’ privacy, as they have done with IESO’s financial information.