Wynne spin and the Fair Hydro Plan, Part 3

The recent 2017/2018 budget speech from Finance Minister Sousa had this to say about the Fair Hydro Plan.

“People from across the province shared their concerns about rising electricity bills. We listened and we are responding. Recognizing that there needed to be a fairer way to share the costs of building a cleaner, more modern and reliable electricity generation system, we are taking action to reduce electricity costs. Through Ontario’s Fair Hydro Plan, starting this summer, household electricity costs would be lowered by an average of 25 per cent. We are also capping rate  increases to inflation for the next four years. Low‐income families, and those living in rural, remote or on-reserve First Nation communities, would receive additional relief as well.”

Impressive words signaling reallocation of charges to taxpayers previously paid by ratepayers as well as direct relief. The budget’s forecast however doesn’t jibe with the words contained in the speech from Premier Wynne when she announced the relief March 2, 2017 and said, “Although the refinancing occurs within the electricity system and is accounted for separately, the overall fiscal impact of this relief and restructuring will cost the province about $2.5 billion over the next three years.”

The Premier’s remarks suggest relief will cost about $833 million annually but the budget notes the “Electricity Rate Relief Programs” are forecast to cost $1.438 billion.

The budget estimate(s) presumably include the costs associated with the OESP (Ontario Electricity Support Program) for low-income families. Those “heat or eat” households were driven to that situation by climbing electricity rates caused by lucrative contracts handed out by the current and past energy ministers.  As well, free delivery costs for First Nations communities will become standard and taxpayer supported as will the RRRP (Rural or Remote Rate Protection) in low-density regions.  Also added to the pot is an “Affordability Fund” for households who can’t afford energy efficiency upgrades.  Finance Minister Sousa’s budget obviously forecasts those costs to taxpayers at over $600 million more than the Premier!  So what are Ontario’s taxpayers/ratepayers to believe?

Based on the foregoing we must assume the Premier’s $2.5 billion over three years are to only cover the programs moved to other ministries and will cost taxpayers about $4.5 billion if the relief ends three years hence.  Based on the record of this government we shouldn’t expect the relief programs to end in three years!

The other part of the Premier’s statement was: “In addition, this rate relief is designed to last. After we bring bills down by 25% we will hold them there with rates rising only with inflation — or roughly 2% — for at least four years.”  Once again the Premier avoids telling us the whole story. Other associated documents the general public have a difficult time locating tell another story.  One such document was the “Technical Briefing” appendix attached to a directive dated March 2, 2017 sent to the OEB by Energy Minister Glenn Thibeault.  Under a heading labeled “Refinancing the Global Adjustment” we find:  “Under current forecasts, the immediate reduction (i.e., the financed portion) in the GA would be about $2.5 billion per year on average over the first ten years,  with a maximum annual interest cost of $1.4 billion.”

What that means is, they are “kicking the can down the road” by refinancing $25 billion of contract and adding $14 billion in interest costs. At some point in the not too distant future (year 5?) electricity rates will need to jump to accommodate the $39 billion of accumulated debt within the portfolio.  What is being refinanced are those 20-year contracts for wind, solar and gas generation, yet the contracts will have expired and should, yet we don’t know if they will still be operational!

Interestingly enough, if we include the taxpayer-related relief costs of at least $4.314 billion ($1,438 million X 3 years) “kicking the can down the road” will labour taxpayers/ratepayers with $43.3 billion in costs. That $43.3 billion exceeds what was supposed invested in electricity generation ($35 billion) and is only $6.7 billion short of what they claim has been invested in the electricity system as this quote from the “Technical Briefing” notes:  Between 2005 and 2015, government invested more than $50 billion in the electricity system, including $35 billion in electricity generation to restore reliability, replace coal and meet environmental objectives.

So what are taxpayers and ratepayers seeing when they look ahead? First, a new debt associated with the electricity system will burden us with an additional $43.3 billion on top of the reputed $50 billion the Premier Wynne led government claims has been invested.  That accumulated debt will require payback which will drive rates and taxes higher.   Secondly many of the $35 billion investments in electricity generation and the $15 billion of investments in the electricity system will have reached their end of life and will require replacement.

The forecast for ratepayers is they should expect to see a new charge on their future hydro bills. Logic suggests the new charge should be referred to as the LDRC (Liberal Debt Retirement Charge)!

 

 

 

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Sousa’s impossible task

October 2, 2016

Part 3 in a series

The first in this three-part series dealt with laudatory comments bestowed by Premier Wynne on Finance Minister Charles Sousa, but now I will simply look at one unachievable demand.

This article has nothing to do with the energy sector but I had to comment on a section of the Mandate Letter the Premier issued to the Finance Minister — it is completely out of touch with reality.

In the section under the subheading, “Delivering on the Balanced Budget Plan” there is one instruction that will require many magic tricks from Minister Sousa: “Lowering the net debt-to-GDP ratio to its pre-recession level of 27 per cent.”NB

The Province provides information disclosing our GDP growth along with our climbing debt levels and recently the Premier took an occasion to brag how Ontario reputedly “posted higher real GDP growth in the first quarter of 2016 than Canada, the U.S. and all other G7 countries. The province’s real GDP grew by 0.8 per cent in the quarter, or a 3.0 per cent annualized rate.”  The braggadocio, however, needs to be examined in relation to the Premier’s direction to Minister Sousa.

The Ontario Finance Authority (OFINA) posted the Province’s debt information indicating that, as of March 31, 2016, publicly held debt was $313.4 billion.   OFINA also included a chart showing Ontario’s debt-to-GDP ratio was 39.5%.

Using the foregoing data it is easy to discern at that point in time, Ontario’s Gross Domestic Product (GDP) was approximately $794 billion. Extrapolating the foregoing information and using it to calculate how challenged Minister Sousa will be to reduce that ratio to the pre-recession level is also an easy task.  If  the books were balanced as of March 31, 2016 and the debt level remained at $313.4 billion for the future, the GDP required to meet Premier Wynne’s 27% target would need to grow by $367 billion. That’s a 46% increase from its current level.

In the current global economy the Premier’s challenge is impossible to achieve in a reasonable timeframe.

Looking at a Royal Bank of Canada September 2016 report it becomes obvious Minister Sousa is destined to fail miserably in achieving the Premier’s target.  The RBC report indicates Ontario’s GDP is forecast to grow at a rate of 2.7% in 2016 and 2.4% in 2017.  This anticipated growth is a far cry from the 46% increase the Premier expects her Finance Minister to achieve.

The foregoing should remind everyone of George Smitherman’s 2009 forecast that the Green Energy and Green Economy Act would only increase electricity prices by 1% per annum. The Premier failed to see the electricity crisis arrive until her party lost a by-election and she was booed at a plowing match when she mentioned hydro rates in her speech.

It appears the ability to forecast the future is a major flaw in the current government in Ontario so we should expect this mandated one to Minister Sousa by the Premier is simply another unrealistic one.

Premier Wynne and Minister Sousa should prepare themselves for additional booing that may soon come from credit rating agencies.

 

NB: Ontario’s debt-to-GDP ratio has never been as high as it currently is. The Bob Rae NDP government of the early 1990s had to deal with high inflation and a recession that cut the GDP by 3.2%

The Premier’s mandate letters: no sign of plans to resolve a crisis

Premier Wynne: just do what I tell you. Not sure it will work, but do it. (Lucas Oleniuk/Toronto Star via Getty Images)
Premier Wynne: just do what I tell you. Not sure it will work, but do it. (Lucas Oleniuk/Toronto Star via Getty Images)

Part I

September 26, 2016

Ontario’s Premier Kathleen Wynne just issued 35 “mandate letters” to each Cabinet Minister in the government on September 23, 2016. The letters range from three to six pages, and carry platitudes about ministerial accomplishments and directions as to what she expects them to accomplish in the next two years under her premiership. (“Mandate” is defined as an authoritative command.)

One such platitude can be found in her six-page mandate letter to Finance Minister Sousa wherein she notes we (the collective we):  “Worked with the federal government to ensure the Ontario Electricity Support Program (OESP) would not be a taxable benefit.”

Any sensible person would say that money given to support low-income households in the payment of their electricity or other bills should not be a “taxable benefit.”   The OESP is levied as a charge to all of the non-qualifying ratepayers of the province via the Global Adjustment (GA) and becomes a cost of the basic commodity–electricity! So in effect, it is a charitable gift from other ratepayers who pay their escalating electricity bills every month.

Perhaps this “charitable donation” should be recognized by your local distribution company (LDC) who should be required to issue a charitable receipt that you can use when filing your tax return. The government should instruct the LDC to identify that on our monthly bills just as they tell us how much we have saved by not paying the debt retirement charge (DRC).

Interestingly, the same mandate letter to Minister Sousa notes another accomplishment: “Ontario will continue to fulfill its commitment to upload social assistance benefit programs, as well as court security and prisoner transportation costs, off the property tax base. This will ensure that municipalities have more property tax dollars to invest in local priorities.”

Electricity customers carrying the load?

That pronouncement should leave you shaking your head. In one paragraph Premier Wynne suggests the OESP isn’t a “social assistance benefit” but did require federal government approval to ensure it would not be a “taxable benefit,” and later the Premier brags about the wonderfulness of uploading social assistance benefit programs like court security and prisoner transportation costs from municipalities.  Is the reason the province could afford to “upload” those social assistance benefits  because the OESP is being paid by Ontario’s ratepayers without notice or consultation?

If the Wynne government is really looking for more money for municipalities, why didn’t the Premier instruct Sousa to tell MPAC to assess industrial wind turbines (IWT) at their real value rather than the $40,000/MW they are capped at now? Now, that would have increased property tax dollars for municipalities.

The fact is, if the costs of the OESP were properly allocated, they would be under the Community and Social Services Ministry, not the Energy Ministry.   As the ongoing news series from Global TV has noted, the number of people living in energy poverty in Ontario is growing at an alarming rate.

Premier Wynne has publicly noted the “crisis” in respect to the rising cost of electricity and the rise of energy poverty households, yet instructions to the Minister of Community & Social Services fail to respond to the crisis. Her mandate directs the Minister to: “Support the transformation of income-based and other benefit programs, with the Minister of Finance, Minister of Government and Consumer Services and human services system partners, focusing on client-focused delivery and information sharing.”

And in the Premier’s mandate letter to the Minister Responsible for the Poverty Reduction Strategy the instructions are:  “Support the transformation of income-based and other benefit programs, with the Minister of Finance, Minister of Government and Consumer Services and human services system partners, focusing on client-focused delivery and information sharing.”

It is very unclear how her mandated transformation designed to focus on “delivery and information sharing” will resolve poverty.

It is clear she depends on Ontario’s electricity ratepayers as the new charitable organization!

Parker Gallant