Ontario Premier Doug Ford’s government is apparently aiming to either axe or alter a key plank of their predecessors’ debt-laden plan to lower household electricity bills.
The move was mentioned in Ontario’s 2017-18 public accounts, which were released on Friday and indicated that the Ford government intends to stop “refinancing” the province’s global adjustment charge.
Global adjustment is a longstanding part of Ontario power bills that chiefly represents the difference between the market price for electricity and the usually higher rate the province owes power companies, either due to contract terms or regulatory decisions. The charge has shot up over the past decade, costing customers billions, and now makes up the bulk of the commodity cost of electricity in Ontario.
Feeling the heat over energy prices, Ontario’s then-Liberal government rolled out their so-called Fair Hydro Plan in 2017, resolving to lower electricity bills by an average of 25 per cent for residential consumers, and then to hold rate increases to the rate of inflation for four years.
The plan did so in part by “refinancing” the global adjustment charge — essentially borrowing money to reduce the amount current ratepayers owed on their bills, with future ratepayers left to pay it back. An auditor’s report on the Fair Hydro Plan last year suggested the total borrowings to be repaid could surpass $39 billion over the life of the program, including interest.
But according to the public accounts, those refinancing plans are being targeted for a change under Ford, whose government has been busy scrutinizing the financial situation left behind by the Liberals.
“In September 2018, the government made a decision to make a future proposed legislative change to the Ontario Fair Hydro Plan Act to cancel the Global Adjustment Refinancing component of the plan,” said part of the province’s recently released financial statements.
“The government will fund all the future obligations issued and outstanding as of the date the guarantee is invoked.”
Another passage in the public accounts said the Ford government would make changes to the act “reducing the amount of the current electricity price reduction to be borne by future ratepayers, and making any recovery from future ratepayers optional.”
However, while future ratepayers may end up no longer on the hook for the refinancing, the effect of the changes on today’s electricity customers remains unclear.
A commission of inquiry struck by the Ford government recently noted that the global adjustment refinancing part of the hydro plan provided nearly two-thirds of the Liberals’ 25-per-cent cut.
Ford has also promised ratepayers a 12-per-cent cut in the price of electricity on top of the 25-per-cent reduction introduced by the Liberals, something the government has suggested can be achieved through moves such as cancelling pre-construction green-energy projects and returning to ratepayers the dividends the province receives for its ownership stake in Hydro One Ltd.
“The government will have more to say about this in the future,” a spokesperson for the province’s finance minister said in an email.
As well, the latest public accounts show that Ontario has recorded an approximately $1.64-billion obligation to a Fair Hydro Trust, which was set up under the previous regime to help with the refinancing and to borrow some of the money needed to pay for the Fair Hydro Plan rate cuts.
The trust is managed by provincially owned Ontario Power Generation Inc., but is a separate financing entity. It will apparently no longer conduct debt offerings, turning Ontario’s already-issued hydro bonds into collector’s items.
“All debt issued under the Fair Hydro Trust will remain outstanding,” said Gadi Mayman, chief executive of the Ontario Financing Authority, the agency which borrows money for the province, in a message posted online Monday.
“The Province will be responsible for making all interest and principal payments due on those bonds. Going forward, there will be no issuance by the Fair Hydro Trust.”
As of this week, the trust had completed two debt offerings, issuing a combined $900 million in bonds with a term of either 15-and-a-quarter or 20 years. Before being brought to a halt, it was anticipated to borrow far more.
But shuttering the trust follows the release last week of recommendations from the independent commission of inquiry into the province’s finances. One of the commission’s recommendations, which were accepted by the Ford regime, was to adopt the preferred accounting of Ontario’s auditor general for the global adjustment refinancing.
The finance minister’s spokesperson said that “our Government has accounted for the Liberals hydro scheme on the Province’s books as previously recommended by the Auditor General in a bid to improve financial transparency for Ontarians.”
Ontario’s auditor had butted heads with the Liberals over the accounting. The watchdog also warned last year, citing another legislative officer, that the financing structure of the Fair Hydro Plan could cost Ontario up to $4 billion more in the long run, as OPG and the trust face higher interest rates to borrow than does the province itself.
“The government’s desired outcome was that the electricity subsidy would be funded by ratepayers and therefore have no impact on the deficit or net debt,” the commission’s report stated, adding that the global adjustment refinancing “also presents a risk that the global adjustment itself may be struck down as unconstitutional.”
“There is a risk that a court may find the global adjustment is not a valid regulatory charge if shifting costs over a longer period of time inadvertently results in future ratepayers cross-subsidizing today’s ratepayers.”
The recent moves by the Ford government fit into their broader strategy of undoing the plans of the previous Liberal regime. Since winning the June election, the Ford government has taken steps to dismantle the province’s carbon-pricing system, prevent another minimum wage increase and to repeal green-energy legislation.
The government has said they are trying to put the province’s finances back on track, and their commission of inquiry projected the province’s deficit for 2018-19 would be $15 billion — more than double what the Liberals’ budget had forecast, which is partly due to the inclusion of the hydro plan-related expenses.
“I can tell you that we now know the Fair Hydro Trust was all about a cover-up, and the first phase is exposing what the Fair Hydro Plan is,” Ontario Finance Minister Vic Fedeli told reporters last Friday.
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