Fraser Forum

Ontario’s auditor general calls out Wynne government over ‘Fair Hydro Plan’ accounting

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The Office of the Auditor General of Ontario this week released a special report titled “The Fair Hydro Plan: Concerns About Fiscal Transparency, Accountability, and Value for Money.”

It’s somewhat dry reading, but a key message comes through pretty clearly—the AG accuses the Ontario government of using accounting methods that do not comply with Canada’s public-sector accounting standards to keep some $40 billion in debt off of the government’s balance sheet, and to show balanced operating budgets rather than annual deficits.

Without getting into too many details, early in 2017, the Wynne government decided to respond to Ontarian’s complaints about sky-high power bills by instituting the “Fair Hydro Plan,” which would reduce ratepayer bills by 25 per cent, effective immediately, while still paying power generators the full costs promised them in long-term contracts. Nine per cent of that reduction was instituted as a rebate of the provincial component of the harmonized sales tax, while the remaining 16 per cent will be financed through a somewhat byzantine borrowing scheme that will have future Ontario ratepayers overpaying for electricity in the future. How much, according to the plan?

“The total borrowings to be repaid will be an estimated $39.4 billion, made up of $18.4 billion borrowed to cover the current rate reduction shortfall and $21 billion in accumulated interest over the term of the borrowings.”

The AG report restates the findings of the Financial Accountability Office (FAO), regarding the full costs of the Fair Hydro Plan (including both GST rebate and borrowing) from a report published in the Spring of 2007 where the FAO:

...estimates that the Fair Hydro Plan will cost the Province $45 billion over 29 years ($5.6 billion for the Provincial HST rebate and $39.4 billion for the electricity cost refinancing and changes to electricity relief programs). It also estimates the Fair Hydro Plan will provide overall savings to eligible electricity ratepayers of $24 billion. This results in a net cost to Ontarians of $21 billion. The estimated $45-billion cost to the Province assumes that the Province is able to achieve and maintain a balanced budget over 29 years. If the Province is required to fund its Fair Hydro programs (i.e., the HST rebate and electricity relief programs) through debt, then the cost to the Province could increase to between $69 billion and $93 billion.

To be fair, I’m not an accountant, and the government, in an appendix of the AG’s report, denies that it’s cooking the books and claims its current estimate of the peak debt over the 30-year life of the Fair Hydro Plan is “below $20 billion.” That may or may not be true. But the AG calls the foul on Ontario’s Fair Hydro accounting (emphasis added):

The substance of the issue is straightforward. Ratepayers’ hydro bills will be lower than the cost of the electricity used as a result of the electricity rate reduction. However, power generators will still be owed the full cost of the electricity they supply, so the government needs to borrow cash to cover the shortfall to pay them. The effects of the additional debt required to fund the generators need to be accounted for as part of the annual deficit and net debt of the Province. However, the government did not properly account for this debt impact from the electricity rate reduction in its 2017/2018 budget and is not planning to account for it properly in its future consolidated financial statements. In essence, the government is making up its own accounting rules.

That seems somewhat less-than-fair to Ontario ratepayers and taxpayers.


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