Canadian Manufacturing

Ontario auditor general blasts Liberal government’s handling of hydro cuts

by Allison Jones, The Canadian Press   

Canadian Manufacturing
Financing Regulation Energy Infrastructure

In order to "obscure" the true cost of its 25 per cent electricity rate cut, Bonnie Lysyk said the Ontario Liberals have created an "unnecessary, complex financing structure" that will cost ratepayers $4 billion "extra" in the long run

The cost of paying back the debt and interest accumulated as part of the 25 per cent rate cut will go back onto ratepayers’ bills for the following 20 years. PHOTO: David Kennedy

TORONTO—The way the Ontario Liberal government is cutting hydro bills by 25 per cent purposely obscures the true financial impact of the measure to avoid showing a deficit on the province’s books, the auditor general said Oct. 17.

Bonnie Lysyk estimated in a special report that the plan’s total cost will be $39.4 billion over 30 years, but the accounting the government is using means Ontario’s net debt—currently at about $312 billion—and future deficits won’t reflect that.

“It is clear to us that the government’s intention in creating the accounting/financing design to handle the costs of the electricity rate reduction was to avoid affecting its fiscal plan,” Lysyk wrote in her report.

The Liberals presented a balanced budget in the spring, a year ahead of the provincial election, and have promised to keep the books in balance through the next couple of years.


The hydro plan lowers time-of-use rates by removing from bills a portion of the global adjustment—a charge consumers pay for above-market rates to power producers—for the next 10 years.

In the meantime, producers will continue being paid the same, so Ontario Power Generation has been tapped to oversee the debt used to pay that difference through a new entity called OPG Trust.

The end result of the “needlessly complex” financing structure is that the province’s bottom line won’t be affected, Lysyk said.

The cost of paying back that debt with interest will then go back onto ratepayers’ bills for the following 20 years, and Lysyk estimated the cost will be $18.4 billion borrowed to cover the shortfall, and $21 billion in accumulated interest.

Ontario’s financial watchdog has said the plan means hydro customers will be paying a net $21 billion over the next three decades to get short-term savings.

Both the auditor and the financial accountability officer have concluded the structure leads to about $4 billion in extra interest charges because the OPG Trust will have to borrow at a higher rate than the province itself would have.

The government doesn’t agree with Lysyk’s conclusions, saying their financing structure is indeed in compliance with accounting standards and wasn’t intended to avoid a deficit.

It ensures that the costs are borne by ratepayers, who will benefit from the plan, and not the tax base, the government wrote in a response to the report.

Electricity bills in the province have roughly doubled in the last decade, due in part to green energy initiatives, and Premiere Kathleen Wynne promised to cut hydro bills in the province after widespread anger over rising costs helped send her approval ratings to record lows.

She has said this plan better spreads out the costs of investments in the energy system, instead of putting the entire burden on current ratepayers.

The Liberals have said after the initial cut to bills this year, rate increases will be held to inflation for the next four years. After that, the FAO has projected the average bill will rise about 6.8 per cent a year until 2028, and after that bills will be about four per cent higher than they would have been without the Liberal plan.


Stories continue below