Ontarians will be paying a net $21 billion over the next three decades to get short-term savings under the Liberal government’s hydro plan, which is designed to make the province’s bottom line look better, two watchdogs said Wednesday.
Both the financial accountability officer and the auditor general weighed in on the plan to lower hydro rates, which have roughly doubled over the last decade.
A report from the budget watchdog found that the government will spend $45 billion over the life of its hydro plan to save people $24 billion on their bills over the next approximately 30 years.
The $45 billion, however, is mostly the cost of funding an eight-per-cent rebate that took effect in January and assumes balanced budgets. If the government has to fund that rebate through debt, the cost could soar up to $93 billion, the report said.
Premier Kathleen Wynne promised to cut hydro bills in the province after widespread anger over rising costs helped send her approval ratings to record lows. Under the government’s plan, Ontarians will see lowered hydro bills for the next 10 years, but will then pay higher costs for the following 20 years.
Legislation to cut electricity bills by 17 per cent on average — on top of the eight-per-cent rebate — is currently before the House and has to pass before the summer break begins June 1 if relief is to be delivered under the timeline the Liberals promised.
The hydro plan will lower 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, a new entity overseen by Ontario Power Generation will take on debt to pay that difference.
That means there will be no impact on Ontario’s net debt — currently at about $312 billion — or annual surplus/deficit, said Auditor General Bonnie Lysyk. The auditor told a committee studying the hydro legislation Wednesday that it “sets a dangerous precedent.”
“There are a lot of people investing a lot of time and money to set this up, structured in such a way that it doesn’t affect bottom line,” she said.
Energy Minister Glenn Thibeault has said OPG has expertise in managing hydro-related debt.
The OPG Trust is financing 55 per cent of that borrowing, with the province financing the rest. But the OPG Trust borrows at an average rate of 5.4 per cent, compared to the province’s 4.5 per cent, the FAO noted. So if the government took on all of the refinancing, ratepayers could save $4 billion, the FAO concluded.
In light of those potential savings, NDP critic Peter Tabuns called the government’s financing structure “puzzling.”
“Why it’s being set up in the special purpose vehicle, this little subsidiary of OPG is hard to understand,” he said. “It may make provincial debt look better because it’s been moved off (the government books), but that can be the only advantage. It’s going to cost us a lot of money.”
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 average bill will rise about 6.8 per cent a year until 2028, the FAO projected.
At that point, ratepayers will have to start paying back debt that will be accumulated in order to finance lower rates for the first decade. From then on, bills will be about four per cent higher than they would have been without the Liberal plan, Financial Accountability Officer Stephen LeClair said.
The cost of paying back that debt with interest — which the government has said will be up to $28 billion — will go back onto ratepayers’ bills for about 20 years starting in 2028 as a “Clean Energy Adjustment.”
The FAO estimated the cost of interest on that debt will be $21 billion, assuming a five-per-cent weighted average interest rate. If that rises to six per cent, ratepayers will end up paying $30 billion, LeClair projected.
Electricity bills in the province have roughly doubled in the last decade, due in part to green energy initiatives, and the government has said the goal of its hydro plan is to better spread out those costs.
“We’ve always said that the proposed Fair Hydro Plan will cost more over the long-term, but it will share the costs of our investments more fairly over a longer period of time, and lower bills by 25 per cent on average starting this summer,” Thibeault said in a statement.
The FAO’s $21-billion projection is in line with the government’s estimates, Thibeault said, dismissing the FAO’s “outlier scenarios” as extremely unlikely.