The Dirty Dozen Part One

March 24, 2015

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Costly mistakes made by the provincial government in the last 10 years! From Catherine Mitchell, Welland PART ONE:

The mandate of any politically elected government is to serve and protect all the people in their jurisdiction. One of the key requirements is wise use and investment of the funds, so financial competence is necessary for good stewardship. With this in mind, I thought I would look for 12 of the most costly financial decisions/mistakes over the last 10 years. Since the Ontario Provincial Liberals have been the only party in power in the last 10 years, they can be held accountable for the outcome of these decisions.

#1 Provincial Debt – Ministry of Finance – $143.35 billion increase since 2003

The projected budget for Ontario for 2014-15 is $127.6 billion in expenses with $117 billion in revenue so with deficit financing the government will add $10.6 billion to the Ontario provincial debt. This is in addition to the existing $276 billion provincial deficit, approximately $20,500 per person.

Ontario’s net debt – the difference between total liabilities and total financial assets – has more than doubled under the Liberal leadership. In 2002 -2003 the net debt was $132.65 billion but has increased to $276 billion by 2014, so the Liberal government has added $143.35 billion to the provincial debt

The negative consequences of a large debt load include debt-servicing costs which divert funding away from other government programs; a greater vulnerability to any interest-rate increases; and a potential credit-rating downgrade which could make it more expensive to borrow. Our children and grandchildren will pay more taxes and have fewer options because of this increasing debt load.

#2. Feed in Tariff (FIT) subsidy paid to multinational industrial wind energy corporations – Ministry of Energy – $1.6 billion per year for FIT contracts for wind energy plus $2 billion per year for discounted surplus hydro, so over the 20 year contracts $72 billion

The Renewable Energy Initiative as structured by Energy Minister George Smitherman will cost the rate payers of this province $1.6 BILLION per year in Feed in Tariff (FIT) contracts for wind energy for the next 20 years. We have the highest electricity rates in North America – a fact that is driving commerce and industry out of this province.

Our electricity system is transitioning from “power at cost” which was the HEPC and Ontario Hydro mandate, to “power for profit” as private for profit, frequently multinational corporations gain control of the electricity grid.

As of Sept 2014 the Ontario Power Authority was managing 5,697 MW of combined capacity from wind projects, 3,066 MW in commercial operation and 2,631 MW under development

To calculate the FIT subsidy paid to the multinational industrial wind corporations multiply the MW x efficiency x hours per year x rate. So 5697 MW x 27% operating efficiency x 8760 hrs annually x $119.35/ MW = $1.6 billion annual subsidy to be paid each year for the next 20 years! The cost is part of the Global Adjustment fee on all consumers’ electricity bills.

Renewable energy is intermittent – industrial wind turbines require wind and solar requires sunshine, so renewable energy can not be counted on to provide base load power. This means that an alternative source of base load power, frequently natural gas plants must be operating on standby, so in effect we are paying for two systems to run more or less simultaneously.

The upgrading of the infrastructure – transmission lines – will cost $2 billion so we can transport surplus energy to New York, Quebec, Manitoba and Michigan. We have been producing surplus energy in Ontario for the last 10 years due to the loss of manufacturing with the respective loss of 350,000 manufacturing jobs. This surplus energy is being sold for $2 BILLION less than the cost of production. So people of Ontario are subsidizing the power of our neighbours while we pay the highest power rates in North America.

#3 Annual Debt Service Cost –Ministry of Finance – $10.6 billion per year

The carrying charges – interest payment – on the $276 billion provincial debt are $10.6 billion per year. Debt-servicing costs divert funding away from other government programs so money we could have spent on health care, education, infrastructure, social programs, elder care, etc. must be spent on interest payments.

A large debt load creates a greater vulnerability to any interest-rate increases. If the interest rate on the provincial debt increased by one percent the annual debt service cost would increase by $3 billion per year.

#4. $9.7 billion Samsung Deal – later reduced to $6.3 billion– Ministry of Energy

Energy Minister George Smitherman signed the $ 9.7 billion deal with the Korean Consortium – Samsung – for industrial wind turbines and solar projects, BUT no due diligence – no business plan, no input from the Ontario Power Authority or the Ontario Energy Board and more importantly – no vote by the citizens of this province. (Read the Auditor General’s Report on Renewable Energy – 2011)

This deal was untendered and sole-sourced to the consortium led by Samsung. The consortium was guaranteed rates of 13.5 cents per KWH for wind power and 44.3 cents per KWH for solar power regardless of market conditions. The deal is structured with priority access to the grid and incentives of $437 million to be paid to the Consortium over the 25 year life of the deal. The cost is included in the Global Adjustment portion of the consumers’ bills.

This is the third scandal that is directly attributed to George Smitherman – EHealth and ORNGE both occurred when he was Minister of Health.

#5 Debt Retirement Charge on Hydro   2002 – 2014 – Ministry of Energy – $7.6 Billion – $15.6 Billion in interest charges.

In 2002 the residual stranded debt from the restructuring of hydro was $7.8 billion. The Electricity Act, 1998 authorized a new Debt Retirement Charge (DRC) to be paid by electricity ratepayers until the residual stranded debt was retired.

Collection of the DRC began on May 1, 2002. The rate was established at 0.7 cents per kilowatt hour (kWh) of electricity and remains the same today. Currently, the Ontario Electricity Financial Corp. (OEFC)   collects approximately $950 million a year in DRC revenue. As of March 31, 2014, approximately $11.5 billion in DRC revenue had been collected. The 2013 Ontario Economic Outlook and Fiscal Review reported $3.9 billion of residual stranded debt still owing as of March 31, 2013.

Energy Minister Bob Chiarelli announced that the debt retirement charge will be removed from residential consumers’ electricity bills on Jan. 1, 2016 but non-residential electricity users, including large industries, will still have to pay the debt retirement charge until 2018. So over 12 years consumers paid $11.5 billion but only reduced this debt by $3.9 billion!

The Province has earned .67 cents for every dollar they borrowed to acquire OPG and Hydro One but the consumers pay the interest carrying costs so pay $3.00 for every $1.00 of the “stranded debt reduction”. This creative financing means that the Finance Ministry will collect $23.4 Billion from the ratepayers to pay the original residual stranded debt of $7.8 Billion.

#6 Infrastructure Ontario – $8 billion

In the Auditor General’s Report – 2014, Bonnie Lysyk was critical of the way Alternative Financing and Procurement [AFP], otherwise known as PPP (public private partnerships) was measured. The report suggests that Infrastructure Ontario (IO) overspent, costing taxpayers $8 billion in tangible costs. The following is an excerpt from the report:

“For 74 infrastructure projects (either completed or under way) where Infrastructure Ontario concluded that private-sector project delivery (under the Alternative Financing and Procurement [AFP] approach) would be more cost effective, we noted that the tangible costs (such as construction, financing, legal services, engineering services and project management services) were estimated to be nearly $8 billion higher than they were estimated to be if the projects were contracted out and managed by the public sector.”

According to the March 31, 2014 annual report IO has $4.8 billion in outstanding Loans Receivables with $1.6 billion of those having terms over 20 years. The “Loan valuation allowance” or what a bank calls “allowance for bad debts” is a meager $11 million and presumably does not include any allowance against the MaRS debt of $215 million.

The IO’s website delivers little information on those loans -“Since 2003, Infrastructure Ontario’s Loan Program has supported the development of more than $9.4 billion in local infrastructure projects – from the construction of roads, bridges, arena complexes, and long-term care homes to the acquisition and installation of capital assets like fire trucks, smart meters and energy efficient lighting.”

The IO March 31, 2014 annual report indicates Loans to “Local Distribution Corps” are $241 million (smart meters, etc) and “Loans to Power Generators” $120 million with $28 million lent to “District Energy”. The latter loans are classified by IO as “Tier 3” risks which they note are: “Tier three borrowers are organizations dependent on self-generated revenues either by market-set prices or donations and fundraising.” Considering the MaRS loan has a better loan classification (Tier 2) more public information is needed on lesser Tier 3 grade loans.

#7. The Ontario Lottery and Gaming Corporation (OLG) – $4.3 Billion

The Ontario Lottery and Gaming Corporation (OLG) scandal certainly made headlines in 2011. This dysfunctional crown corporation was the subject of damning reviews by the Ontario Ombudsman and the Ontario Auditor General and was plagued with scandals ranging from expense abuse to insider wins. Estimates in excess of $4.3 billion misplaced or misspent have been reported.

Millions of dollars, originally intended to stimulate Ontario’s economy were wasted on gym memberships, liquor tabs and car detailing. Many OLG executives, earning salaries in excess of $200,000, used taxpayer dollars to buy clothes, golf club memberships, and expensive dinners.

PARTS 8-12 TO BE CONTINUED, NEXT MONTH’S EDITION.

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