Paul Vieira
National Post
November 13, 2002

John Baird, left, Ontario’s Minister for Energy, talks with Niagara MPP Bart Maves in Niagara Falls, Ont., yesterday after announcing a plan to boost electricity supply by expanding a generating plant. Credit: Kevin Frayer, The Canadian Press

NIAGARA FALLS – The debt ratings of Ontario utilities were put under review yesterday and a leading brokerage called the province’s decision to impose a price cap on electricity for consumers "A Comedy in Three Acts."

Business leaders were strongly condemning the price cap yesterday, even as John Baird, the Nepean-Carleton MPP and Energy Minister, attempted to lure power producers to the province with new tax breaks.

Industry observers were quick to attack Mr. Baird’s announcement of measures to encourage investment and add much-needed supply to the province’s $10-billion electricity sector.

Plans to allow a Crown-owned utility to pursue two new projects came in for particular criticism, with critics saying it signals a dangerous return to the debt-ridden Ontario Hydro monopoly.

Dominion Bond Rating Service placed the debt ratings of 11 utilities – including the provincially owned Ontario Power Generation Inc. (OPG) and Hydro One – under review with "negative implications."

"The proposed plan, as it currently stands, could have significant negative implications on the financial profiles of these companies," the credit rating firm said. "The plan highlights the high degree of political intervention that exists."

If the utilities’ ratings are downgraded, their cost of borrowing money would increase and the added costs may be passed on to consumers.

In a scathing report titled "A Comedy in Three Acts," BMO Nesbitt Burns described the province’s move to cap prices as "politically motivated," adding it "fails to address the real issues: inadequate supply and unmitigated demand."

"The plan perpetuates the subsidization of electric power rates, this time [potentially] by the taxpayer and municipalities," the brokerage said in its report about the gas and electricity sector.

The cap, at 4.3 cents a kilowatt hour (KwH), is retroactive to May 1. The government has promised to refund consumers the difference between what they have paid since that date and what they would have paid under the capped rate. The province will also make up the difference if the spot price for power exceeds 4.3 cents.

Mr. Baird during an interview yesterday said the government can afford to impose a cap because it expects to bank money at times when the spot price is below 4.3 cents KwH; OPG will be required to set aside revenue and it hopes new plants will come on stream to help drive the price below 4.3 cents KwH.

The Minister tried to persuade producers to bring new plants on line by offering "comprehensive" tax holidays and 100% asset writeoffs. Mr. Baird could not say how much the tax breaks will cost Ontarians and industry observers say the relief will have little or no impact.

"If someone asked me about investing in Ontario [electricity], I would tell them to stick their money in the bank or other places, because the situation in Ontario is full of uncertainty," said Donald Macdonald, a former federal Liberal finance minister and the author of a report that served as a template for Ontario’s attempt at deregulation.

But yesterday’s announcement means the utility is set to get bigger. "This marks the return of Ontario Hydro," said Tom Adams, of the watchdog group Energy Probe.

"These are all old Ontario Hydro projects that are being brushed off and brought forward as if they are some kind of solution to the problem."

The Minister said he asked OPG to pursue two projects – an expansion of its Beck hydroelectric facility in Niagara Falls and the rehabilitation of the gas-fired Hearn plant on Toronto’s waterfront.