Terence Corcoran
National Post
July 27, 2002

The Eves government of Ontario, in an obvious attempt to humiliate one of its own corporate appointees, had no trouble digging up and releasing details of Eleanor Clitheroe’s compensation as CEO of Hydro One. At this rate, we should all soon be reviewing Ms. Clitheroe’s expense account chits and tax returns. Which is all great political sport if you’re in the business of trying to convert policy disasters into victories.

If only the government could bring the same push for disclosure to its key electricity structures. While everybody in the province is marvelling over the cost of Ms. Clitheroe’s limos and club memberships, nobody is paying attention to the Enron-like black hole created by the government’s bizarre break-up of the old monopoly, Ontario Hydro. Off-balance sheet, restatements, no reports – you name it, Ontario’s power market has it.

The financial centre of this business is Ontario Electricity Financial Corp., an off-balance sheet vehicle the province used to shuffle off $19.4-billion in debt left over when Ontario Hydro slipped into de facto bankruptcy. OEFC is required by law to file an annual report "within 90 days after the end of every fiscal year." The year ended March 31, which means OEFC has been in breach of the law since July 1.

Oh well. No problem. The Ontario Securities Commission has no jurisdiction; and, anyway, it’s busy chasing phantom accounting scams in the private sector. Imagine if Nortel were to simply decide not to issue statements as required by law.

Even when OEFC’s annual report is released sometime in the undetermined future, it would take Al Rosen six months’ worth of billing to unravel the mysterious items and trace the ebb and flow of cash and notes between the government and the various parts of the province’s electricity industry. One thing appears certain, however. Debt that was supposed to be going down over the last few years has gone up, possibly to much more than $20-billion. It hit $20.3-billion in March of 2000, after $447-million in "adjustments" to earlier figures.

The debt is going up because the province has failed to carry out key market reforms, and even when it had a reform underway – privatizing Hydro One – it pulled the plug. By killing the privatization and staging a high-profile humiliation of Hydro One’s board and top executives, the government has left Ontario taxpayers open to bigger liabilities.

Selling Hydro One would have generated up to $6-billion, which would have gone to pay down the debt. But now the province says it will only sell up to 49% of Hydro One, which in the post-purge environment is unlikely to fetch as much money. The new buyer or buyers would be looking at investing in a decapitated company, likely filled with demoralized managers, with an erratic Eves government holding on to 51% control.

Even Ontario’s fat-cat pension funds, more tolerant of government than some other investors, are going to be looking hard at the prospect of getting into the same bed with people who change policies and personalities whenever the political winds shift. Another possible buyer is the big British power transmission giant, National Grid. It already owns transmission firms in the United States, and would probably like to tuck Hydro One into its portfolio, spreading its risk around nicely. What a grim irony that would be: Ontario sells its grid company to a British firm Margaret Thatcher privatized a decade ago. Because we can’t or won’t do it ourselves, we have to bring in foreigners.

Among many policy gaffs, the biggest is the failure to introduce competition to generation. With much fanfare, the province introduced retail market deregulation earlier this year, But there’s no competition in the supply of power. Ontario Power Generation (OPG), created out of the generating assets of Ontario Hydro, virtually controls the market. Its only real competition are nuclear facilities bought by British Energy, but it only sells base load power that doesn’t figure in the daily business of setting prices. And, thanks in large part to the policy collapse, there are no signs the private sector is ready to invest big dollars to supply the province with new power plants.

OPG, despite its market power, is struggling to keep its head above water. Its biggest assets, nuclear power plants, are sucking up vast sums of money. A refit of major Pickering nuclear units was supposed to cost $800-million and start pumping out power three months ago. Tom Adams of Energy Probe says the best guess right now is that the units will begin production early next year, with the cost rising to $2-billion. Others say the final cost will be even higher. Worse, Pickering’s return to full production won’t occur until 2005, about three years behind schedule.

Any day now, somebody is going to have to blow the whistle on the growing mess. The most likely whistleblower is the Independent Market Operator. It oversees the overall market and determines long-term supply and demand needs. With demand growing and supply frozen due to government bungling, it’s only a matter of time before the IMO is forced to declare a possible crisis.

The lights are still on in Ontario, but the Conservative government’s mishandling of electricity deregulation puts Ontario at greater risk of a dark future.