Paul Waldie
Globe and Mail
November 14, 2002

The Ontario government will have to raise taxes or cut spending by more than $800-million to pay for its planned rebate to power customers, a new analysis shows.

Premier Ernie Eves has said the government’s plan to freeze power prices to 2006 and rebate consumers retroactively will be covered from money set aside by Ontario Power Generation in a consumer-protection fund. He has insisted that taxpayers will not be on the hook for the rebate.

However, Bruce Sharp, a senior consultant at Aegent Energy Advisors Inc., which provides research to big energy buyers, says the OPG money won’t be nearly enough.

In a report to be released later this week, Mr. Sharp estimates the rebate will cost the government $1.88-billion by April 30, 2003, the first anniversary of deregulation.

However, OPG will have set aside just $1.05-billion in that period. That leaves an $830-million shortfall.

"Something has got to give," Mr. Sharp said in an interview. "These guys have gone and done exactly the wrong thing."

Mr. Sharp’s calculations are based on market prices and demand figures since the energy market was deregulated on May 1. His estimate of the total rebate includes reimbursements to consumers who bought power under contracts from energy retailers, such as Direct Energy Marketing Ltd. About one million of Ontario’s 4.4 million energy customers signed contracts with retailers.

A spokesman for Energy Minister John Baird was unavailable. This week, Mr. Eves said OPG will have $700-million in the protection fund set up for rebates as of the end of the month and that money will pay for the rebate. OPG officials would not comment on Wednesday.

According to Mr. Sharp’s research, most Ontarians will actually be worse off under the government’s program. If Mr. Eves had done nothing, most residents would have received $231-million of the $1.05-billion set aside by OPG (the remainder would go to energy retailers and businesses).

Under Mr. Eves’s plan, those residents will receive $380-million of the $1.88-billion total (the remainder will go to customers with contracts, retailers and businesses). However, they will also bear most of the cost of the $830-million shortfall through higher taxes or spending cuts. If the shortfall is made up through higher taxes, residents will pay $435-million in new taxes.

In short, Mr. Sharp estimates most Ontarians will end up paying $55-million more in new taxes than they received in rebates.

"It could get worse," he said, noting that the cost of the rebate program is expected to rise along with power prices.

Mr. Eves has frozen power prices at 4.3 cents per kilowatt per hour. Since market deregulation, the price has averaged 5.14 cents. Some analysts expect wholesale prices to reach nearly 6 cents by 2006 even with the addition of two nuclear-power plants that are expected to come back into service next year.

Tom Adams of Energy Probe said Mr. Eves’s plan will financially cripple OPG.

"The government has created so many new liabilities for OPG that OPG will not be solvent on its own. It will need continuing cash injections from taxpayers in order to continue to operate," he said Wednesday.

On Wednesday, Standard & Poor’s rating service placed OPG and all municipal-government-owned utilities on credit watch with negative implications. The agency said that given the government’s price freeze, it is unlikely the utilities will be able to reach the financial results needed to meet current ratings. On Tuesday, Dominion Bond Rating Service Ltd. announced it is reviewing its ratings for OPG and several other power companies for possible downgrade.

With a report from Eric Reguly