(February 3, 2012) In the past eight years, the Ontario Liberal Party have done their best to kill off the golden goose by strangling the public sector owned utility companies.
In the six (6) years leading to December 31, 2010 the Provincial Treasury received almost $7 billion dollars from OPG, Hydro One and the 80 or so local distribution companies (LDC). The $7 billion is additional to the debt retirement charge (DRC) and the HST.
The push to provide guaranteed subsidies to wind and solar developers however is putting that contribution at risk as is the reduction in corporate tax rates.
The $7 billion the provincial treasury received came from four different sources which are declining. As an example “payments in lieu” of taxes (PIL) from LDCs’ contributed almost $1.3 billion in the last 6 years but are in decline as corporate tax rates were reduced. In 2007 contributions from LDCs were $249 million but by December 31, 2010 they dropped to $106 million while profits were up by $69 million.
Another $2 billion was paid by OPG for “water rental”. OPG pay a fuel cost when they use water to generate hydroelectric power and those have been in excess of $300 million for each of the last 6 years. OPG would pay the treasury more if they were not forced to spill water when the Independent Electric System Operator tell them to do so. This happens when wind is producing power that isn’t needed because demand is low and particularly evident during the Spring freshet and at night when demand for power is low. More wind generation fed into the grid will drive down the OPG payments for fuel. Water fuel payment declines will also show up in the eventual cost of production from Big Becky and the Mattagami expansion whose capital costs are in excess of $4 billion.
Yet another source of revenue for the province are dividend payments from Hydro One; contributing in excess of $1.7 billion to the provincial treasury in the last 6 years. Dividends paid in 2006 by Hydro One were $350 million but $55 million in 2010. Hydro One must build new transmission facilities to hook up renewables to the grid constraining their ability to pay dividends as noted in a prior article.
OPG and Hydro One collectively paid about $1.5 billion in PIL to the provincial treasury over 6 years. 2006 PIL payments were $436 million by them but by 2010 were negative $4 million. Future payments are in jeopardy unless the Ontario Energy Board approves large rate increases that allow both to maintain their profit margins but PIL payments will be less due to lower tax rates.
In 2006 the contribution to the provincial treasury was $1.2 billion from the four sources identified above and by 2010 contributions had fallen to $475 million. The renewables push will result in further erosion to these revenue sources despite the cost of electricity climbing to much higher levels.
The Liberal plan appears to be; kill the golden goose and serve the Pâté de Foie Gras to the wind and solar developers!