Ontarians likely to foot Hydro bill in billions

But payments should not raise prices, finance ministry says

Toronto Star - July 9, 1998
By Daniel Girard — Queen's Park Bureau

Consumers will likely remain on the hook for billions of dollars in Ontario Hydro debt but the payments are "not expected to push electricity prices higher," the finance ministry says.

However, critics immediately blasted that assessment, saying the "new hydro taxes" will likely translate into higher electricity bills.

In the latest report on the introduction of competition to Ontario's $10-billion electricity industry, Energy Ministry Jim Wilson acknowledged a so-called transition charge may be needed to cover debt not payable by the new companies that will be formed from Hydro.

The utility's debt is about $32 billion.

The primary reason this debt may be unserviceable is that competition may drive the generation price of electricity below current levels, thus reducing the debt-carrying capacity of the new companies," said the report, released yesterday.

NO INCREASES

"(The charge) should not result in electricity prices higher than current levels."

But Liberal energy critic Sean Conway (Renfrew North) called that "a true leap of faith."

"It seems unreasonable to believe that these new hydro taxes are not going to have an impact on rates."

Wilson has said that electricity bills won't rise in order to pay down the utility's debt because such charges already account for about 30 per cent of the costs in consumers' monthly bills. The only difference is that the charge will now appear on the bill, rather than being hidden, he said.

Wilson announced last month that Hydro's near-century monopoly on electricity sales in Ontario will end in 2000. At that time, homeowners and businesses will be able to shop for their power supplier just as they can now for long-distance telephone service.

As the new rules for the competitive market are being designed over the next year or so, the level of Hydro debt will be a dominant issue.

A yet-to-be-determined amount of the debt will be assigned to two of the companies that will be formed from the utility - one for generation, another for transmission and distribution.

(A third company will be created to oversee the market and make sure the lights stay on.)

Over the next few months, Hydro's total debt and other liabilities will be stacked up against the value of the new companies. The amount of debt exceeding the assets is considered stranded - meaning it won't be assigned to the new companies.

REPAYMENT PLAN

It will be paid off via corporate and property taxes from the new companies, the sale of assets or shares from municipal utilities and a transition surcharge to electricity users, suppliers, or both, the report predicts.

But the 36-page document stops short of providing any dollar figures for the value of the new companies, the levels of debt that they could be expected to absorb or the amount taxpayers will be expected to shoulder.

Those things are expected this fall, it said.

The report only noted that estimates on stranded debt range from $10 billion to $30 billion.

Tom Adams of Energy Probe called the report a "very weak document with a lot of gaps" that makes only one thing crystal clear.

"We'll have a tax on electricity ratepayers because of Hydro's historic mistakes."

LONGER PERIOD

David McFadden, an executive with the Toronto Board of Trade and co-chairman of a committee of electricity users and producers, said it's important that the government recognizes most industry members would like to see the stranded debt paid back at a lower rate over a longer period.

Some observers had suggested the debt should be wiped out in three or four years but that would require a higher transition charge than eliminating it over a decade or more, McFadden said.

"Moving too quickly would lead to a rate spike and defeat the purpose (of competition)," McFadden said. "We don't have to rush it."

Visit the Toronto Star newspaper
Toronto View It apartments