October 6th, 2015

Government must explain unbudgeted $2.6 billion cash payment to Hydro One: Tabuns

The government needs to explain exactly how it will account for an unbudgeted $2.6 billion cash payment to Hydro One to pay its tax bill after privatization, said NDP energy critic Peter Tabuns today.

“This means there will be $2.6 billion less cash available for things like infrastructure,” said Tabuns. “Why is the government spending the transit money on an unbudgeted $2.6 billion tax break for Hydro One’s new private owners?”

The expense was not accounted for in the budget, but was quietly announced in a supplemental estimate on September 24. The $2.6 billion cash payment will flow to the Ontario Electricity Financial Corporation (OEFC), which by law must use the cash to service the old Ontario Hydro debt, which was still over $25 billion as of March 31, 2015.

In return, according to the Hydro One prospectus, the government will receive $2.6 billion in Hydro One shares. However, the government already owns 100% of the shares of Hydro One, and its ownership is obviously decreasing with privatization. If the government intends to claim revenues based on a revaluation of its remaining Hydro One ownership, these revenues will exist only on paper, and the government has not explained how they can be used to pay bills.

“The minister says this transaction is ‘fiscally neutral.’ It looks like an accounting trick to me,” said Tabuns. “$2.6 billion in real cash is leaving the treasury to pay off hydro bondholders. In return, the government will get $2.6 billion worth of shares in a company that the province already owns 100% of. How can this be ‘fiscally neutral’?”

When more than 10% is sold off, Hydro One will no longer be a public utility and will no longer make “payments-in-lieu” to the OEFC to pay down the hydro debt. In order to replace these future revenues and avoid defaulting on the debt, the government requires Hydro One to pay a $2.6 billion Departure Tax to the OEFC. The government has agreed to pay this tax on Hydro One’s behalf.

While the provincial government will eventually recover some of this cash in the form of future provincial corporate income taxes, $2.6 billion in cash will leave the treasury immediately, and will no longer be available for paying budgeted expenses like transit. The cash will be gone, and the government has not explained exactly what will replace it.

“The Liberal government has a history of playing accounting games with the OEFC and the hydro debt, and electricity ratepayers have paid the price” said Tabuns. “The government needs to properly explain how it will account for this unbudgeted $2.6 billion expense and replace this cash.”