If Ontario doesn’t rewrite the renewable contracts, virtually everyone in the province will suffer.
This article originally appeared in the Financial Post.
Ontario was once the engine of the Canadian economy, a Triple-A-rated powerhouse commanding more than 40 per cent of the country’s GDP. Today this once-proud place is a have-not province whose credit rating is near the bottom of the pack, a loser that collects subsidies from the rest of the country.
Ontario lost its lustrous Triple-A credit rating when Ontario Hydro went out of control, ending the province’s low-price advantage, making industry uncompetitive and sinking the province in a morass of debt.
Ontario’s credit rating then continued to sink, in tandem with continuing boondoggles in the energy sector that now leave Ontario the world’s most indebted sub-national jurisdiction. According to a 2012 MacDonald-Laurier Institute study by Marc Joffe, a former senior director at Moody’s Analytics, the province’s likelihood of defaulting over the next two decades is 43 per cent.
But there is a way to reverse Ontario’s downward spiral, likely the only way that avoids a painful and protracted retrenchment — by righting the province’s power sector, the biggest cause by far of its ruin. And there’s only one way to right the power sector — by rethinking Ontario’s Green Energy Act and rewriting the ruinous contracts that are responsible for most of Ontario’s power woes.
According to Bonnie Lysyk, Ontario’s auditor general, Ontarians paid $37 billion above the market price for electricity over the past eight years, and face an additional $133-billion overpayment by 2032. Industry and wealth-creation as a result are fleeing the province in what could become a death spiral — the more that industry leaves, in the process depriving the provincial treasury of tax revenues and the power system of sales revenues, the more that Ontario must make up the shortfalls by increasing taxes and rates on those who remain, which in turn convinces others to leave. According to an Ontario Chamber of Commerce report last year, soaring power bills are expected to shut down one in 20 businesses by 2020. Those that remain will simply avoid investing in Ontario — 40 per cent admit to having already done so. With Ontario now burdened with the continent’s highest electricity rates, and with the doubling of rates to date for most industrial customers on track to become a tripling, businesses can’t go wrong by looking elsewhere.
To temper its spiraling power costs, the Ontario government is waiving HST and otherwise subsidizing power rates with tax dollars. But these measures — which increase the provincial debt — will only act to further weaken the provincial credit rating. Some suggest buying out the job-killing renewables contracts or cancelling them with compensation. But the borrowing costs involved— a lion’s share of the $133-billion overpayment that the auditor general identified — would tank the provincial credit rating and jeopardize the economy.
The government’s current direction is unsustainable. But it can change direction by admitting its mistakes, rewriting the ruinous contracts it entered into and clawing back the overpayments, which amount to several times the fair market price for their power.
Once Ontario industry is able to pay a competitive price for its power, industry will stay and expand in Ontario and the province will collect ever-increasing revenues from both employers and employees. With the province in recovery, its downward credit rating will reverse itself, rather than continuing a slide to the default that credit rating agencies like Standard & Poor’s now view as thinkable.
Can a province unilaterally rewrite a contract that it entered into? As every one of the multinationals who entered into one of those obscenely rich renewables contracts with Ontario surely knew, the Ontario legislature has — as every legislature does — not only the power to rewrite contracts whenever it feels so justified, but has done so numerous times over its history.
After the Ontario legislature rewrote a contract between government-owned Hydro One and its CEO, Eleanor Clitheroe, firing her and denying her much of the pension she had negotiated, Clitheroe sued her former employer.
In a 2009 decision, the court denied her demand to have her contract honoured, beginning its Reasons for Decision by reiterating the rules of the game: “In short, the Legislature within its jurisdiction can do everything that is not naturally impossible, and is restrained by no rule human or divine … there would be no necessity for compensation to be given.”
The 2009 decision was citing a century-old suit brought by the Florence Mining Co. that the Ontario Court of Appeal unanimously dismissed. Since then, the right of the legislature to unilaterally rewrite contracts has often been tested and always been upheld. When Clitheroe in 2010 asked the Supreme Court of Canada for permission to appeal the lower court’s ruling, the Supreme Court dismissed her request.
If Ontario doesn’t rewrite the renewables contracts, virtually everyone in the province will suffer, now and well into the future, with the victims especially being those least able to afford the costs. If Ontario does rewrite them, the bleeding will stop and the ones to suffer, fittingly, will be those who knowingly took the risks of deals that were too good to be true.
Lawrence Solomon is executive director of Energy Probe. LawrenceSolomon@nextcity.com