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March 20, 2013 - Vol. 2 No. 28

Behind the Gas Power Plant Scandal

The Need to Restrict Monopoly Right

Behind the Gas Power Plant Scandal
The Need to Restrict Monopoly Right - Jim Nugent 

Review of Local Electricity Distribution Companies
Panel Recommends New Arrangements to Overthrow Public Control and Serve Private Interests - Rob Woodhouse 

Behind the Gas Power Plant Scandal

The Need to Restrict Monopoly Right

The first order of business for the Conservatives and the NDP in the new session of the Ontario Legislature was to revive the electricity sector corruption scandal that had overwhelmed the ruling Liberals in the previous session. The opposition parties voted to restore the legislative committee investigating the cost to the public treasury of the Liberal government cancelling contracts for two privately operated gas-fired electricity plants. They have also called for a public inquiry into the whole affair.

The opposition parties are taking full partisan advantage of revelations about how dirty the Liberals' hands are, but a serious inquiry into the electricity sector would reveal that none of the cartel parties sitting in the Legislature has clean hands. All three parties in the Legislature share responsibility for pushing Ontario's once publicly owned electricity system towards privatization. Privatization of the multi-billion dollar electricity sector made corruption by the ruling party not only possible but also inevitable.

Privatization of Electricity Sector an All-Party Project

The role of the Conservatives in betraying the public interest and their own thievery in the electricity sector is fairly well known. The Harris Conservatives dismantled Ontario Hydro and sold off Ontario's most important public electricity asset, the Bruce Nuclear Generating Station. Harris sold Bruce, which produces one quarter of Ontario's electricity, to a group of global monopolies at a bargain basement price in a last minute sale just before leaving office. The current Conservative leader Tim Hudak is calling for more privatization and deregulation of the electricity sector, including the privatization of transmission and local distribution.

Not so well known is the role of the NDP in the betrayal of the public interest in the electric power sector. Privatization of the electricity sector started when the Bob Rae NDP government appointed Maurice Strong as head of Ontario Hydro. Strong, who was a chieftain of Power Corporation and the Desmarais group, began the process of dismantling Ontario Hydro that Harris then completed. Currently, Floyd Laughren, who was the Finance Minister and Deputy Premier in the Rae government, sits on a commission appointed by the McGuinty government in 2012 to facilitate the privatization of the local electricity distribution system.

Politicizing Private Interests

The focus of the Conservatives and the NDP in the Liberal gas plant corruption scandal has been to get access to secret contract documents so they can calculate the cost of the contract cancellation, which they estimate to be $1 billion. But more important than the exact amount of the public cost are the revelations in the scandal about how political processes in Ontario have degenerated.

Before the Legislature was prorogued, leading Liberals made the astounding admission that the decision to cancel the contracts was made by the Liberal Campaign Team for the 2011 election to save the seats of Liberal MPPs in ridings west of Toronto. This shameless admission reveals that the public purse has been turned into the private property of the party in power for its own use and benefit, with the public interest not even a remote consideration. It is this kind of politicization of private interests that has characterized the entire push for private investment in the previously publicly owned electricity sector and enabled the looting of tens of billions of dollars by monopolies aligned with one or another of the cartel parties. Harris and his gang of thieves enabled the monopolies they were aligned with to loot Bruce Nuclear and other public assets. When the McGuinty Liberals became the ruling party, they too put the entire government at the disposal of specific monopolies aligned with them for looting the electricity sector.

Green Energy and Clean Energy Frauds

Initiatives in the electricity sector have been aggressively pursued by the Liberals since they came to power in 2003 and all of these initiatives are at least as rotten as the theft of Bruce Nuclear organized by Harris. The Liberals were more careful than the Conservatives though, and branded their thievery as "progressive" by disguising privatization as "green energy" and "clean energy" initiatives. There are many examples, but the deal McGuinty made to hand over $7 billion to Samsung and Siemens as "incentives" for wind power stands out. Liberal privatization initiatives have had the same outcome as those of Harris, which was to hang tens of billions in capital costs and equity ownership payments to energy monopolies around the necks of working people in the form of huge increases in electricity rates.

They have also weakened the Ontario economy. The McGuinty Liberals organized $27 billion of private sector investment in the electricity sector since 2005 by closing down and destroying publicly owned coal-fired generating plants and replacing them with privately owned gas-fired plants and renewable energy projects. The Liberals are continuing their scheming to complete the privatization of electricity generation and have begun the process of opening up the publicly owned transmission and local distribution systems to private investors. Arrangements concerning these investments in the Liberal green energy and clean energy frauds were all worked out in secret directly between the Premier's office and global monopolies. They included secret power purchase agreements providing government guaranteed profits.

The arrangements were all worked out by political staff and implemented by ministerial decree without any professional planning or parliamentary oversight. How could there be any other outcome than corruption and scandal from this cozy arrangement the Liberals created for politicizing the private interests they are aligned with? The decisions on cancellation of the contracts for the Mississauga and Oakville gas plants were treated as personal, private matters by the Liberal chieftains but this was just business as usual.

New Liberal Leaders at Centre of Corruption Scandal

The Liberals hoped to turn the page on the electricity scandal following the resignation of McGuinty, former Finance Minister Dwight Duncan, former Energy Minister Chris Bentley and others. But the Liberals are in difficulty because most of the leading Liberals are deeply involved in the corruption scandal. This includes the new leaders of the Liberal government, Premier Kathleen Wynne and her appointee as finance minister, Charles Sousa, who it turns out are both at the centre of the scandal.

Wynne was the co-chair of the Liberal campaign team for the 2011 election that made the self-serving partisan decision to cancel the contracts for gas power plants in Mississauga and Oakville. Her pathetic defence strains belief: "I was not part of any meetings on the decision to move the gas plant. I was part of the Campaign Team, but I was not in any of those meetings."

As for Finance Minister Sousa, who is also MPP for Mississauga South, he is the leading man in the sordid gas plant saga. The gas plant location problem originated in a side deal that Sousa cooked up with Mississauga land developers and tacked onto the McGuinty government's clean energy fraud. The Sousa side deal involved private development of public land on the site of the Lakeview Generating Station that had been closed and torn down as part of the off-coal project. In this bonanza for the developers, 250 acres of priceless, prime Mississauga lakefront property owned by the Ontario government would be rehabilitated and handed over to Mississauga property developers for a high density residential and commercial development.

The Ontario Power Authority (OPA) had decided to put a gas-fired generator on the Lakeview Site to replace the urgently needed electric generating capacity lost when the huge Lakeview plant was closed. Sousa and his allies in the McGuinty cabinet intervened to have the OPA cancel its plans for the Lakeview site so Sousa's development scheme could go ahead -- the first politically motivated gas power plant cancellation. The OPA later signed contracts for power plants elsewhere in Mississauga and in Oakville to replace the cancelled Lakeview gas plant. These contracts were later cancelled at a huge public cost based on the decision by the Liberal Campaign Team to protect the seats of Sousa and other Liberal MPPs in the ridings west of Toronto where public opposition to the plants being built near residential areas was strong and bound to be an election issue.

Restrict Monopoly Right

The ruling Liberals must be called to account for their gross betrayal of the public interest in the electricity sector in the past and for their determination to complete the opening up of this sector to global monopolies. The gas plant scandal has further revealed the arrogant abuse of power by the Liberals and the layer upon layer of corruption built into their privatization and other pay-the-rich schemes. The scandal has also revealed that the situation cannot be turned around through the archaic political arrangements in the Legislature or through the self-serving competition among the cartel political parties for dominance. The working class needs its own independent political forces to work out a way forward for protecting the public interest that includes restricting the operations of global monopolies in key sectors of the economy and ensuring that governments implement this way forward.

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Review of Local Electricity Distribution Companies

Panel Recommends New Arrangements to Overthrow Public Control and Serve Private Interests

The Liberal government is pushing on with its project of opening more and more of Ontario's electricity system to private investors. After having converted most of thermal electricity generation from public to private ownership and operation, the government is now turning its attention to opening up the publicly owned local electrical distribution companies (LDCs) to private sector investors.

The electricity distribution system is made up of municipally-owned enterprises in the built-up areas and distribution by the provincially-owned Hydro One in the rural areas. The process of opening electricity distribution to private investment began with the recommendations of the Drummond Commission which called for consolidating Ontario's 80 LDCs into a few larger enterprises and removing barriers to private investment. In April 2012 former premier Dalton McGuinty followed this up by appointing the Ontario Distribution Sector Review Panel to study how Drummond's recommendations could be implemented.[1]

The review panel held what it called stakeholder consultation sessions over the summer and delivered a report to the government in December. Individuals and organizations were allowed to make submissions to the review panel. This process covered the legalities around "duty to consult" but the key decisions local electricity distribution had already been made -- the decision to consolidate LDCs and the decision to open up LDCs to private investment.

The main conclusion the review panel came up with was that the electrical distribution sector will be plunged into a crisis without a massive infusion of investment from the private sector. The review panel's report says action is urgently needed on removing legal barriers to private investment and on making LDCs more attractive to investors by changing their geographic operational boundaries and governance structures.

Reorganization of Local Distribution Companies

The report says that to attract and sustain large-scale investment a distribution enterprise needs a minimum of 400,000 electricity ratepayers each and revenue streams of $1 billion a year. To achieve this, the panel recommends amalgamating all the LDCs in Northern Ontario into two regional enterprises and merging those in southern Ontario into six to egiht regional systems. Municipally-owned LDCs in each region would pool their assets in new regional enterprises and municipalities would become equity shareholders in the new enterprises based on asset contributions. Hydro One, which distributes electricity in all of the areas between municipalities and in some municipalities, would also have to pool its assets into these regional distribution companies. This may effectively eliminate Hydro One as an operational entity in the local distribution system.[2]

A key change called for in the report would permit the overthrow of public ownership in the distribution sector. The panel says the government should eliminate a transfer tax levy which has the effect of limiting private investment in LDCs to 10 per cent of equity. Under current law, a publicly owned LDC can freely merge with another publicly owned LDC, but if a LDC's ownership is transferred to a privately owned company, a transfer tax amounting to 33 per cent of the LDC's assets is levied. The 33 per cent tax is also levied if private ownership of a LDC exceeds 10 per cent. The report says LDCs should be allowed to "operate just like any other company in Ontario." The new regional distribution companies could sell equity shares and raise capital through the bond and other capital markets.

The report says that pension funds would be a likely source of new investment and that this would be good for the electricity system, the economy and the pension plans. The suggestion is that pension equity in LDCs would give them a kind of quasi public ownership and keep wealth in the economy. However, if pension plans bought equity shares or bonds of a LDC, either on their own or as part of a financial consortium, the pension plans would be able to resell them later on capital markets as they saw fit. As well, under existing pension fund arrangements, thousands of threads connect pension plans to the international financial oligarchy and enable the oligarchs to drain value from funds and from the host enterprises and economies.

Changes are also recommended in the governance structure of LDCs. These enterprises were at one time elected commissions in many municipalities -- known then as Public Utility Commissions (PUCs). The Harris government forced the PUCs to adopt corporate structures which turned the PUCs into corporations with the municipality as the "shareholder." However, despite this forced corporatization, most local distribution companies still have a board of directors which include elected members of city or town council sitting as directors.

The Liberal plan for LDC consolidation would complete the corporatization started by the Harris Conservatives and end any semblance of democratic local control. In the name of inspiring private investor confidence, the review panel recommends requiring the new regional distribution companies to have what are called "independent" directors. This means directors with a thoroughgoing capital-centred outlook who are appointed from the usual rogues gallery -- bank and insurance company executives, corporate lawyers and accountants and one or two ex-politicians or rich celebrities.

Amalgamation is presented as "voluntary" process in the review panel report but for the Liberals "voluntary" compliance is always backed up by the threat of legislation. The review panel calls for a two-year transition period for voluntary mergers of adjacent LDCs, during which there will be financial incentives for those complying quickly and financial penalties for slow compliance. But, the report says if consolidation "cannot be completed through voluntary means, the Panel recommends that the government introduce legislation at that time to ensure consolidation is successfully completed."

The panel also recommended a two year suspension of reviews of mergers and ownership changes by the Ontario Energy Board (OEB). The OEB is currently required to assess if mergers or changes in ownership of LDCs are in the public interest. The panel recommends passing legislation which "deems" that mergers and ownership changes carried out in the transitional period are the public interests.

A recommendation is made for eliminating the provincial rate subsidy for hard to serve rural electricity customers, the Rural or Remote Rate Protection (RRRP) benefit of $28.50 a month. The panel recommends removing this benefit except for Hydro One customers in Northern Ontario. In southern Ontario electricity rates of rural and urban customers within each regional LDC will be averaged and no RRRP will apply. Removing the subsidy for hard to serve customers of the regional distribution company and then averaging the rates will result in increased rates for both the rural and urban customers in the region.

Investment in Electricity Distribution Infrastructure -- Who Would Benefit?

The driving wheel of the review panel recommendations is its authors' assertion that there is a compelling need for attracting a massive amount of private capital investment to the distribution sector for modernization. "Utilities will need billions of dollars in additional investment to transform themselves into modern LDCs that use up-to-date technology and offer higher levels of service to their customer.... The investment needed to transform the province's current electricity distribution system into one that uses modern technology to provide new customer services will cost billions of dollars," the report says.

The review panel report cites a 2011 study by the Conference Board of Canada (CBoC) to back up its assertions about the level of investment needed in the distribution sector. The CBoC study says Ontario LDCs will have to invest $20.6 billion in the electricity distribution system over the next 20 years. In addition, the CBoC study says, massive investments will be necessary to support decentralized electricity production, establishing Smart Grid technology and preparing for the mass introduction of electric cars.

A number of questions arise from the approach of the review panel to investment in the distribution system. Why does the panel say the investments it claims are required in the distribution sector need to be private investment? The Ontario Energy Board's rate structure currently recognizes the going rate of return on equity at about 12 per cent. Why is the panel proposing to allow such a large claim to be made on the system?

If it is true that investment is required in the sector to increase wealth in the economy, why should this investment not be made by the sector's public enterprises and the government? Why should the publicly owned electricity enterprises not make the investments and take a return on investment from the wealth created? Why permit private investor/owners to extract ownership equity profits from the wealth created? How will this parasitism improve the situation for electricity ratepayers, the workers in the sector, for municipal and provincial revenues or for the general economy?

Another question arises over the way in which the review panel misrepresents the local electrical distribution system as a system in crisis. Why is the situation presented as one of crisis when the system is working quite well? Who is served by depicting private investors in the role of "saviours" to an allegedly collapsing public enterprise?

The existing system does have some peculiarities resulting from its historical development, such as some LDCs with small customer bases, but ways of managing this situation have also evolved. All of Ontario's LDCs have ongoing investment regimes for replacing equipment according to strict depreciation schedules and for adding capacities according to the normal growth of the customer base. These capital investment programs are covered by the existing regulated rate structure and carried out successfully under current geographical boundaries and governance structures.[3]

There is no crisis in the existing system that needs to be solved. The review panel wants to transform the LDCs so they can attract and sustain massive investment, but the investments are for the wholesale conversion of LDCs to Smart Grid digital technology. When LDCs are converting to digital technology, the report says, "This cannot be done on a simple like-for-like replacement." The report repeatedly talks about the need for modernization which is a completely different issue than a system that is an effective going concern.

The issues around Smart Grid technology need to be looked at in themselves and looked at calmly without misrepresentations about the existing system allegedly being in crisis. A key issue that needs to be looked at with respect to investments in Smart Grid technology is who will enjoy any benefits from the technological innovation. Regardless of whether investment in the technology is public or private investments two questions needs to be addressed. What is the aim and who will benefit?

The CBoC study cited in the panel review report indicates that the pressure for qualitative and quantitative changes to system capacity are coming from decentralized electricity generation produced in widely dispersed private sector power plants and from potential for the development of electric car manufacturing, A additional pressure not listed by the CBoC is pressure coming from intensified real estate development and redevelopment which are greatly increasing urban densities.

Pressure for Smart Grid technology is coming from very specific private interests. Who will ensure that these private interests are not permitted to make hidden claims on all wealth which may be created in the economy by renovation of the electricity infrastructure? Will these private interests be allowed to take increased profits from the increased productivity of the economy without putting anything back in? Will private interests claim all the benefits of the technological innovation while electricity ratepayers have Smart Grid technology hung around their necks as a "cost"?


1. To create the appearance of an "all-party consensus" former premier McGuinty appointed a three man commission made up of former MPPs from each of the parties with seats in the Legislature -- former Liberal MPP Murray Elston (Chair), former Conservative MPP David McFadden and former NDP MPP Floyd Laughren. This panel was hopelessly compromised by conflict of interest. Elston and McFadden have for many years been on the payrolls of monopolies with interests in privatized electricity. Laughren was Finance Minister and Deputy Premier of the Bob Rae government which initiated the privatization of Ontario Hydro.
2. Hydro One would still own and operate almost 100 per cent of the high voltage transmissions system. However, power transmission is also coming under pressure of privatization. The government has issued a call for proposals for private ownership investment in the construction and operation of transmission powerlines.
3. The equilibrium of this investment regime has been destabilized by recent Ontario Energy Board decisions. Both Toronto Hydro and Ensource (the Mississauga LDC) have had their latest scheduled equipment replacements disrupted by rejection of their capital plans by the OEB.

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