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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
- Jim Nugent -
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.
Review of
Local Electricity Distribution Companies
Panel Recommends New Arrangements to Overthrow Public
Control and Serve Private Interests
- Rob Woodhouse -
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"?
Note
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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