Ontario AG vs. Gov’t Electricity Conflict

In her testimony March 21 to the Public Accounts Committee, Ontario’s Auditor General (AG) Bonnie Lysyk issued findings documenting outrageously bad behaviour by the IESO management and board of directors. Since the IESO board is no longer independent, having become simply an extension of the Ministry of Energy — albeit with much higher labour rates — the root of the conflict that at first appears to be between the AG and IESO is actually part of the expanding conflict between the AG and the Ontario government.

The purpose of this post is to summarize the building conflict between the AG and the government and to point at two areas where I think this conflict may move next.

The AG’s most recent findings presented to the committee included:

– Conflicted interests impairing the IESO’s financial reporting
– Failure of the management of IESO and the board to co-operate with the AG
– Errors in the IESO’s accounting resulting in the provincial deficit being understated by $1.356 billion
– Underreported pension liabilities
– Assets of IESO have been pledged as collateral and security against the new stranded debt created by the so-called “Fair Hydro Plan” (which deficit finances a temporary rate reduction), which the IESO has refused to disclose in its financial statements

Ms. Lysyk concluded her prepared remarks by noting, “We think this accounting is bogus.”

Credit to the Globe and Mail’s Matthew McClearn for bringing public attention to the AG’s testimony with this report.

Here is the transcript of the AG’s appearance at the Public Accounts Committee March 21. Here is the submission the AG provided to the committee. March 2018 Letter from AG to Public Accounts Committee members re IESO

Conflict between the AG vs. the government over electricity matters has been building for some time.

In my National Post columns over the years and all over this website including this backgrounder for my most recent academic writing, I have been warning that a major clash is brewing between the AG vs. the government. The recent conflict between the AG vs. IESO was entirely predictable not only in its occurrence but also in its details, particularly the AG’s concerns regarding the Fair Hydro Plan.

I have my criticisms of the AG’s work, which I will turn to in a moment. I pause here only to note that should my criticisms ultimately be borne out, the conflict between the AG vs. the government over electricity accounts will expand very significantly.

In the period from 1997-2008, the AG’s office made sporadic investigations of electricity matters. The most interesting report that was generated during this period addressed the Bruce lease.

2011 marked a turning point. Starting in that year, the AG started what became not just a number of one-off reports, but a coherent narative on electricity matters. The new reports all had the typical little bits of routine mismanagement that you might expect, but a much more important theme developed in the reports. Many of the AG’s findings identified deeper issues of politicized strategy and governance — concealed financial statements, decision making without even any effort at due diligence, experts not consulted while billions of dollars were wasted, phoney justifications for conservation programs where additional billions were (and are) being spent, renewable energy disasters adding tens of billions in net costs some of which arose from switching from competitive procurement to non-competitive procurement, deliberate government lies about the cost of cancelling and relocating the Mississauga and Oakville gas plants, export losses, non-independence and non-professionalism of the IESO and OEB, and on and on.

I am speculating, but it looks to me like the electricity file within the AG’s office started to become a labour of love for some smart folks — more than just a day job. Starting with the 2011 report, the AG’s office has definitely started to develop some internal expertise.

The electricity file is so complicated that of course, the AG made some slips here and there, but in general, my overall assessment is that the work has become outstanding.

Despite the downsizing among the serious press corp, there have been enough folks in the QP press gallery who know enough about the electricity file that they have done a really good job collectively of informing the news-consuming public about the substance of the AG’s findings on electricity. (I still mourn the loss of the reporting of Paul Bliss of CTV. Martin Regg-Cohn is an exception to the overall strength of the QP press corp on electricity topics. Regg-Cohn is often insightful on topics other than electricity but almost always confused when it comes to electricity basics.)

By the time the Fair Hydro Plan Act arrived, the AG was well aware that the government was very fundamentally up to no good with its electricity adventures. The core of the AG’s recent analysis about the IESO is a root and branch attack on the Fair Hydro Plan. While I have disagreements with the AG in some areas of this new work, everything included in AG’s analysis of the Fair Hydro Plan appears to be accurate.

My only criticism of the AG’s Fair Hydro Act analysis is that nowhere in it do I see an analysis of the illegal RPP rates that prevailed from May 1-June 30 2017. I have spent a lot of time in my academic writing and other media shouting about this before, so I won’t dwell again on my disgust for these illegal rates. In the scheme of things, less than a billion dollars was collected under the illegal rates, so the practical significance of the illegal rates is not that big. The primary significance of the illegal rates is that the period of rate history in question proved how deep the rot has penetrated into the admin law and governance structures of the power system, particularly within the OEB and the IESO.

Is anyone out there prepared to bet against the AG expressing concern with the illegal RPP sometime over the next few years? Anyone prepared to bet against some clever litigators pointing to the illegal RPP when the time comes to collect the Fair Hydro Stranded Debt from customers?

The only area where I think the AG is just flat out wrong on electricity (as opposed to “˜on the right track but hasn’t fingered out all the ugly stuff yet’) is by signing off on the books of OEFC every year. OEFC’s largest single asset now is IOUs that ultimately originate from OPG. All of OPG’s major new investments completed in recent years have harmed ratepayers. OPG’s debts are growing like topsy. Whereas Hydro One’s value to OEFC is reported on a market-to-market basis, OPG’s value is based on assets values far beyond their fundamental value. The continued decline in electricity demand in Ontario is a fundamental threat to the long-term capacity of the power system to recover its costs from ratepayers.

When the AG finally turns its attention to OEFC, we’ll discover that our electricity problems are much worse than we thought.

Post Script Apr 2 3pm: Notice that all of OEFC’s debt management plans are now and always have been secret. When the AG gets around to seriously considering what is going on with OEFC, an item to consider will be the history of debt management plans OEFC has operated under and how its actual results have deflected from plan. Should this trail of inquiry be pursued, the inability of OPG to deliver on its intended financial results will be brought into a sharper focus.


  1. The province of Ontario pays the highest hydro rates in the entire country! Our province is highly in debt as well, due to mismanagement of tax payers money that was supposed to help our province, not sell it out from under the people who live here, piece by piece so the government gets the lions share, and the tax payers get shafted!

  2. It is also shameful that KPMG as an independent auditor is not truly executing its mandate or stepping aside by resigning.
    A non government entity would not be allowed to breach such accounting standards. It should be an even higher bar when public funds and trust are involved.

  3. Pingback: Comments on the Globe and Mail's Coverage of the Ontario AG vs. Gov't Electricity Conflict | Tom Adams Energy - ideas for a smarter grid

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