Ontario’s Power Trip — The gas bungle: $800M? – by Jan Carr(National Post – November 29, 2012)

The National Post is Canada’s second largest national paper.

Jan Carr is a director on several electricity-sector boards and former chief executive of the Ontario Power Authority.

Cancellation costs could have paid for five recent hospital projects

Decisions to relocate two Ontario electricity generating stations from the Toronto suburbs of Mississauga and Oakville to locations further afield in Sarnia and Lennox were driven by partisan political attempts to win at the polls. The relocations have a cost, however.

The exact costs are unknown, mainly because the provincial government has released only limited amounts of information, despite the highly publicized production of 56,000 pages of documents. The documents cover a period of time prior to the end of 2011, while the deals to relocate the plants were finalized in 2012. With the Ontario legislature prorogued, there are no legal channels to force publication of the final numbers.

The government has announced a $40-million “cost to taxpayers” for relocating the TransCanada Energy (TCE) plant from Oakville to Lennox and a “total cost” of $180-million for relocating the Eastern Power (EP) Mississauga plant to Sarnia. The credibility of these figures was first undermined by the discovery of an additional $10-million paid to EP related to a 1998 dispute over a different power plant contract. The long settlement delay indicates that the unannounced $10-million was negotiated as part of the current plant relocation agreement, bringing the total Mississauga cost to $190-million.

The nuanced distinction between taxpayer and ratepayer, however, raises credibility questions. While taxpayers and ratepayers share differently in bearing costs, they are the same individuals or companies. In the present context it is reasonable to ignore the distinction and talk instead about “public” costs. Given the government’s precision in identifying only “taxpayer” costs with respect to Oakville, electricity cognoscenti concluded that all the costs to be paid by ratepayers via the Ontario Power Authority (OPA) and Hydro One are additional and had not been made public.

Scrutiny began in earnest. Consulting engineer Bruce Sharp, writing on this page in October, put the public cost at $733-million for Oakville alone. Energy analyst Tom Adams, working from the 56,000 pages of information released by the government, has found evidence supporting a total of $1.2-billion.

But because the public document record is incomplete, assumptions are necessary and estimates will differ. My estimate, based on my own business judgment and understanding of the issues, puts the cost numbers well above those provided by the government — without relying on the 56,000 pages of released documents.

Firstly, much of the preliminary work such as engineering design, community relations, environmental and other permitting is site-specific. The rework necessary when relocating is roughly equivalent to the original bid preparation costs plus the costs associated with now-redundant real estate and a new site. The memorandum of understanding (MOU) on the OPA website indicates that for TCE’s Oakville-Lennox plant this total is $40-million. The corresponding payment for EP’s Mississauga-Sarnia plant is $190-million.

For the rest of this column, please go to the National Post website: http://opinion.financialpost.com/2012/11/28/ontarios-power-trip-the-gas-bungle-800m/

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