Cost of cancelling two gas plants could pass $1 billion: Auditor general

CTV Toronto: Staggering bill for the gas plants A damning report from Ontario's auditor general has placed the cost of the cancelled gas plants at over $1 billion. Paul Bliss explains.

TORONTO -- The Liberal government's decisions to cancel two gas plants in Oakville and Mississauga will cost Ontario taxpayers up to $1.1 billion, auditor general Bonnie Lysyk reported Tuesday.

Lysyk's special investigation into the cancellation of the Oakville gas plant found it will cost at least $675 million, and possibly as much as $810 million, far above the $40 million the government originally claimed.

"Hydro customers will be paying higher rates for electricity in the future as a result of not only the cancellation of the Oakville contract, but also because of the OPA (Ontario Power Authority) not being able to take full advantage of the terms within the contract that may well have enabled the province to get a better deal," she said.

The auditor found the cost of killing the Oakville project was "significantly more than may have been necessary" because of a number of what she called "questionable decisions" by the premier's office and the Ministry of Energy.

The province could have paid far less if it had let the OPA negotiate with developer TransCanada Energy without interference from the premier's office, which promised to fully compensate the company, added Lysyk.

"We believe that the settlement with TCE will not only keep TCE whole, but may make it better than whole," she said. The report lists "the estimated benefits to TCE of approximately $225 million from the settlement negotiated for the Napanee plant."

The government wanted to avoid a lawsuit by TCE, so it agreed to fully compensate the company instead of waiting to see if strong local opposition could delay the project by two years, giving both parties an option to break the contract.

"Given the situation in Oakville, it could well have been possible for the OPA to simply wait it out, with no penalty and a much lower cost, if it was determined that the plant would not be able to be up and running within 24 months of the original contracted in service date," said Lysyk.

An earlier auditor's report puts the cost of scrapping a partially built gas plant in Mississauga, in the dying days of the 2011 election campaign, at $275 million -- $85 million more than the Liberals had been admitting.

Premier Kathleen Wynne said "mistakes were made" in trying to put the gas plants in Oakville and Mississauga, and again apologized for the way the government handled the cancellations. But the premier noted the auditor admitted it was hard to calculate the costs and projected savings over the 20-year-life of an electricity contract.

"I accept the report and I accept the assumptions that the auditor general has made, but the fact is that there is uncertainty in projections that go out 20 years," said Wynne. "There's no way around that."

Wynne promised new rules to prevent political staff from interfering in negotiations with third-party commercial transactions and said local municipalities would get more of a say in locating new energy projects.

The opposition parties call the cancellations an expensive Liberal seat-saver program for the 2011 election, when the governing party was reduced to a minority but kept all five ridings near the gas plants.

"Someone's head needs to roll and someone needs to be fired, and I would suggest it be Kathleen Wynne that's fired," said Progressive Conservative energy critic Lisa MacLeod. "The auditor general confirmed what we have been saying all along, that the Liberals have been hiding the true cost of this cancellation from taxpayers."

The New Democrats said the auditor's report shows interference from senior Liberals in the former premier's office drove up the cost of cancelling the Oakville gas plant.

"Liberal staffers committed to pay the TCE the whole value of their contract whether they had to or not, and at every step they agreed to work this out in a way that would help TransCanada and leave Ontario families paying more," said NDP Leader Andrea Horwath.

The auditor found the former premier's office also failed to rely on protections in the contract that could have minimized any damages as a result of cancelling the plant.

"The OPA could have invoked a clause in the contract that made it liable for reimbursing TCE for lost profits only in the event of a discriminatory action, and argued that the cancellation of the plant would not have met the contract's definition of such an action," said Lysyk.

Energy Minister Bob Chiarelli said legal experts advised the government it would likely be cheaper to negotiate a deal with TCE than end up in court.

"It was much better to negotiate this particular transaction rather than litigating it," he said. "With that type of advice, I can appreciate the staff did everything possible for a negotiated settlement."

The auditor's 24-page report also criticizes the Ministry of Energy for agreeing to relocate the Oakville plant to Napanee, which would mean higher costs to deliver gas from the Sarnia area to Napanee and higher costs to transmit the electricity back to the Oakville area. The OPA wanted to build the new plant in the Kitchener area, where there is also a need for a local power supply.

"TCE's parent company, TransCanada PipeLines Ltd. (TSX:TCA.PR.X), will be one of the transporters of gas to Napanee," wrote Lysyk. "TCPL's pipeline would not have been required for a plant in the Oakville or Kitchener-Waterloo-Cambridge."

Former premier Dalton McGuinty has said it was his decision to cancel the two gas plants, insisting the government was slow to realize local residents were right not to want the projects near their homes.

Unlike Wynne, McGuinty has never apologized for the costly gas plants scandal.