It’s still not ironic, but it’s kind of like rain on your wedding day: the Liberals were (and still are) about to present a feel-good budget filled with billions in new spending on popular programs and services, when Auditor General Bonnie Lysyk once again threw a wrench in the works. Her remarks to a committee at Queen’s Park last week struck at the Liberals’ biggest weakness: oversight and accountability with public finances.
On March 21, while presenting to the Standing Committee on Public Accounts, Lysyk reiterated her office’s belief that the government is abusing a particular accounting practice to hide the full impact of its “Fair Hydro Plan” on the province’s finances. Then she went further, stating that the government’s hired accounting firm, KPMG, went out of its way to stymie her office’s investigation of the Independent Electricity System Operator, or IESO, one of the bodies that plans and regulates Ontario’s electricity system.
Long story short: at every turn, Lysyk says, the IESO or KPMG either stonewalled her office or provided “non-truths” (in her delicate phrasing) to hide “bogus” accounting. Like, for example, $1 million owed to someone that nobody could ever identify. Or dodgy pension accounting. Or KPMG claiming that answering all of her office’s questions cost it $230,000 to answer.
“They basically treated, I think, my audit team like we were subservient to KPMG,” Lysyk told the committee. “In terms of the law in Ontario, that would be the reverse.”
Finance Minister Charles Sousa is required to issue a pre-election report on the province’s finances no more than a week after the budget is released; Lysyk will then get to judge the government’s numbers. If last week is any indication, the war of words between her and the Liberals isn’t going to end anytime soon.
Energy Minister Glenn Thibeault defended the government’s decisions on Monday.
“We believe we’re following public accounting standards,” Thibeault said. “We’ve looked to the experts on this … I take what they’re saying very seriously, and what they’re saying is that public accounting standards are being met.”
Thibeault is correct that other jurisdictions have used the particular accounting trick — “rate regulated accounting” — that’s the major point of contention, and he’s right that’s it’s not inherently suspect. But it’s also true that it’s been used by governments looking to hide things in the past, and other Canadian jurisdictions (including British Columbia) have had their own auditors general raise alarms about its use and misuse.
One of Lysyk’s other discoveries, which has nothing to do with the argument over accounting standards, could have some potentially far-reaching consequences: her office found that the IESO had structured the Fair Hydro Trust — the mountain of debt the government is piling up on Ontario Power Generation’s accounts — so that banks and not power generators will have first claim on revenues from electricity consumers if payments to the trust run short.
Power generators like OPG or Bruce Power, though, aren’t going to be able to give away electricity for nothing (and, unlike OPG, private operators such as Bruce can’t be ordered around). So they’ll still need to be paid even if banks are first in line — it’s just a question of who writes that cheque. Bet on taxpayers being on the hook, if the day ever comes.
It’s worth pointing out that that might not happen: the Trust may never run into financial problems. But the Liberals are asking us to bet real money on their record of competence and managerial excellence in the power sector. (Don’t want to take that bet? Too bad — you already have, to the tune of tens of billions of dollars.)
This is just one example of Liberal mismanagement of the electricity sector, but it’s not insignificant. Rather, it goes to a core question that’s will be on voters’ minds on June 7: Even if they like what the Liberals have been doing (or more accurately, what they’ve promised to do), can the party be trusted to actually govern for another four years?
The government has thus far responded to Lysyk’s findings by insisting that this is an arcane accounting issue instead of something much more troubling. Even setting aside her disagreement about the use of rate-regulated accounting, her new revelations raise further questions about whether, in their panicked rush to address the political issue of high hydro prices last year, the Liberals managed to arrive at sound policy. Everyone wants lower hydro prices, but did the government do serious damage to the province’s energy system in order to get itself through an election cycle?
And that, in turn, brings us to the budget the public will see Wednesday. The Liberals have already announced billions of dollars in new spending on hospitals and schools, including $300 million in special-education funds and $2.2 billion for free childcare for kids over two and a half. The full document will undoubtedly contain more still.
But the auditor general has reminded us, yet again, that policies sold in part as interventions for fairness and caring, as the Liberal hydro plan was, can go off the rails if the execution is botched.
The finance minister presents the 2018/19 Ontario budget at 4 p.m. on Wednesday.
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