An administrative assistant with an annual salary of $110,000. An interest-free loan that may not be fully repaid for 17 years. A line of credit with a penalty rate so high, some thought it was illegal.
These are among the costs Ontario paid to hastily scrap a gas-fired electricity plant in Mississauga, Auditor-General Jim McCarter revealed Monday. And they add up to a total bill of $275-million – $85-million higher than the Liberals have maintained.
Given that the government must also build another plant to make up for the one it killed, tax and ratepayers are being hit twice.
“The people of Ontario will have essentially paid for two power plants, but have got just one,” Mr. McCarter said.
The government pulled the plug on the unpopular Mississauga plant, and another in Oakville, in what was widely seen as a play to win local votes in the 2011 election.
The audit paints a picture of a mad scramble as the province and the Ontario Power Authority tried to reach a deal with Greenfield South Power Corporation, the company building the plant, and EIG Management Ltd., the American hedge fund that provided Greenfield’s financial backing.
Both companies knew the government badly wanted the project mothballed and “pressed their advantage,” Mr. McCarter said.
Before Greenfield would even come to the negotiating table, it compelled the government to settle an unrelated lawsuit with its parent company, Eastern Power. Then, it demanded $79-million in labour costs and consultant fees, of which the OPA paid $36-million.
The audit, however, says Greenfield did not provide adequate documentation to prove it incurred these costs. In one case, rates on consultant invoices were blacked out. In another, the company got nearly $900,000 to pay an administrative assistant for eight years’ work.
The OPA also discovered that Greenfield had agreed to pay EIG an interest rate of 14 per cent for eight years on its entire $263-million line of credit in the event of a default. The terms were so onerous, Mr. McCarter wrote, that the OPA and its lawyers thought it might constitute a “criminal rate” of interest, forbidden under Canadian law. Nonetheless, the government agreed to give EIG $149-million, even though Greenfield had drawn just $59-million from the line of credit.
The province paid other assorted costs, including $64.6-million to Greenfield’s suppliers, $4.4-million to engineers and a third-party negotiator and $4.2-million to compensate Eastern Power for land the plant was supposed to occupy in Mississauga. In addition, Greenfield kept the land.
Eastern also emerged from negotiations with a deal to build the replacement plant, in Lambton County south of Sarnia. It is currently moving ahead with that project through subsidiary Green Electron.
To help get it off the ground, the government will give the company an interest-free $45-million to be repaid over a 13-year period starting in 2017 when the plant is operational. If Eastern cannot get its own construction financing, the province will “help arrange credit support for debt financing,” a spokeswoman for the Energy Minister said.
It will cost more to pipe the electricity from Lambton to the GTA, but this will be offset by money the government will save in not having to buy its electricity until 2017. Mr. McCarter noted the government missed out on a further opportunity to save $65-million, since the Lambton site will be closer to natural gas than the Mississauga plant would have been. But the province failed to keep this money for itself in the deal.
Instead, the savings will go to Eastern.