Report on Ontario power plant cancellation to show costs soaring

The costs associated with pulling the plug on a power-plant project west of Toronto are significantly greater than the $190-million tab disclosed by former premier Dalton McGuinty's government, according to a report by the provincial auditor that threatens to revive a stubborn political problem for the Liberals.

The auditor is to table a special report Monday on the 2011 cancellation. Sources familiar with the report's contents said the final tally for Mississauga will be between $250-million and $300-million. The report found "very significant additional costs" associated with moving the gas-fired power plant from Mississauga to Sarnia – about 230 kilometres from the residences and businesses that will actually use the electricity once it is up and running, one source said.

The cancellation of the Mississauga plant, and that of a second facility in Oakville, were widely seen as expensive, politically motivated decisions by the governing Liberals to save seats in the 2011 provincial election, and have been a thorn in the government's side ever since. The opposition parties have repeatedly accused the Liberals of lowballing the true cost, and the auditor's report is expected to validate their suspicions.

The controversy over the gas plants was the single biggest issue dogging Mr. McGuinty when he announced his retirement last October. The fallout has continued under the leadership of his successor, Kathleen Wynne.

Staff from the auditor's office have spent several months camped out at the Ontario Power Authority, the government agency that inked the contracts with energy companies to build the two gas plants, after a legislative committee commissioned the investigation. Ms. Wynne ordered a separate report on the Oakville plant that will not be ready for a few months.

Auditor-General Jim McCarter attempts in his 24-page report to provide a full accounting of the impact on taxpayers, but a precise figure will not be known until those costs have actually been incurred at the new site, sources said.

"The number the auditor is going to come back with will be significantly north of $190-million," one of the sources said.

The $190-million figure given by the McGuinty government last July deals only with the cost of reaching a settlement with the project developer and its lenders, following the Liberals' decision to scrap the Mississauga plant during the dying days of the 2011 election campaign.

The top civil servant in the Energy Ministry acknowledged to a legislative committee last week that the $190-million includes only so-called sunk costs associated with the Mississauga site, and suggested that additional costs for Sarnia would factor into the auditor's report.

"There are costs related to moving the site from the existing location," said deputy energy minister Serge Imbrogno. These costs will be partly offset, he said, by the fact that electricity consumers won't have to start paying for the power until three or four years later once the plant is built.

Mr. McCarter declined to comment.

According to the sources, Mr. McCarter examined a number of factors that will drive up the costs. For instance, the Ontario Power Authority has provided the company that will build the plant at one of two sites under consideration about 20 kilometres south of Sarnia with $45-million for cash flow. The company has 13 years to repay the money. The auditor estimates that the government will forgo interest of about $10-million that it could have earned during that period.

The auditor also estimates that it will cost $5-million to $10-million for electrical connection costs. There were no such costs at the Mississauga site because the plant would have been next door to an electrical transformer station.

As well, it will cost more to transmit the power all the way from Sarnia to Mississauga. It is also less efficient to transmit the power over long distances – the wires can heat up and sag, resulting in some electricity loss.

Taxpayers, rather than the project developer, will bear some of these extra costs as a concession to Eastern Power Ltd., the company initially awarded the contract to build the Mississauga plant in 2005. The Sarnia plant is supposed to come online in 2014.

"They had spent eight years of their lives working on this project and were a bit skeptical as to whether they would be treated fairly on this," one of the sources said. "They felt like they had had the rug pulled out from under them."