EDITORIAL

Contracts Matter

 

By Dave Butters, President of APPrO

 

The former Green Bay Packer great Brett Favre is remembered more for throwing touchdown passes than offering legal opinions, but he had a wise comment about business dealings:

“Maybe I’m old-school, but I always thought you honour a contract.”

The quarterback’s homespun observation should resonate in the complicated world of Ontario energy policy, particularly as we are caught up in in the supercharged atmosphere after an election campaign where electricity prices were a key issue.  At APPrO, we would like to suggest that policy makers and voters take a practical and informed view of energy policy and, like Favre, respect contracts entered into for providing power.  

While no one likes seeing our hydro bills go up, it is important to remember some basic truths: our system is much more reliable than the dicey days of early 2000s and the great blackout of 2003 and with the shutdown of Ontario’s coal plants, we have one of the cleanest generating systems in North America.  Both are huge benefits, both to our economy and our health.  But the price of power reflects those benefits. 

Almost half of Ontario’s electricity is now provided by independent power producers who responded to the government’s call for power and entered into contracts.  They are keeping their side of the bargain. 

 

But some suggest that a government has the right to pass legislation to tear up or change energy contracts it doesn’t like. 

Maybe, but there would be serious and negative consequences for Ontario’s credit rating, its reputation as a good place to do business and to invest, borrowing abilities, and potentially system reliability.

Nor would it be a cost effective strategy – the necessary compensation and legal ramifications would actually drive up costs in the short term and long term.

It would result in a general loss of confidence in the Province’s commitment to honour its obligations including general debt and obligations under its Public Private Partnership infrastructure agreements, and impair access to long-term capital markets. That would have a huge impact on all the other infrastructure Ontario needs, like roads and bridges, hospitals, water supply, sewers and so on.

There would be loan write-downs and very substantial losses by the providers of equity and debt advanced to the owners of the impacted facilities (e.g., life insurance companies, pension plans like OMERS and CPPIB, retail and institutional investors, Canadian and foreign banks, First Nations, farmers, small businesses, industries and LDCs);

And it could threaten Ontario’s reliability by eliminating capacity which will be needed in the near future.

Electricity is essential to Ontario’s well-being and economy and APPrO members play an important part.

But energy policy is complex and long term. We need a stable and predictable policy and regulatory climate so that everyone understands the rules of the game, and those rules should not be changed arbitrarily. Electricity planning can’t be short-sighted or politically motivated.

We should always make efficient use of existing generation assets before we build new ones, and when the time comes to procure new generating sources, the process should be fair, transparent and competitive where feasible.

There are few short cuts in energy policy. Common sense should prevail.

We should be guided by that old quarterback of the Green Bay Packers: fairness demands that a deal should be a deal.

 

Update November 5, 2018: Related editorial by Brandy Giannetta of CanWEA published November 1 "Cancelling renewable energy contracts in Ontario will negatively impact investor confidence".

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