Ontario’s odious obligations

Could Ontario Premier Dalton McGuinty’s green-energy contracts be reversed?

By Lawrence Solomon, Financial Post

Obligations that are odious should not be honoured. So says the Doctrine of Odious Debts, a theory first postulated by Russian legal scholar Alexander Sack in 1927 that is now increasingly accepted by international bodies such as the United Nations and the International Monetary Fund, as well as by today’s legal scholars.

That doctrine, to date, has been applied chiefly in undemocratic settings, where tyrants callously rack up debts that a hostage citizenry is then expected to repay. It may soon be applied more broadly in democratic states where elected leaders fail in their fiduciary duties, wrongly saddling current taxpayers as well as their children with dubious obligations that do not benefit them, and that they didn’t request.

In the United States, governments at the state, county and municipal levels are beginning to roll back pension obligations that previous governments had negotiated with civil service unions, arguing that the pensions are unreasonably rich and unaffordable. These odious-debt-type cases between unions and successor governments are expected to ultimately be settled by the U.S. Supreme Court.

For Canada, let me offer as a test case my province of Ontario, where the government of Premier Dalton McGuinty has embarked on a spending spree in the name of creating green energy jobs. Under McGuinty’s plan, the province will replace its fleet of coal plants — among the cleanest, most reliable and most economical in the continent — with renewable power contracted from developers at windfall rates — as much as 20 times the cost of power from coal plants. Some of the contracts are flipped after signing — the contracts are so ridiculously generous that the same one can generate quick profits for multiple players.

None of the contracted-for power is needed, except to fuel the aspirations of McGuinty and his government — they boast often that Ontario will be the only jurisdiction in North America to entirely phase out coal plants. The green jobs that the government uses as its rationale are also ephemeral — studies elsewhere show that green energy developments not only fail to add to employment, they typically lead to the loss of more jobs than are created. More evidence of misguided policies: Rather than leading to modest electricity rate hikes, as the McGuinty government initially promised to wide skepticism, his green agenda is now fuelling double-digit annual rate hikes.

As electricity rates soar in the province during the 20-year terms of the contracts and beyond, Ontario businesses will flee and Ontarians will join the growing ranks of those in fuel poverty. Holders of the contracts, meanwhile, will be gleefully taking in tens of billions of dollars in untoward payments from captive Ontario ratepayers.

The Odious Debts Doctrine was developed to consider the debts of a despot such as a Saddam Hussein or a Robert Mugabe, where borrowings benefit the dictator and his regime, not the people as a whole. “This debt is not an obligation for the nation; it is a regime’s debt, a personal debt of the power that has incurred it, consequently it falls with the fall of this power,” explained Sack, adding that odious “debts do not fulfill one of the conditions that determine the legality of the debts of the State, that is: the debts of the State must be incurred and the funds from it employed for the needs and in the interests of the State.”

Are Ontario’s entirely unneeded electricity obligations odious? Somewhere on the continuum between obligations incurred by a Mugabe, a dictator who acts clearly in his own interest, and those incurred by a selfless leader, who incurs debts only for the betterment of his constituents, lies a McGuinty.

Many argue that McGuinty is failing to live up to his fiduciary duty to the people of Ontario, and that he is committing the present and future generations of Ontarians to obligations in which they had little or no say. In his zeal to push through his plans, McGuinty not only offered outsized payments to favoured suppliers, he even extinguished the traditional rights of communities to object to developments within their boundaries.

In Canada, a future Ontario government can amend or extinguish the McGuinty contracts by regulation or legislation — parliament is supreme. While that may seem an extreme outcome, the pressure on a future government to do so could become irresistible amid the soaring power rates and declining economy that would result if the McGuinty plan was ever realized. The ultimate lesson for governments: Don’t be a party to investments that could be odious.

Special to the Financial Post
LawrenceSolomon@nextcity.com
Lawrence Solomon is executive director of Energy Probe (ep.probeinternational.org) and the author of The Deniers.

9 thoughts on “Ontario’s odious obligations

  1. I agree that McGuinty is failing to live up to his fiduciary duty to the people of Ontario, the contracts should be defaulted.

  2. YES! Finally there is hope. McGuinty just has to step down due to extreme mental instability and Presto… Contracts canceled!!! The birds will rejoice. We can start spending money on our homes again! Life will return to normal and all the people who lost their homes will be compensated with interest!!!

    Dalton McGuinty… admit you boo boo’d big time and failed your fiduciary responsibility!!! Walk away now before you destroy what is left of Ontario.

    Better to go out as an honest politician… than a fool.

  3. Right on, he belongs in a mental institution, he is totally out to lunch, where are people and businesses going to come up with money to pay $3,000.00 a year more for the hydro bill, this is insane. Just look what it will do to the cost of food, and then all the other things we buy. He should be committed for what he is doing to the once richest province in Canada. In Quebec they 3.5% per k hour to our 9 cent in prime time. We should all move to Quebec or Cornwall Ont where they pay that cheap rate.

  4. I am 57 years old. I have seen many Ontario governments come and go.
    Some are remembered for making positive impacts on our lives. Others not so memorable.
    However Mr.McGuinty , none , not even Harris or Rae combined , can compare to the damage you are doing to my province.
    You are taking a necessary utility , hydro , which is without a doubt one of the most important things in our lives and making it unaffordable for Ontarians.
    Cheap reliable energy is vital for every form of business , industry , agriculture .
    It is vital to every aspect of our lives.
    There are many ways to cut greenhouse gasses , you do not do it with a necessary utility like hydro.
    You will soon bankrupt us all as our hydro bills skyrocket unchecked , and we feel the additional economic impact as we see costs rise for services , taxes , food as their skyrocketing hydro costs are passed on to us in every part of our lives.
    Hospitals , schools , agriculture , public services , the list is endless.
    You then pass the Green Energy Act , ludicrously named , I might add, which extorts the rights of communities to have a say in what happens in them. You pass a Dictatorial Act to put 4000 windturbines in pristine vacation land , with no masterplan in place , where communities have invested in tourism for decades.
    There is no place safe from these expensive , proven unreliable monster windturbine developments.
    Our future under your stewardship will be a wasteland of hydro transmission lines and wind and solar developments.
    We cannot allow this destruction of our province.
    No one has the right to do the damage you intend to do . No one.
    I expect you to revisit your energy agenda before you do any more damage.
    Or you and your party Mr. McGuinty must resign……now.

  5. ???????
    1. How do we get rid of this lot NOW ?
    2. Where do we find “earnest” politicians ?
    ???????

  6. Perhaps what’s happening in the U.K. already this winter will bring lots of people to their senses. Many there are already in energy poverty.

    People who live in all electric subdivisions will also see their properties become non-saleable. Homes for sale now need alternative sources of heating like natural gas or wood to attract potential buyers.

  7. Here is a post from Tom Adams Blog at: http://tomadamsenergy.com/

    Renege on Green Contracts? Irresponsible!
    In a recent National Post column, Lawrence Solomon of Energy Probe advocates a range of policy responses to existing renewable power purchase contracts entered into by the Ontario government, contracts Solomon considers to be odiously costly. Robert Mugabe, president for life of Zimbabwe, would understand Solomon’s proposals – outright confiscation, targeted and punitive taxation, and populist-backed intimidation tactics.

    To cut costs, Solomon advocates legislation that would undo existing contracts, a windfall profits tax, and forcing wind and solar power contract holders into concessions with threats of tearing up contracts.

    Since it is a normal and beneficial practice for independent power generation contracts of all kinds to change ownership over time, Solomon’s proposed methods would unevenly administer punishment.

    Solomon advocates aiming environmental levies directly at wind power operators to ruin them. Solomon endorses the use of the Syncrude bird fine of $1,875 per bird, settled in court in October, against the wind power industry.

    I am a strong supporter of strict but fair and science-based environmental laws. I am also concerned about the impacts of wind development on flying creatures. As someone who has been directly involved in environmental law enforcement, I continue to support effective enforcement of environmental laws. However, the Syncrude fine was not reasonable by my standards. At the Syncrude bird fine rate, my dining room window would have cost me almost $8,000 this year alone.

    Solomon also appears to endorse shutting down wind farms until their low frequency sounds can be proven safe, although his sarcasm obscures his intention.

    Arbitrary judgment of value out of context ought to have no place in the management of Ontario’s power system, yet this is the foundation of Solomon’s position.

    Solomon cherry picks the power prices he uses to compare against the current renewable energy contracts. Counter examples abound.

    During the gas price spikes of 2005 and 2008, the cost of natural gas-fired power in Ontario was far higher than the prices the Ontario government is now agreeing to pay land-based wind generators. At the time, had Ontario not agreed to pay the gas costs, the gas suppliers would not have delivered and the lights would have gone out.

    Today, the delivered cost of power to consumers from the Pickering A reactors far exceeds the prices paid to land-based wind producers under Ontario’s non-competitive feed-in tariffs, although the full cost is deeply buried in OPG’s accounts. Solomon’s logic would have us stop paying the bond holders who invested in Pickering A, the workers there today, and the suppliers of goods and services consumed there.

    In building his argument that the Ontario government should abrogate renewable energy contracts, Solomon references the practices of Ontario Hydro, where Adam Beck’s apparent success at the outset was largely based on expropriation without compensation of private power companies, to the delight of the electorate. But, living by thievery can be habit forming. After cleaning out the private power merchants, Ontario Hydro’s appetite turned to aboriginal land, again taking without compensation to build dams and power lines.

    The only cases where I suggest contracts ought to be reviewed by a future government are instances where developers did not comply with applicable laws as they existed at the time. Compliance with lobbyist registration requirements is a theme I have frequently discussed on this blog.

    Ontario needs competitive procurement processes for any new power contracts, but we must live up to our current obligations.

    Irresponsible policies of the kind Solomon is pushing are now developing in various jurisdictions, most prominently in the Czech Republic.

    If Ontario is to establish a sustainable power system, the rules of taxation, environmental protection, and respect for contract ought to be applied evenhandedly.

    Read my comment at the end of this post………………………………..

  8. I care not the substance or manner of ANY contract entered into by government(s) of the people.

    SO LONG AS those contracts are IN FACT in the PEOPLE’S BEST INTERESTS.

    I believe the Supreme Court of Canada has made just such a ruling. Governments MUST act in the best interests of the people at all times.

    Is thus follows that where a contract has a contrary substance, then that contract in its entirety is in fact illegal, null and void.

    BTW. Tom Adams is misinformed about nuclear energy. He is in good company, so are the masses. Here we have a situation where a tiny amount of fact has been exaggerated into the entire story.
    Conversely, there ARE NO FACTS in support of industrial wind energy! Its whole story is a MYTH!

    B.B.W.

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