Chair /
Président
Mr John Gerretsen (Kingston and the Islands / Kingston et les
îles L)
Vice-Chair / Vice-Président
Mr John C. Cleary (Stormont-Dundas-Charlottenburgh L)
Mr John C. Cleary (Stormont-Dundas-Charlottenburgh L)
Mr John Gerretsen (Kingston and the Islands / Kingston et les
îles L)
Mr John Hastings (Etobicoke North / -Nord PC)
Ms Shelley Martel (Nickel Belt ND)
Mr Bart Maves (Niagara Falls PC)
Mrs Julia Munro (York North / -Nord PC)
Ms Marilyn Mushinski (Scarborough Centre / -Centre PC)
Mr Richard Patten (Ottawa Centre / -Centre L)
Also taking part / Autres participants et
participantes
Mr Erik Peters, Provincial Auditor
Mr John Sciarra, executive assistant
to the Provincial Auditor
Clerk / Greffière
Ms Tonia Grannum
Staff / Personnel
Mr Ray McLellan, research officer,
Research and Information Services
The committee met at 1007 in committee room
1.
COMMITTEE BUSINESS
The Chair (Mr John
Gerretsen): I'd like to call the meeting to order. The
first thing we'll deal with this morning in open session is a
notice of motion. I'd like to call on Ms Martel, who gave us the
notice in our last meeting.
Ms Shelley Martel
(Nickel Belt): I move that the public accounts committee
direct the Provincial Auditor to examine all details of the
leasing agreement between Ontario Power Generation, OPG, and
Bruce Power Partnership for the Bruce A and B nuclear facilities,
to determine if the deal guarantees value for money for Ontario
taxpayers, and to report back to the public accounts committee
with his findings and recommendations as soon as possible.
The Chair:
Would you like to address the motion?
Ms Martel: I
would. I hope the committee can bear with me. I have some notes
I'd like to go through with people to outline why I think the
committee should do this.
First of all I'd like to tell
the committee that I'm moving the motion as per sections 16 and
17 of the Audit Act. Under the Audit Act, "At the request of the
standing committee on public accounts ... the auditor and any
member of the office of the auditor designated by the auditor
shall attend at the meetings of the committee ... and the auditor
shall examine into and report on any matter referred to him or
her in respect of the public accounts committee by a resolution
of the committee." Section 17 refers to "special assignments,"
which this could also be considered as, and it reads as follows:
"The auditor shall perform such special assignments as may be
required by the assembly, the standing public accounts committee
of the assembly, by resolution of the committee, or by a minister
of the crown in right of Ontario, but such special assignments
shall not take precedence over the other duties of the auditor
under this act, and the auditor may decline an assignment by a
minister of the crown" if it conflicts with his other duties.
The auditor can tell us
whether or not this would conflict with his other duties. I'm
going to assume, though, that the auditor would be in a position
to undertake the assignment at this time because the work for the
audit for the year 2000 should already be complete and we would
have that tabled in the next couple of weeks. So I'm assuming
this would not conflict with other work that is ongoing with
respect to this committee, but the auditor can advise the
committee of his availability.
I am moving this motion
because I have my own questions, as energy critic for the NDP,
regarding the agreement, but I'm also moving it because the
Premier has publicly stated that he is willing to have this deal
scrutinized. Two days after the deal was announced, on Friday,
July 14 of this year, the Premier received wide media attention
because he said that he is confident that his government's deal
to lease the Bruce nuclear station in southwestern Ontario to a
large British energy company will stand up to public scrutiny.
Harris said Thursday he'd be willing to have a legislative
committee examine the estimated $3.1-billion deal with British
Energy to run Canada's largest nuclear station.
"`I certainly don't object to
that,' said Harris." It was reported in the North Bay Nugget, the
London Free Press and the Globe and Mail, so I assume that is the
Premier's position with respect to this important matter.
I have made the referral in
the public accounts committee for two reasons: I think that this
committee is the appropriate vehicle to deal with the referral
because the Provincial Auditor is a servant of all of the members
of the assembly. He is independent of ministries, so the review
would not be biased either in favour of or against a particular
ministry or the government. Second, we all know that the entire
work that the auditor does focuses on value-for-money audits, so
I feel quite confident that he and his staff could undertake a
review of this nature on our behalf.
Before I give you some of my
rationale or my reasons for wanting the lease agreement to be
reviewed, I just thought it was important that I highlight the
magnitude of the deal, because it is very significant. The
highlights are as follows:
The lease, as currently
signed, would run for 18 years, with an option to extend for
another 25. So there would be a significant partnership with
Bruce Nuclear and OPG over that time, especially if the deal was
extended.
There is an initial payment
of $625 million, which is to be paid out in three instalments.
The information I have comes from the release that was put out
both by OPG and by Bruce Nuclear at the time and from the release
by the Ministry of Energy. I'm using their figures. The initial
payment of $625 million will be paid in three instalments: $400 million when the deal closes,
which is supposed to be in the summer of 2001; $112.5 million
four years after the closing of the deal; and another $112.5
million in year six.
Second, there will be six
yearly payments, which are referred to as rent payments-rent
because the owner still continues to be OPG-to be paid over the
term of the lease. The rent is based on a base and variable
elements. I will return to that later in terms of the rationale
for having this studied now. OPG and Bruce Power estimate that
these rent payments will start at $62 million in the first year
after the deal is signed and will increase to $92 million in year
18.
The third set of payments
includes payments for the disposal of spent fuel and waste
materials. These are determined based on market price and Bruce
Power's energy production, so they are very flexible. There is no
guarantee around the level of payment or if a payment would be
made.
OPG and Bruce Power estimate
that this payment would be about $90 million in 2002. But
anything that I could find in the documents says, because these
payments are subject to market price and energy production and
tied to those things, there's no guarantee that they would be
made in any given year. The level at which they would be made
can't be guaranteed either.
Finally, what I think is also
very important and one of the reasons I want the deal reviewed,
it's OPG which assumes the cost of decommissioning once the lease
ends. That means that taxpayers in the province of Ontario are
responsible for these decommissioning costs. The OPG in its own
work estimated that liability to be about $3.1 billion at the end
of 2018, which is when the lease would end. OPG also said in its
note that one half of this cost had already been set aside, but
there's no reference to where that fund exists and how much is
included in it in reality.
OPG also stated that the
proceeds from the lease would cover all of the rest of the costs
they would need for decommissioning in the year 2018. So the
lease agreement is based on a revenue stream that will cover
these costs in 2018, at least according to OPG.
Why do I want this reviewed?
There are five reasons.
The Bruce nuclear facility
was paid for by the taxpayers of Ontario. It's a significant
public investment, and I think the taxpayers deserve to be
assured that this lease agreement is getting them value for
money. I think the committee needs to know that, or if the
province can really guarantee that the revenue it's going to
receive from Bruce Power through this lease agreement is at least
as much as it would have received if OPG maintained the facility
itself. That's a really important thing for us to determine.
What worried me was that at
the announcement of this lease agreement, the Minister of Energy
could not tell the media how much profit the Bruce complex
generates now. If the Minister of Energy could not tell the media
how much profit or revenue Bruce generates, how do we know that
the lease agreement gives us at least as much money as Bruce
would generate for the taxpayers? We need to know that.
Also, if the minister doesn't
know, or if he's just reluctant to discuss the current revenue
picture, I'm not sure how the public can have confidence that the
agreement is at least as good as what is now in place, which is
public ownership by OPG. That's the first and overwhelming reason
why I think their deal should be investigated.
Second, it's worth pointing
out that the deal is larger than the Highway 407 privatization.
Even the government members could agree that within months of the
completion of that deal, drivers did experience very significant
toll increases. There was just a nightmare with respect to people
having late fine payments, having their licence renewals denied
etc, and the government did end up stepping in with respect to
that.
It's clear that Minister
Wilson, in all the documents that I have reviewed both in his
release and in the media reports, has publicly stated that this
deal will lead to cheaper energy rates. He has made that very
clear. OPG president Ron Osborne has also made that very publicly
clear in all of the media reports. My view is we should take a
lesson from the 407 deal and learn from it. We should have an
independent look at this deal before the public is promised these
lower energy rates. As such, a deal this big deserves significant
independent public scrutiny.
Third, I have a serious
concern around the cost of waste disposal and the eventual
decommissioning costs of the Bruce and whether the revenue that
will come from the lease agreement will cover these. This is a
serious issue for the public because we need to assure the public
that there will not be a huge unfunded liability that the public
will be responsible for when this plant is returned to public
hands.
The committee should be
concerned by some of the following information then: when the
select committee on nuclear affairs sat in 1997, they were told
by the former Ontario Hydro that the waste disposal and
decommissioning cost in 1996 dollars was $15 billion. That's for
the whole company, for all of the nuclear assets. The Minister of
Energy has said that the cost to decommission the Bruce is about
$3 billion. That's the figure he's using. That's the figure that
OPG is using in their releases as well. But, if the Bruce
facility makes up more than one third of the province's total
nuclear capacity, and it does, then the decommissioning costs
should run much closer to $5 billion, not $3 billion, as the
minister has used in his release.
I go back to what Hydro gave
the standing committee as information that was requested by the
parliamentary assistant at that time, Mrs Johns. Hydro said their
cost in 1996 dollars was $15 billion. The point is that OPG has
said in its releases that half of this cost has been set aside
and the rest of the money will come from the proceeds of this
lease agreement. My concern is that in fact if the liability is
much higher, if it's closer to what Hydro said it was in 1996
when it appeared before the select committee, then we have to guarantee that the
lease agreement generates revenue to cover those costs. I'm not
convinced it does.
We should have a review of
this, because it could be an enormous cost for the taxpayers.
Right now the difference is over $2 billion between what the
minister said and what Hydro said to the select committee. What
the agreement shows is that the costs that are being covered are
only $1.6 billion, not higher.
Fourth, the fixed yearly
payments-those are the rent payments that I referred to
earlier-are made up of base costs and variable costs. In terms of
the variable costs, one of the elements that's included is a
share of the net revenue from the sale of power. One of the
things that goes into determining how much Bruce Nuclear will pay
OPG is the revenue it gets from the sale of power. In other
words, OPG will receive higher rent payments if the price of
power stays high. The minister, however, in all of his remarks
says that this is going to result in lower energy costs, and so
did the president of OPG. There's a discrepancy there between
what the minister says will be done and how much money OPG would
get from this agreement as a result.
1020
If there are lower energy
costs, then in fact a return to OPG through the lease of the
assets is going to be less than was announced when this deal was
announced. I think that again raises the question of whether or
not the taxpayers are getting value for money through the
arrangement. It also reinforces the problem of whether or not the
agreement is going to generate enough money to pay for the cost
of decommissioning.
Finally, I thought it was
important to note that even supporters of Bill 35 and a move to
electricity competition have publicly argued in the media that
it's difficult to know if-and I'm quoting-"This is a fair deal
for the taxpayers," as the minister has claimed, and I wanted to
give you two examples.
The first is Arthur
Dickinson. He is the president of the Association of Major Power
Consumers in Ontario. A day after this agreement was released, he
said to the media, "It's difficult to assess the fairness of the
price based on the limited information available." He also went
on to say-and this was from the Toronto Star-that his association
has suggested to the minister that an independent committee be
set up to advise what is an appropriate price.
Secondly, Jake Brooks is a
member of the Independent Power Producers Society of Ontario and
he said with respect to the agreement that his members "want to
know if British Energy and its partners paid a fair price if
others will have to compete with Bruce Power." He also said,
"It's very hard to assess that without more information."
Even supporters of the
government move to deregulation are concerned about this deal,
and have stated publicly there hasn't been enough information.
One of them has made it clear that there should be a commission
set up to establish the terms and conditions of it. I think that
because these people are all going to be competitors in the
Ontario market when it is deregulated sometime next spring, they
are going to have to have some assurance that this is not a
special deal for Bruce Nuclear which will then jeopardize their
position in the marketplace.
In summary, I've tried to
list five of the reasons why I think the OPG-Bruce Power lease
agreement should be investigated by the Provincial Auditor.
Clearly, the auditor will use his own framework with respect to
assessing value for money, but it's a starting point. The auditor
should at least examine the analysis that was done for OPG by
Salomon Smith Barney, their investment banker retained to do this
deal, to determine what assumptions were used by Salomon Smith
Barney to arrive at the figures that have been arrived at and to
conclude on behalf of OPG that this is a good deal for the
taxpayers. They were asked to look at a number of things, and I
think the auditor should look at those assumptions to know
whether the rental agreement, the payments over three years and
the payments for decommissioning costs are valid based on what
they saw.
So I have some concerns. I've
tried to outline those. I'm relying very much on the fact that
the Premier made it very clear publicly that he would support a
review of this deal. He's been very public about that because he
believes it will withstand public scrutiny. I hope it does, but I
think we should instruct the auditor to take a look at it because
this is the most important and the most financially significant
deal that the province has entered into with a public asset. I
think committee members need to remember that what we're talking
about, even though the partnership is with a private sector
company, the asset in question that is being released was paid
for by the taxpayers of this province and they need to be assured
that we're getting the best deal from that asset.
In conclusion-and I don't
know if the government members are going to do this or not-the
reason I think this should be reviewed now and not next summer
when the deal is signed and concluded is because it will be far
too late then. I'll just give you a reference that this committee
has dealt with. The Andersen deal was signed, and when the
auditor had a chance to go in and take a look at that, we all
know, because we all had significant problems with many of the
terms and conditions, it took the government well over two and a
half years to extricate itself from some of those terms and
conditions. I'm not sure that they're even out of it yet, and
we'll probably hear back from the auditor because he's been
looking at the new deal that has been negotiated. I don't think
that anyone, the Premier included, wants to go down that road
again.
It seems to me it would be
far better for the auditor to take a look at the assumptions that
were used, the payments that are going to be made, the agreement
as it now stands, because if he can make some findings and some
recommendations that would improve the deal, that should be done
before it's all over. Next year, when the deal is signed and when
Bruce Nuclear has all of its operating licences in place, it will be far too
late to try and undo some of these terms and conditions and there
will probably be quite a huge penalty assessed against OPG, hence
the province, because we are the sole shareholder, if that deal
has to be redone at that time.
The Chair:
Any comments?
Mr Bart Maves
(Niagara Falls): I'd like to start out by asking the
auditor how he feels about this.
Mr Erik
Peters: I think in a sense my feelings are not that
important. If the committee decides to do a resolution under
section 17 of the Audit Act, I have no choice but to proceed. The
reading of section 17 provides that only if asked by a minister
do I have a certain amount of latitude because I cannot accept an
assignment from a minister that interferes with the normal
workings of my office.
But there are two assignments
that I have to accept. One is if the Legislative Assembly as a
whole asked me to do something, and the other one is if this
committee, by way of resolution, asked me to do something. It
will certainly be a resource consumer of my office, because this
is a specialized deal. I would have to probably acquire resources
to do the assignment justice, because I don't normally have
people on staff who deal with nuclear disposal and
decommissioning costs and the many other areas that are involved
in this deal, like price elasticity of the energy market, for
example, and to assess fairly all the assumptions that were made,
for example, by Salomon Smith Barney, as mentioned by Ms
Martel.
Those are the two initial
comments.
Mr Maves:
How often has the Provincial Auditor's office been assigned
audits from this committee?
Mr Peters: I
can't give you an exact frequency, but normally we have averaged
about one or two a year.
Mr Maves:
Can you provide us at some point in time with some examples of
those?
Mr Peters: I
certainly can.
Mr Maves:
I'd appreciate that.
I hate to do this, but what
was the extent of the conversations that your office has had with
Ms Martel prior to today about this motion?
Mr Peters:
There was a brief telephone call from the office to notify us
that the motion was forthcoming and to get again some background
on the Audit Act as to what sections would apply.
The Chair:
But have the merits of that situation been discussed-
Mr Peters:
No, they have certainly not been.
Mr Maves:
First of all, let me just say we've talked about this and don't
really have a problem with the auditor auditing the transaction
in general and can support the motion. We have a couple of timing
concerns, but that's about it.
But one of my concerns in
total about this is-and you said one or two a year. I'm surprised
by that. Do you have the ability to-I think you've just said you
don't, but if we gave you 10 assignments, could you turn them
down or would you have to put aside what you were planning to do
and do what the committee has ordered you to do?
Mr Peters: I
would certainly have to come forward to you if this causes a-it
does say under section 17 that "such assignments shall not take
precedence over the other duties of the auditor under this act."
In other words, if the volume should be such that I may have to
set aside other audit work, then I probably have two recourses.
One is to approach the Board of Internal Economy of the
Legislature and say, "Can you provide me with supplementary
estimates to deal with the additional resources that are
required?" If I am turned down on that assignment, I may have to
come back to you and say, "I just don't have the resources to do
it."
1030
Mr Maves: So
you can actually choose what you audit? You can choose to tell
the committee you don't want to do something they've instructed
you to do because you prefer to do some of the other audits that
your office, on its own, has chosen to do?
Mr Peters:
Yes, but it would be principally a resource question.
Theoretically, if I got into the situation that I cannot do the
work that I'm supposed to report on under section 12 of the Audit
Act, which lists whether money was properly spent and all these
things, then I would have to come back to the committee and
outline that I have that difficulty, because presumably it would
not be in the interest of my big client, the Legislature, if my
work were totally set aside to work for special resolutions of
the committee.
Mr Maves:
You can always argue the resource question. What I'm trying to
get at is what actually takes precedence. You might have five
audits that you want to start to do. I'm sure your office is
planning well ahead for different things they want to audit.
You've got four, five, six things you know that you want to start
audits on next year. Then this committee says, "No, here are five
or six things that we want you to do next year." You say, "Well,
I can do 10. I can do the five I want to do and the five you want
to do, but I need more resources." If you're told, "No, you don't
get any new resources," what now takes precedence-the five that
you're instructed to do by the committee or the five that you
choose to do?
Mr Peters:
To be quite frank, I would have to do extensive research into
that, because the situation simply hasn't arisen.
The other thing that has
arisen and I should mention to you is that when I refer to the
fact that a minister's assignment I could decline, that is if it
conflicts with my other duties. For example, it would prevent a
minister from giving me an assignment on the minister's behalf in
the hope that I would not be reporting on the findings to the
Legislature. That has happened in the past, where I have been
approached and I have turned assignments down.
The Chair:
You've been approached by a minister?
Mr Peters:
I've been approached by a minister to do something. The first
thing I always tell a minister under the circumstances is that
any findings will not be confined to reporting to the minister, but I will
also have a reporting duty to the Legislature, so I will report
on that to the Legislature. That has sometimes altered the
assignment a little bit.
Largely, it is not ill will;
it is simply a situation where a minister was not aware that that
was the situation. The incidents I can recall where that happened
were minuscule, and I shouldn't overblow it. The ministers in all
cases have acted with a very high sense of responsibility and
respect for my office.
The other area where I think
in the past we have turned down one assignment from the
committee, way back when, was simply because we found that the
premise of the assignment did not stand up. In other words, the
reason it was going to be examined just didn't stand even the
first test of scrutiny by my office. In that particular case, the
assignment was based on a newspaper article where we couldn't
even get at the source to determine what had raised the concern
at that particular time. In that circumstance, I have gone back
to the committee and said, "Look, I really have problems with
this one."
The Chair:
How long ago are we talking about?
Mr Peters:
This was right in the beginning, when I started.
I think Mr Maves' question
was to give you a little bit of a history of the assignments that
I've received. In the fullness of the question, I certainly will
provide you with a list of the assignments we have conducted, as
requested by the committee.
Mr Maves:
The other thing is, Chair, can research and/or the Provincial
Auditor's office report back about what happens legally if the
committee assigned a certain number of assignments that competed
with the assignments that the auditor's office wanted to do and
the Board of Internal Economy said, "No, you can't have any more
resources," and so the auditor had to choose what took
precedence?
The Chair: I
think the section is quite clear on that. Did I misunderstand
that? He has to do his regular work first. If the special
assignments interfere, he either can't do them or he has to get
special resources. If the special resources aren't made
available, he can't do them. That's the way I understood it.
Mr Peters:
That's right. It says that these "assignments shall not take
precedence." That means that the assignments that I have
determined I should do take precedence. So these do not take
precedence.
As I said, there are two ways
of dealing with it: additional resources or deferring in terms of
time-not do it now but do it later, when I can fit it into the
schedule. But the act is quite clear.
Mr Maves:
You have the authority to decide to audit this contract on your
own? The committee doesn't have to tell you to do it; you can
decide to audit the contract?
Mr Peters:
This particular contract? My act is very prescriptive in this
regard. Let me outline to you what I'm referring to. It's
subsection 9(3) of my act.
Largely, it arises because
Ontario Power Generation is audited by Ernst and Young, an
auditor other than my office. The role would be quite different
if I were the auditor of the organization. OPG is a
crown-controlled corporation-in other words, 100% of its shares
are owned by the government-but the audit is conducted by Ernst
and Young.
Subsection 9(3) states:
"Where the accounts of a crown-controlled corporation are audited
other than by the auditor, the person or persons performing the
audit"-meaning that my first approach is to approach the auditor
and say, "What do you know about this particular
transaction?"-shall provide us with "all working papers, reports,
schedules and other documents in respect of the audit or in
respect of any other audit of the corporation specified in the
request."
They shall provide us-my
office-when my office requests it, "a full explanation of work
performed, tests and examinations made and the results obtained,
and any other information within the knowledge of such person or
persons in respect of the corporation." In other words, go to the
auditor.
Now comes the important part,
and that's in subsection (4): "Where the auditor is of the
opinion that any information, explanation or document that is
provided, made available or delivered to him or her by the
auditor"-that is, the auditor of OPG in this case-"...the auditor
may conduct or cause to be conducted such additional examination
and investigation of the records and operations of the agency or
corporation as the auditor considers necessary."
In other words, say in the
course of the statutory audit Ernst and Young have just done
sufficient work to form an opinion on the fairness of the
financial statements but have done no work on the particular deal
that my office has been asked by you to investigate or to check
into. In that circumstance, I can go directly into the records of
the corporation. Section 9 would allow me that. But as a matter
of routine, we have not conducted value-for-money audits of crown
corporations or other organizations, with two exceptions that I
should explain.
1040
We did-I forget whether it
was last year or the year before-a value-for-money audit of the
Liquor Control Board of Ontario, of LCBO, of which we are the
auditor, so it doesn't count-
Interjection.
Mr Peters:
That's right. Thank you, John. We were the direct auditor. Where
I'm the direct auditor, I have full latitude. The only other
exception, where there are other auditors and where we do get
involved in value-for-money audits, is what is now called the
Workplace Safety and Insurance Board, where a while back-I forget
the exact year; I would say 1996-97, somewhere in that term-this
government brought in legislation that value-for-money audits
conducted at WSIB should be done under the direction of my
office. We are involved there but through another route, although
there are other auditors. Their work is under the direction of my
office. That is the only other area at this moment that I can
think of where we do such work.
Mr Maves: So there's no precedent,
then, for you to audit a contract of a crown corporation, where
you've gone in and audited a contract entered into by a crown
corporation?
Mr Peters:
The only one I'm relating that is close to that is WSIB.
Mr Maves:
But it's different.
Mr Peters:
Well, one or two a year-if they decided that they would give a
value-for-money audit contract to another auditor of a contract,
then that would certainly take place under my direction.
Mr Maves:
What kind of audit would exist right now from Ernst and Young
with regard to this contract? Do you assume that one would exist,
or not yet?
Mr Peters:
Not specifically, but I should relate something to you that is
important. I am sorry I didn't think of it before. My office did
do a review of Ontario Hydro in 1983-84 at the request of this
committee. So there is precedent for that. We were asked to
produce three reports concerning the finances of Ontario Hydro as
they relate to the financial situation of the Darlington nuclear
generating construction project; of the costs of the major tube
replacement program at Pickering A nuclear generating station;
and at Ontario Hydro's mothballing and write-off program in heavy
water production and fossil fuel generation. That work was at the
initiation of the standing committee on public accounts in the
fall of 1983, and my office did report.
Mr Maves: In
that case, as you read to me from the act before, you went first
to the auditors of the company?
Mr Peters:
That's right.
Mr Maves:
And you received their audit work on that project?
Mr Peters:
That's right.
Mr Maves:
And from there, if there were concerns you had with their audit,
then you would have conducted something more thorough on your
own?
Mr Peters:
Yes. I consider that a value-for-money from my work provision.
Why reinvent the wheel if they already have done some work? Then
I just have to push it further. So I have to do incremental work
as opposed to starting from scratch, if there's any information
available. On this deal, I truly don't know whether, for example,
there is a chance that they may have involved their auditors on a
special assignment to help them with this particular deal. It was
new information to me when Ms Martel referred to an analysis by
Salomon Smith Barney.
I don't know what the
involvement there is, whether their auditors were involved or
what work was there. We would have to certainly investigate. But
I assure you, again, that there was no discussion of the work
itself. I have not, in the last week, started any look-see,
because the commencement of my work is really dependent on you
giving me that assignment. Otherwise, I just won't act.
Mr Maves:
Has your office ever done an audit of a government contract that
wasn't yet signed or had not yet become an official contract?
Mr Peters:
At the earlier stage? No, I think for one reason we did not get
involved. John Sciarra, my executive assistant, has commentary on
that.
Mr John
Sciarra: Our office has performed work for the committee
in the past on contracts not yet signed. One was the domed
stadium, and another one was the sale of UTDC.
Mr Maves:
Of which? I'm sorry.
Mr
Sciarra: UTDC, the Urban Transportation Development
Corp. Those assignments would have been carried out in the
mid-1980s, around 1985 or 1986.
Ms Marilyn
Mushinski (Scarborough Centre): I'm having some
difficulty hearing. What was your last comment?
Mr
Sciarra: The office has undertaken two assignments at
the request of this committee that involved contracts not yet
signed. One was the domed stadium, and the other one was the sale
of the Urban Transportation Development Corp. Both of them would
have been undertaken around 1985 or 1986.
Ms
Mushinski: They were ordered by this committee?
Mr
Sciarra: At the instruction of this committee, yes.
The Chair:
When you're talking about additional resources, what are we
talking about?
Mr Peters:
I can't fully answer this right now because I don't know the full
extent of the deal. But, for example, if it involves such things
as assessing the decommissioning costs, we would probably have to
have somebody take a look at that. We have done preliminary work.
The reason I'm stating this is that I know that, for example, the
General Accounting Office in the United States has declined to
give an opinion on the consolidated financial statement of the
United States because of uncertainty of the decommissioning costs
of nuclear plants already decommissioned by the US government.
The initial estimate was that those costs may have exceeded a
quarter of a trillion dollars. Those were the ones they had
already done. So I would certainly like to get the special advice
of people who have expertise in that area. That's one area I can
think of where we may want to take a look at this. Other areas
would probably be within the purview of our expertise, but the
decommissioning costs come to mind as the first area where we
probably need extra advice.
Mr Maves:
Before, when we talked about assignments given to you from the
committee or from a minister, you said you'd have to look and see
if you needed extra resources. What type of extra resources do
you think you'd need to undertake this audit?
Mr Peters:
We can more define it after, but in the one I just mentioned we
would probably need some engineering expertise or some people who
are experts on decommissioning costs, maybe even go to the Atomic
Energy Control Board to see if they can help out as to how they
determine the per-kilowatt-hour rate they normally prescribe that
nuclear power facilities set aside, expertise like that. They
would be acquired under contract.
Mr Maves: Presumably your office
is fully stretched on what it is auditing right now and the
audits that are being undertaken.
Mr Peters:
Yes, but as I pointed out, I would probably use subsection 9(3)
and approach the existing auditors. The arrangement we have made
in the past is that we would make an arrangement whereby OPG,
Ontario Power Generation, may want to participate in the cost of
this examination, this audit, because it's in their interests as
well.
Mr Maves:
So this wouldn't displace any of your staff right now from what
they're doing? Would it displace any ongoing audit that you're
currently doing?
Mr Peters:
At my current staffing level I would have to scramble for
resources; let me put it that way.
Mr Maves:
OK. If this motion hadn't come forward, or if we don't pass this
motion, do you have the authority to review this deal? Can you
decide on your own that now you want to go ahead and do a review
of this deal?
1050
Mr Peters:
Certainly I do if it becomes of significance. Let me just stray
potentially into another area here at, presumably, my own peril.
One of the areas that is certainly of great interest to my office
is what happened when the government declared itself as owner and
controller through shareholdership of the former Ontario Hydro.
If you'll recall, at that time there was significant
identification of so-called stranded debt. There is a concern, an
ongoing concern of my office-there simply has to be-as to what is
the risk to the taxpayer as opposed to the risk of the ratepayer
in the government taking over this stranded debt. If there are
transactions such as this that are of sufficient magnitude that
they may influence that risk, we may decide that we would take a
closer look at it. I won't close the door to it, but it's not
open at this moment.
Mr Maves:
You said you've had conversations and concerns already in your
office. It sounds like you're intending to do some work in this
area.
Mr Peters:
I have already signalled that in my 1999 report, in which I
specifically asked that a valuation be carried out of the plan of
the government to defease the stranded debt. As you know, or you
may not know, there is a significant plan that was undertaken
which, actually, Hydro One and the Ontario Power Generation
company were deemed to be taxable corporations, and so the
so-called PILs, payments-in-lieu, came about, which are payments
in lieu of taxes, treating those two corporations as if they were
taxable. Those amounts are supposed to be defrayed.
There is also a potential
coming out of something called a debt restructuring charge, now
called the DRC, which has not yet been imposed but will probably
have to be imposed on the ratepayers to pay for the stranded
debt. Another element, certainly, are any profits that accrue to
these corporations out of privatization deals that are going to
be struck. That's certainly part of the equation of how this debt
is supposed to be defeased. That debt, as you probably know, is
significant. It approaches $20 billion. So that is an area of
interest and we have a watching brief on it.
Mr Maves:
This contract, though, in particular, you could choose at some
point in time to do a value-for-money on that contract.
Mr Peters:
Yes, we could.
The Chair:
But only after it's signed, or before it's signed as well?
Mr Peters:
There is one difficulty that we always have with contracts before
they are signed. That's why actually I would prefer the
assignment, in terms of timing, before it is signed only at the
instruction of the committee. Otherwise, it may interfere with
the independence. Otherwise, I get involved with the contract and
there could be an argument made subsequently that, "We acted on
advice from the Provincial Auditor and how dare he now report on
the audit, that it didn't go this way or that way, to the
Legislature?" So I would be involved in-if I opted to do it
myself, it would be considered of difficulty in terms of the
independence of my office that you rely on as legislators.
Mr Maves:
So typically, then, if you did do such a review, you'd do it once
it was concluded.
Mr Peters:
Yes, most likely.
Mr Richard Patten
(Ottawa Centre): May I ask a question? I thought the
lease had already been approved. I thought there was a lease
arrangement that was approved. Is that not already approved? The
licensing hasn't been approved, but I thought the lease deal had
been approved.
Mr Maves:
My understanding is the agreement is not an agreement until the
Ontario Energy Board and the Canadian whatever it's called
now-
Mr Patten:
The Canadian Nuclear Safety Commission.
Mr Maves:
-right-approve it.
Mr Patten:
My understanding is they're not looking at the nature of the
lease as much as the safety arrangements. I don't know what the
energy board is looking at specifically. That was one of my
questions. Would they be looking at those sorts of questions that
we ask you? It seems to me they probably wouldn't, would they? In
the approval of the arrangement, what would the energy board be
looking at or considering?
Mr Peters:
I don't think I can give you a fulsome answer because I have not
looked at the full role, but the normal role, as I understand it,
of the energy review board is actually to get into the
rate-setting exercise more than any other issue that is before
them. They would certainly not look into, to the best of my
knowledge, value for money from operations. They may ask
questions in their rate-setting process.
The Chair:
OK, Ms Martel, just on that issue.
Ms Martel:
OPG provided a backgrounder when this package was announced and
they have a chronology of the process. It says July 2000: the
shareholder, which is the government of Ontario, "grants approval
following advice from SuperBuild Corp and its financial advisors,
Goldman Sachs and CIBC World Markets." And then it has after that, "Announcement of
the agreement with British Energy." So cabinet has approved this
deal as the sole shareholder for OPG.
If this deal is done-
The Chair:
Do you want to hand that to the committee? OK. Getting back to Mr
Maves-no? Mr Hastings.
Mr John Hastings
(Etobicoke North): I'd like to pursue a little more
detail and depth of previous audits undertaken at the entry or
midpoint of a contract. In the case of SkyDome or the UTDC, how
far along had those deals been negotiated before the committee
made specific requests that there be an audit undertaken,
particularly in the case of SkyDome? Do you recall?
Mr
Sciarra: I can speak to the SkyDome one. My recollection
of the UTDC-I'd have to go back to our working papers. But with
SkyDome, the province of Ontario had committed some money, $30
million, toward building it. My recollection is that the
competition had not taken place as yet at the time the committee
requested. The competition to build the SkyDome had not taken
place.
Mr
Hastings: In the instance of the UTDC?
Mr
Sciarra: I'd have to go back to our working papers on
timing.
Mr
Hastings: Mr Peters, what is the premise or premises
that you start on in examining deals, contracts in progress,
under negotiation? For example, Ms Martel mentioned, I think in
item 3, the value-for-money proposition about the $2 billion on
the decommissioning. Is that a valid premise, that-if this
committee did pass this motion, how would you test the validity
of the premise in either item 3 or 4 that she presented as
rationales for looking at this particular Bruce deal?
Mr Peters:
With regard to whether the $3 billion represents an appropriate
proportion of the $15 billion that was mentioned in 1996 at 1996
dollars, we would certainly take a look at how the $15 billion
was developed and determine from that as to what in fact was
factored into that amount for the Bruce nuclear plant. That would
be the beginning of it, to give you an example.
With regard to the benefit
of looking at a contract that is done, maybe I can make two
comments. Normally, our approach is to allow the government to
learn from our findings; in other words, to use our findings and
recommendation as a constructive input into the way such deals
will be structured in the future, to take the elements that we
have concerns with into account when future deals are being
struck.
The second point in that
regard is that certainly the entire Energy Competition Act was
introduced in order to privatize. There is a learning curve in
place right now about how we best privatize deals, and this seems
to be the first big one. I would see a benefit from learning what
went right and what went wrong in a contract like this.
1100
Mr
Hastings: Under the Audit Act, you have the power to
order all papers, all documents, all data, everything about a
contract in negotiation. Is that your interpretation and practice
under the act from the previous investigations you've undertaken,
audits?
Mr Peters:
Yes. Section 10 of my act is very clear. It says, "the auditor
shall be given access to all books, accounts, financial records,
reports, files and all other papers, things or property belonging
to or in use by the ministry, agency of the crown or
crown-controlled corporation and necessary to the performance of
the duties of the auditor under this act." In other words, I have
access to all information that I require to carry out this
assignment, should you decide to give it to me.
Mr
Hastings: In that instance, given that as it is, what
specific additional safeguards are put in place, if any,
regarding how those materials are utilized during an audit?
Not having been around here
very long but in other-you read about it in the media. We just
saw an example not long ago, 24 hours ago, that documents,
particularly in sensitive negotiations-I don't know what happened
with the UTDC or SkyDome or the Darlington situations-tend to get
legs. They tend to have two-legged or four-legged movement
sometimes. I'm very interested in what your office or the auditor
would do-in this case, Ernst and Young then, because they're the
folks who are doing the audits for the power companies. What
special provisions would be taken to absolutely ensure-we're not
talking about a degree of absolutism, but a 100%-plus absolute
assurance-that none of those documents, whatever it is, since
your office gets access to them, ends up walking? That's my
primary concern.
Where governments are
involved in negotiation of commercial contracts-I'm not saying
this would happen. I don't know that it has happened in the
instance of an audit, but it certainly happens with cabinet
documents. If it can happen with a cabinet document, whether it's
stamped with however the grade of confidentiality, how do we
ensure that you don't have any of that occurring in those
situations where your office does get the authority or when even
you decide on your own to audit a particular ongoing
contract?
Mr Peters:
Let me begin by answering that question, and this is not the
whole answer. The first one is that I consider the Audit Act a
very well balanced piece of legislation in that regard because it
says very specifically that I personally, "the assistant auditor
and each person employed"-by my office or appointed to assist the
auditor for a limited period of time; that is my
contractors-"shall preserve secrecy with respect to all matters
that come to his or her knowledge in the course of his or her
employment or duties under this act and shall not communicate any
such matters to any person, except as may be required in
connection with the administration of this act"-in other words,
we can talk to each other about what we saw-"or any proceedings
under this act or under the Criminal Code." For example, we had
great difficulty because in a civil action records were
requested. I actually engaged legal counsel to argue with the
judge that this information was not available from our office because it was a
civil matter, not a criminal matter.
Two, all our premises and
our working papers are constantly under lock and key at all
times. One other important issue is that legally my office is
totally exempt from the Freedom of Information and Protection of
Privacy Act. In other words, even if a request is made to my
office, I turn it down automatically. Nobody will get the
information from my office.
Another section that is of
importance here is section 19 of my act, under which I cannot
even provide working papers if you ordered me to.
Mr
Hastings: That is the committee.
Mr Peters:
No, the Legislature as a whole even and the committee, anybody
connected. Section 19 of my act specifically is very short. It
says, "Audit working papers of the office of the auditor shall
not be laid before the assembly or any committee of the
assembly." So all my physical arrangements and the code of
conduct that I've installed in my office, of which I have a very
solid one, are designed to safeguard the information at all
times. In fact, we go to great lengths to preserve that. In my
office, a lot of people are instructed to have locked filing
cabinets and all that sort of thing.
Mr
Hastings: That's really somewhat reassuring. If you got
into an audit, given now that we have widespread e-mail,
widespread faxing-it's very convenient-this could happen; I'm not
saying it will. What specific provisions would you take with
regard to someone, Ernst and Young or whoever the auditor of the
crown agency is, needing some info on a particular document and
it gets faxed? This could take I don't know how many months. How
do you update your protections regarding e-mails? We've seen in
other governments what's happening there.
Without mentioning where in
the world, certain e-mails are now being subpoenaed in a certain
country. Would you not have any e-mail on this whole project, I
would assume, between office and office? Would it all be physical
basic pigeon-type communications? Would you have to actually move
the stuff from A to B if that was required?
Mr Peters:
I'm very concerned about security safety. At the moment, my
office runs three servers. The server with confidential
information is not accessible by the outside. It's only
accessible by computers within my office. Staff cannot transfer
data out of that server into any other server, because the
connection just does not exist.
Mr
Hastings: It's a deadbolt-type server.
Mr Peters:
It's totally stand-alone. Nobody can get into it. Even my office
staff cannot get out of the second-level server which is my own
internal server that runs my office. Then there's a third level
of server which is where we do connect to at least the government
system so we can import information from government departments
or my staff can file information from a ministry in that area.
That is, again, separated.
There have been incidents
of security breaches through hackers and others. Every time that
occurs-I think we are running right now about three firewalls
even on that system-my information technology staff is aware at
all times. For example, we know of viruses a lot longer before
other people know and people are instructed, "You can't do
this."
Faxing information in and
out is fairly well controlled because the fax machines in my
office are controlled by my staff, and my staff is, again, bound
by these rules. As long as I've been Provincial Auditor, we've
had one situation where somebody decided to misuse that
information, and we took very swift action. That person was
dismissed.
1110
Mr
Hastings: I would assume in these instances you have a
standby protocol you've established with the external auditor,
whoever it might be, whatever agency, if you or your office
undertook a specific, comprehensive, independent audit and came
back to the committee, whether it be this or any other.
Mr Peters:
Very much so. We would immediately meet with a firm and establish
that protocol. We have two levels of protocol; one is a protocol
that exists for audits that are under my direction, where the
other auditor does the work. Then there is also a protocol where,
in certain circumstances, private sector firms have a contract to
conduct audits as an agent on behalf of my office. When they act
in this agency capacity, there again is a protocol as to how we
deal with it.
Much of that is also
regulated by the regulations set out in the handbook for
chartered accountants by the Canadian Institute of Chartered
Accountants, which requires certain protocols and procedures to
safeguard the independence and reliability of the work.
Mr
Hastings: It sounds, then, like we've pretty well
covered most or all of the bases for confidentiality in this kind
of a situation. This might be a little unfair and you may not
want to answer it: because of these levels of protocols and the
extensive safeguards you have in place, do you think these
standards could be utilized by any level of government, even if
they weren't doing anything with an outside commercial agency,
negotiating any kind of a contract, buying fertilizer or a roads
contract or anything? Would it be good stuff that you could pass
along?
Mr Peters:
Yes. In fact, it is certainly on my platter to do a security
audit of information technology in the government. We just
haven't got around to it. But that would be one vehicle that I
could use of sharing standards and information. Otherwise, we
certainly assist ministries, wherever we can, where we find
difficulties. Even if we look into other areas, information
technology is always a component of our audit.
For example, recalling
back, I think we reported it on one major system where we found
that there was a lax approach to passwords, failure to identify
individuals who had actually accessed data. That becomes a
reportable item. It may not reach this committee level, but, as you know, we try as best
we can to be of service to the ministries. So there are certain
items that will be dealt with at the management level, because
for every report that you get there is also what is called a
final draft report to the deputy minister, and that very often
has items in it that I don't think are worth your time to debate
but certainly are worth the deputy minister's time. I normally
get very good, solid commitment from the deputy minister and the
senior management of the ministry or the auditee to implement
those. Sometimes they are so serious that we insist on fixing it
right now. It's actually nice to have that lever, "I'll report to
the Legislature if you don't," if you think this thing is very
serious and has to be fixed now, and it gets fixed.
Mrs Julia Munro
(York North): My question goes back to an earlier
comment a few minutes ago with regard to the mandate of the
Ontario Energy Board. My understanding was that there had to be
certain criteria met in any arrangement that the Ontario Energy
Board was to approve. There was a conversation a few moments ago
about the possible limits of that approval. I just wondered
whether or not you could give us any ideas, from your
perspective, in terms of the limits of their approval.
Mr Peters:
Offhand, I really can't. I think the only thing I can do at this
point is really emphasize to you the different roles that we
play. The energy board is, essentially, a rate regulator that is
to serve and protect the energy-electricity ratepayer, as well as
the continuation of the energy provider as a viable energy
resource to the province. My role is, as you know, a totally
different one, as the auditor.
So I don't think they would
be particularly interested in getting into value-for-money
issues, leaving that for the management to decide, but they would
be, rather, in the business of setting parameters within which
they can operate; in other words, providing a rate of return or
setting a rate for electricity and then leaving it up to
management how they achieve viability within those rate-setting
parameters.
Mrs Munro:
Would you think, then, given the nature of this arrangement for
approval, that they would have to expand it in order to meet
their obligations? I guess the normal course of business would be
municipalities and consortiums and things like that. This issue
is of a considerably greater magnitude. I'm just wondering if it
would be reasonable to assume that they would have to look at
this from the point of view of that increased magnitude. Would
you see them having that kind of ability within that mandate that
they have?
Mr Peters:
I don't think so, and maybe, John, you can check me up on this
one. To the best of my knowledge, when Ontario Hydro was broken
up under the restructuring, there was only one organization left
in there that is subject to review by the energy board, and that
is Hydro One. I don't think OPG is a rate-regulated entity.
Mr
Sciarra: We'd have to check the new legislation that
provides new powers for the Ontario Energy Board. We don't have
it handy right now, but we can get back to the committee.
Mr Peters:
My instinct, though, is that OPG is not rate-regulated, because
it is a vendor within the system. The energy review board would
regulate the rate that the consumer of electricity pays, but OPG
actually sells its energy to Hydro One, and then Hydro One is the
rate regulator, because they have to deal with how they sell it
to the final consumer, in this case the municipalities, and the
municipalities are rate-regulated as well. The power generator
is, to the best of my knowledge, not regulated, but that's
subject to verification.
Mrs Munro:
My point was simply that, given the fact that this was the root
that was identified as the area that would have the ability to
pass on some level of approval, there must be within their
mandate something that would allow them to look at this, given
its magnitude.
Mr Peters:
That's what I would have to verify. My answer to that is really
that my instinct is that they wouldn't get involved, because OPG
is not under their purview.
Mr Patten:
I'd like to support the motion. I appreciate the concerns that
were brought up on the other side. The committee does not have a
history of irresponsibly bringing forward, year after year, a
whole series of these. I think the last one was probably about 10
years ago.
1120
But I think, given the
magnitude and the importance-I have a copy of the application of
the Bruce power generating corporation to the Canadian Nuclear
Safety Commission. I understand that their standards are pretty
stringent, but they would be looking at the safety aspects. If
anybody wants a copy of that, they can have it. Their application
was essentially based on the taking over of the operations
from-what is it?
Ms Martel:
OPG.
Mr Patten:
OPG. Therefore they are making the case that this should almost,
pro forma, be accepted. I don't think that's going to happen. I
think there will be more of a review, so I'm not worried about
that aspect.
I had asked this question,
and we don't have a definitive answer, but I don't think the
Ontario Power Corporation likewise will be reviewing the nature
of the lease and the significant implications for down-the-road
arrangements for decommissioning, which may end up on the
taxpayers' laps.
One of the arguments is
that there is a learning curve in this instance that may benefit
us as we get into it, and given that the Premier said he's
supportive of having this examined, I for one would be happy to
support the motion.
The Chair:
Any further comments?
Ms
Mushinski: Actually, I did have a few questions. I'd
like to revisit the 1985 committee request for the sale of UTDC
and SkyDome. Could you just very, very briefly describe what the
process was that led up to that review and what the outcome of
the review was? I'm assuming that the sale of both of those
provincial-
Mr Sciarra: The SkyDome was to
build the facility. It wasn't the sale.
Ms
Mushinski: Oh, it was to build; it wasn't to divest.
Mr
Sciarra: That's right.
Ms
Mushinski: In 1985?
Mr
Sciarra: Yes. That's when it started.
Ms
Mushinski: UTDC?
Mr
Sciarra: I think it was 1986; 1985 or 1986.
Ms
Mushinski: Tell me what you recommended.
Mr
Sciarra: With the UTDC, I'd have to go back to our
working papers; the timing is fuzzy. But with SkyDome, my
recollection is that the province committed to invest $30 million
and there was a consortium set up as well to participate in the
building of the facility. The committee in 1985 passed a motion
instructing the Provincial Auditor to review the financing of the
building of SkyDome. Then we reported to the committee-
Ms
Mushinski: But what was the intent? Was it to determine
value for money? I'm trying to figure out what the political
intent was. Was it to stop any divestment? Was it to stop the
sale of UTDC?
Mr
Sciarra: There were political concerns, I suppose, but
from our perspective-
Ms
Mushinski: You don't venture into those, of course.
Mr
Sciarra: -we looked at the financing arrangements that
were in place at that time and what was being contemplated to get
to the point of building. We reported to the committee, and it
was mainly a financing report.
Ms
Mushinski: I would appreciate a review of that and if
you could just come back with your findings. I'd like to know
what actions were taken. Clearly, we want to know today if this
deal that has been struck actually is going to provide value for
money.
I guess it leads to my next
question with respect to, I suppose, the status of the deal. The
deal has to be approved through the issuance of a licence by the
federal body, which is-
Mr Patten:
The Canadian Nuclear Safety Commission.
Ms
Mushinski: I'd appreciate receiving a copy of that too,
Richard.
Mr Patten:
Sure.
Ms
Mushinski: Are you aware of what the requirement for due
diligence is between the federal body, which is the Canadian
Nuclear Safety Commission, and the Ontario Energy Board receiving
the licence? What's the requirement? Is there an audit of that
function-the issuance of the licence?
Mr Peters:
The audit of the safety function or the audit of the regulator
itself?
Ms
Mushinski: Obviously there's not going to be an audit of
the Canadian Nuclear Safety Commission, because the Ontario
Energy Board is making the application. The due diligence
component, which deals with health, safety, security and
environmental protection-and clearly my reading of Shelley's
motion would include those four aspects as well. What due
diligence is performed to ensure that those four functions are
satisfied in issuing the licence?
Mr Peters:
I assume it would follow the process under any licensing
arrangement. In other words, the licence grantor spells out the
licensing conditions, and there have to be presentations by the
organizations that want to have licences to make application and
support, if you will, what is actually a promise of performance
to those licensing conditions.
Most licensing bodies do
have a review or investigation function to subsequently check, in
cases where they detect a breach of the licence-and that actually
happens in many areas. They also do it by giving term licences;
in other words, saying, "Three years from now you have to come
forward and say what you did before we renew you again." Those
are the normal processes that follow.
The process of my office's
involvement in those areas is very often to follow, to track
through if they are actually doing the job; for example, that
they are renewing licences and are doing the necessary work to
determine whether they actually can renew a licence or should
stop it.
Ms
Mushinski: This sort of led to my concern about the
timing, because if certain aspects of Shelley's motion are
actually going to be conducted as a result of the issuance of the
licence and the licence hasn't been issued because those have to
be fulfilled, how can you determine at this stage what a
value-for-money audit would do until the licence itself has been
issued?
Mr Peters:
At this stage, we would probably have to rely on the process
itself, but certainly we would have to take a look at the
promises of performance that are demanded by these licences, and
some assessment would be done. For example, what if one of the
licensing bodies decides not to grant a licence? Is that part of
the condition of the contract? Does it undo the contract? Which
part of the contract does it undo? What are the remedies? What
penalty clauses are put into this agreement on behalf of the
taxpayer to safeguard that the deal is proper? That would
certainly be one of the questions-
Ms
Mushinski: OK. Let's pursue that a little further. Who
would be responsible for that, given that the minister has
undertaken this arrangement? If the federal government refused to
issue the licence because certain aspects of that arrangement
have not been fulfilled, whose responsibility is it to carry out
the minister's order?
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Mr Peters:
That would most likely rest in the contractual arrangement they
have entered into. For example, I just noticed that the
Electricity Act, section 53, says, "The Generation Corporation
and the Services Corporation," which is Hydro One, "shall submit
such other reports and information to the Minister of Energy,
Science and Technology or the Minister of Finance as each of
those ministers may require from time to time." So we certainly
would look, to begin with, for reports to the minister that say,
"These are the `what-if' scenarios."
Ms Mushinski: So, again, it can be
argued that this motion is premature, given that the licence has
not yet been issued and because we don't know if all of the
aspects leading up to the issuance of the licence have actually
been fulfilled or met.
Mr Peters:
In one sense, not really. On all these arrangements, what we
would be looking for, from a value-for-money point of view, is
that there are sufficient safeguards in the contractual
arrangement to deal with that eventuality. Our report in this
case would be, if there are no safeguards-in other words, assume
for a moment, which I doubt very much we will find, but just
totally hypothetically, that there is no provision for penalty
clauses in case one of those licences is not granted. Certainly
we would have to report that to you. That would be part of our
report, because that would be a deficiency of the contract.
So it wouldn't be
depending, necessarily, on whether the licence would be granted,
but we would comment already that there was insufficient care
given or attention paid to "what-if" scenarios if licences are
not granted. I think that would be valuable advice to the
Legislature.
Ms
Mushinski: I think we need to caucus on this for a few
minutes. Could we take about a 15-minute break?
The Chair:
OK. May I just hear one, and then I'll get back to your
motion.
Ms Martel:
Before the government side does that, may I try to respond to
some of the concerns that were raised, and hope this might help
their deliberations?
Interjection.
The Chair:
I thought we'd just listen to Ms Martel to address some of the
concerns and then, sure, we can recess for a few minutes.
Absolutely.
Mr Peters:
Chair, to help the committee, and I think it may help you, may I
just add that since I've been Provincial Auditor there was one
contract we did audit, and that was the construction contract of
the Workers' Compensation Board building on Front Street.
Ms
Mushinski: I'm assuming that the information is going to
be coming back for further consideration next week. It would be
really nice to see a report on that particular-
Mr Peters:
That was a value-for-money one. I can gladly table that. That was
tabled in 1993 or 1994.
The Chair:
Can we have that before our meeting next Thursday? Could we have
copies of that, let's say, by Tuesday so the committee members
can take a look at it beforehand?
Mr Peters:
Absolutely.
Ms Martel:
A couple of things. The premise on which this was moved was two
things, really: first, the magnitude of the deal. All things
being equal, the minister has said it's about $3.1 billion. The
asset itself is worth a significant amount of money, even if some
of the reactors are down. So the issue for me continues to be,
does the agreement, ie, a 20-year lease, reflect the best we can
get from this partner, or is it about the same or less than the
revenue that OPG itself would generate if it continued to run it?
That is what's at the heart of this for me.
It's a huge deal. Clearly,
Bruce Nuclear stands to gain. Clearly, they are giving proceeds
back to the province. The issue is, they are using a public
asset, and does the deal reflect the best revenue we can get from
the use of that asset by them over the next 20 years? I think
that's significant, because the money involved here is very
significant. It's the biggest deal that has ever been done in the
province.
Second, I take the Premier
at his word when he says he's confident that the deal would face
up to public scrutiny. The reason I referred it to this committee
rather than trying to get the standing committee on nuclear
affairs reconstituted was because the auditor does this work
already as part of his work. Yes, it's clear he would have to
have additional resources because there's some expertise his
office doesn't have. But his work is value for money. Whether we
sometimes like his recommendations or not, I don't think anyone
could argue that he is partisan in any way. For me, it would be
the most independent forum we could get to look at the terms and
conditions and whether or not it's good for the taxpayers.
The need for additional
resources: if this went to another legislative committee, we
would have to ask for additional resources as well. Even the
select committee, when it sat and did this work, had to contract
or purchase the services of a number of experts to provide them
information and to check some of the information that came from
OPG. I don't think that is out of line with what would have to be
done anyway in another committee. If the auditor has to do that,
so would another committee that was looking at this, because we
don't have the expertise in-house to do this work.
We heard already that
contracts have been looked at before they have been signed;
references were made to that. In this case, when I read the
package, given that cabinet has given its approval for the
financial deal and that cabinet is the sole shareholder, I
believe that to mean that the financial transaction is set, is in
place.
What remains is that the
new company that wishes to operate the reactor now has to go and
get the approvals with respect to safety, staffing, the
configuration of staffing etc from the federal agencies and then
from the province, approval on what the electricity rate will be
at which it will sell into the market, because that is what OEB
has been doing, for example, with any number of municipal
electrical organizations that have come before them recently.
The financial deal in terms
of what Ontario gets has been signed and is not-as I didn't read
anywhere in the document-subject to the other permits and
licences that this company has to get in order to operate. Those
licences and permits have to do with safety performance, staffing
etc. We should clearly make that distinction. What I'm asking the
auditor to look at is the financial transaction itself. What are
we getting back in terms of revenue from this deal? What has been
agreed to?
Bart asked whether or not
his office might do this, and the auditor said, "Well, the issue
of stranded debt continues to be a concern." It's a concern even
in this deal. I didn't
raise it, but some of the people I mentioned who are proponents
of the deregulated market also made it very clear that they
thought stranded debt and payment of it should be a component of
this deal. I didn't raise that as something he could look at, but
clearly others have. There is some argument to be made, given his
concerns that he already has around that issue, that could be
easily rolled into an examination of this agreement, because it
has been referenced as a concern by other people as part and
parcel of this agreement. I can provide the references to the
committee if they need that.
With respect to issues 3
and 4, particularly the decommissioning, it's important to raise
again that my concern is that we know a part of the money that
comes from this deal will be applied to decommissioning costs. My
question is twofold. Have the decommissioning costs been
underrated and therefore we will receive less money than we need
to from this arrangement to meet those costs? If that's the case,
we need to know that. Maybe $3 billion is in actual fact what is
necessary to deal for the Bruce, in which case we hope the money
that will come back from the lease agreement will meet those
costs.
The decommissioning costs
are an important component of this deal and important to
investigate, because we need to know whether enough revenue is
coming back to the province from Bruce nuclear to pay for those
costs. If not, the public is going to end up with a huge bill 20
years from now, or 18 years from now, if this is turned back to
public hands.
Finally, I just reiterate
that we're talking about a huge amount of money here. If the
Premier is prepared to have it scrutinized, we should do it. We
don't know the assumptions that were made by Salomon Smith
Barney, who were retained by OPG to do the work. I hope those
assumptions are correct. If they're not, we'd rather know that
now and deal with that now before this contract really gets
rolling and before we find, if we do, that the arrangement does
not benefit the taxpayers. We want to know that before rather
than 10 years down the road from now.
The Chair:
Do we want to recess?
Ms
Mushinski: I thought Shelley was actually going to speak
to our request for a 15-minute recess. We'd like to come back
before 12.
The Chair:
I was going to say, if you want more than 10 minutes, then we
should adjourn and deal with it next week. If you only need 10
minutes, then we'll deal with this right away; we'll deal with it
today.
Interjection: I would move
adjournment.
Mr Maves:
If it's going to be more than 20 minutes, I'm of that mind
too.
The Chair:
Is there an agreement then to defer the motion until next week?
Agreed.
Mr Maves:
Before we adjourn, maybe Ray and the auditor can revisit all the
requests that have been made for extra information for next week
just so we're clear on what we're getting.
Mr Peters:
I understand we've only one, and that is what audits have we
conducted.
The Chair:
And what the outcomes were with respect to the SkyDome and the
UTDC deal and the workers' compensation. What was it you
specifically requested of Ray?
Mr Ray
McLellan: I was going to say that in addition-John had
mentioned the initial review of SkyDome; I think it was
1984-85-the committee came back in the late 1980s, I think it was
1988, when they started to run into financial troubles, and we
looked at it again. My recollection, going back a number of
years, is that we didn't report on it, but we went through a
second review and spent some time on it. I'll go back and have a
look at the files to see what came out of that.
The Chair:
If that information could-
Mr Maves:
I think that more information was actually requested throughout
this two hours. Can we get a rush on Hansard so we can go back
and review it?
Ms Martel:
Chair, so we're all clear, could you also find out what exactly
the OEB would be doing with respect to this?
Mr Maves:
Can we get a rush on Hansard to help me remember what was
requested?
The Chair:
We'll put in a request and hopefully that will be done.
Our first order of business
next week will be to deal with this motion and, after that, to
deal with the FRO. The MTO report will be ready then as well.
Meeting adjourned.
