The former Ontario Liberal cabinet was warned by top civil servants that its proposed Fair Hydro Plan would be unfair to future taxpayers and electricity customers.

A select committee, set up by the Doug Ford government, is looking at the recent fiscal history of the province, which carries the largest sub-national debt load in the world.

One of the issues before the committee is the manner in which the Kathleen Wynne government went about cutting hydro rates by 25% in 2017.

In a move later criticized by the Auditor General’s Office, the Liberals offloaded the cost onto an Ontario Power Generation Trust, which meant it did not grow the government’s deficit but exposed ratepayers to higher borrowing costs.

“It is likely that external borrowing by the OPG Trust would be at a higher interest cost than provincial borrowing costs which would affect the carrying costs that would need to be recovered from ratepayers,” says a previously confidential staff briefing note to cabinet, released by the committee.

“The public may expect that the government is committed to reducing or holding constant the absolute cost of electricity for consumers in the long term … (the proposal) would limit the government’s ability to address electricity rate concerns in the future.”

Despite all the red flags and over much criticism from opposition MPPs, the Liberals decided to go ahead with their Fair Hydro Plan, arguing the cost of rebuilding the electricity system had not been fairly spread out over the life of the infrastructure, forcing current customers to absorb spiking hydro bills.

There is no Liberal MPP on the select committee.

Liberal Leader John Fraser said earlier this week that there has been a dispute around accounting methods, whether the Fair Hydro Plan should be on the rate or tax base.

“We believed it should be on the rate base,” Fraser said.

The cabinet briefing note spells out substantial risks including that the government would have no ability to control electricity prices resulting from these changes, would not know the price of private borrowing through OPG, and that private lenders would likely require a government backstop.

Staff cautioned the then government that the auditor general’s office frowned on “rate regulated accounting” and could qualify the provincial books – a prediction that came true.

The briefing note made the point that the Fair Hydro Plan could easily be construed as a tax, not a valid fee charged to recoup costs, because it back-loads costs onto future electricity customers.

“This risk could be eliminated, either up front or retroactively, by the imposition of a valid tax,” the note says.

Former Supreme Court justice Ian Binnie provided a legal opinion that there was a “moderately high risk” that the Fair Hydro Plan could be found by the courts to be a tax because it left future hydro customers carrying a disproportionate share of the costs of electricity in Ontario.

The Ford government has accepted auditor general Bonnie Lysyk’s opinion that the Fair Hydro Plan costs belong on the government books.

Lysyk concluded that had the Fair Hydro Plan been recorded on the government books, the deficit would have been $2.4 billion higher.

Ontarians would have paid up to $4 billion more in hydro-related debt borrowing charges under the Liberal accounting method, she said.

aartuso@postmedia.com