TORONTO -- The way the Ontario Liberal government is cutting hydro bills by 25 per cent purposely obscures the true financial impact to avoid showing a deficit on the province's books, the auditor general said Tuesday.

Bonnie Lysyk estimated in a special report that the plan's total cost will be $39.4 billion over 30 years, but the accounting the government is using means Ontario's net debt and future deficits won't reflect that.

"It is clear to us that the government's intention in creating the accounting/financing design to handle the costs of the electricity rate reduction was to avoid affecting its fiscal plan," Lysyk wrote in her report.

The Liberals presented a balanced budget in the spring, a year ahead of the provincial election, and have promised to keep the books in balance through the next couple of years.

"The emails we examined made clear that the instruction to...officials by government was that there should be no impact on the fiscal plan from its policy decision," Lysyk said. "In other words, they had to come up with something that would not derail the government's promise to present balanced budgets for 2017-18 and the next few years."

The government doesn't agree with Lysyk's conclusions, saying their financing structure wasn't intended to avoid a deficit.

The hydro plan came after bills in the province roughly doubled in the last decade, and widespread anger helped send Premier Kathleen Wynne's approval ratings to record lows.

It lowers time-of-use rates by removing from bills a portion of the global adjustment -- a charge consumers pay for above-market rates to power producers -- for the next 10 years.

In the meantime, producers will continue being paid the same, so Ontario Power Generation has been tapped to oversee the debt used to pay that difference through a new entity called OPG Trust.

That financing structure will cost an extra $4 billion, both the auditor and the financial accountability officer have concluded, as the OPG Trust will have to borrow at a higher rate than the province itself would have.

"In other words, to obscure the financial impact of the rate cuts on both the province's budgets and financial statements, the government plans to pay more than it has to," Lysyk said.

The cost of paying back the debt with interest will then go back onto ratepayers' bills for the following 20 years.

Lysyk estimated the cost will be $18.4 billion borrowed to cover the shortfall, and $21 billion in accumulated interest. The Liberals originally estimated the interest costs would be $25 billion, but have now revised that to $18.5 billion.

The end result of the "needlessly complex" financing structure is that the province's bottom line won't be affected, Lysyk said.

"Under the government's proposed accounting, you will not see that annual loss on any financial statements in Ontario," she said.

"The government's proposal is to treat that loss as an asset. That's like you treating your credit card debt as an asset in your books. Does that sound right to you?"

Treasury Board President Liz Sandals said credit rating agencies are ranking the hydro debt in preparation for selling it.

"That's the difference," she said. "Somebody actually wants to buy it, ergo it is an asset."

But Lysyk said it goes against Canadian public sector accounting standards, which say the interest expense and debt should be on the province's books.

The government said the financing is indeed in compliance with accounting standards. It decided the cost of cutting hydro bills should be borne by ratepayers and not taxpayers, which would have been the case if the province took on the debt rather than OPG Trust.

"The Fair Hydro Plan also keeps the cost of borrowing within the rate base, not the tax base, because that's the logical thing to do," Energy Minister Glenn Thibeault said. "Electricity financing should remain within the electricity system."

Third-party experts from KPMG, EY and Deloitte were consulted on the financing structure, Thibeault said.

This is the second accounting dispute between Lysyk and the Liberal government. She has said public sector pension surpluses should not be treated as a government asset, but the government disagreed and commissioned an expert panel that sided with it.

Full Auditor's General report below.