The Ontario Energy Board appears to give special treatment to Hydro One

The OEB recently released their 2019 Yearbook of Electricity Distributors and it provides a full collective report on all distributors in the province as well as individual statistics on each of them.  It includes financial information as well as statistical data and includes information such as; outage tracking and alluded causes, average consumption, number of customers and a myriad of other info.

A quick example how to use data contained is to simply divide the total NET* revenue of $3,921,857,499 by the “energy delivered” of 129,764,883 MWh indicating the average distribution cost was 3.02 cents/kWh in 2019 and 2.83 cents/kWh in 2018.  The increase of about 2 tenths of 1 cent (0.019) translates to a 6.7% increase or about 3.3 times the inflation rate for 2019.  While that slight increase seems tiny it actually represented additional net revenue of $175.2 million in 2019 versus 2018 despite a drop in “energy delivered”.  The latter dropped from 132.4 TWh in 2018 to 129.8 TWh in 2019.

Interestingly enough if one examines Hydro One data for the same two years their net revenue increased by $176.9 million which is more than the collective increase from all the local distribution companies (LDC).  Hydro One’s distributed power declined by 687 thousand MWh or about what 81,000 average household would consume in a year.

Another find in the data is the calculation of the RoE (Return on Equity) and collectively it amounted to an average of 9.7% in 2019 but for Hydro One the RoE was the highest, coming in at 15.88%.  What the latter suggests is when Hydro One seek a rate increase the OEB bless the application ignoring their much higher than average RoE.

The OEB, on November 22, 2018, issued a letter to All Licensed Electricity Distributors and Transmitters telling them: “The OEB has determined that the updated cost of capital parameters for rate applications for rates effective in 2019 are:

Cost of Capital Parameter Value for Applications for rate changes in 2019 ROE 8.98%“!

So, the OEB sets the value for the future and while the overall average came in at 9.7% for 2019 one should realize that due to Hydro One being the largest LDC in the province and due to the 15.88% RoE they achieved the overall average was pushed up to that level by them.

One would hope the OEB brings Hydro One back to earth on future applications for rate increases and protect us ratepayers rather than provide those benefits to their shareholders for the dividends they hand out at their targeted “Payout Ratio” of 70-80%!**

Ratepayers want value for the cost of electricity and the OEB are the government body that is supposed to ensure that happens!

The time has come for the OEB to recognize why they exist!

*Gross revenue less the Cost of Power.

**Hydro One’s Targeted dividend payout ratio remains at 70% – 80% of net income.

Author: parkergallantenergyperspectivesblog

Retired international banker.

5 thoughts on “The Ontario Energy Board appears to give special treatment to Hydro One”

  1. The reason for this is that the OEB did not render a decision on Hydro One’s 2018-2022 application until some time in 2019, so the 2018 incremental revenue they were awarded was recovered in 2019.

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