Ontario ratepayers and taxpayers pay up for Hydro One’s Niagara transmission line

The 76-kilometre Niagara transmission line, meant to strengthen power ties between New York State and Ontario, with a capacity to import/export as much as 800 megawatts of electricity has finally been completed.

Recently, information submitted to the OEB (EB-2018-0275) in a rate application stated: “The Project was originally approved by the Ontario Energy Board on July 8, 2005 pursuant to EB-2004-0476 but construction was halted in 2006 until earlier this year due to a third-party land dispute.

The Niagara transmission line was finally completed August 30, 2019, or over 14 years after construction started. It’s been a long road!

The decision and order from the OEB blessed the application (they generally do for Hydro One) noting; “Niagara Reinforcement Limited Partnership’s (NRLP) interim 2020 revenue requirement request of $9,389,914 is approved.”

The approval for NRLP rather than Hydro One is a reflection of well over a decade of negotiations to satisfy the Six Nations of the Grand River and, the Mississaugas of the Credit First Nation.  Contained in a note in the 3rd Quarter financial results of Hydro One, indicates a portion of the Niagara line was sold to them in the entity now referenced as NRLP. The pertinent part of the audit note stated:  “Hydro One Networks sold to the Six Nations of the Grand River Development Corporation and, through a trust, to the Mississaugas of the Credit First Nation a 25.0% and 0.1% equity interest in NRLP partnership units, respectively, for total consideration of $12 million, representing the fair value of the equity interest acquired.”  The Mississaugas also hold an option to purchase another 20%. NRLP was created for the sole purpose of allowing that to happen.

On November 5, 2015 an article headlined “Powerline to nowhere” on CTV, noted the cost of the line to that point was $100 million plus $54.5 million in interest payments (including $5 million in interest payments for 2016).  If one adds another $10 million in interest payments for 2017 and 2018 it appears the total cost of the Niagara line was in the neighbourhood of $165 million at a minimum.  In NRLP’s submission to the OEB the actual costs of the line were claimed to be $120 million, but it’s unclear if that included any interest. Either way the cost of the line was north of $165 million yet 25% of it was sold for $12 million which seems like a pretty good deal.  Details on the Mississaugas option were not disclosed.

It should be noted Hydro One had to seek an injunction in July 2019, after repeated attempts were made to block work on the transmission project.  They stated; “Work stopped again in January when members of the Haudenosaunee Confederacy Chiefs Council (HCCC) blocked access to the construction sites and issued a “cease and desist” order.  The CBC reported; “Hydro One’s statement of claim says the defendants “have a long history of organizing blockades, causing public disruption, breaching court orders” and interfering with land development and utilities as a tactic to negotiate compensation and other benefits to members of the Confederacy.”  The article also said: “The Six Nations and Mississaugas will have 45 per cent ownership* of the project, said Hydro One, and the project will create jobs and economic benefits.”  The injunction was granted by the judge in that appeal and as noted the line was completed August 30, 2019

The estimated cost of the line (north of $165 million) mentioned above has now been passed on to Ontario ratepayers via the OEB decision.  There were lots of other costs picked up by taxpayers in Ontario** and the rest of Canada as suggested in the partial list of material contained in the Chronology of Events at Caledonia in the former Federal Indigenous and Northern Affairs Canada Ministry website suggesting the other activities associated with the happenings in Caledonia also may have cost the Canadian taxpayers as much or more than the $165 million associated with the Niagara transmission line but that is for someone else to determine.

Conclusion

Perhaps we in Ontario should be grateful for the delay in completing the transmission line as it prevented the sale of even more of our surplus power from wind and solar etc. to New York for pennies on the dollar. The delay may have accidentally saved us ratepayers hundreds of millions of dollars due to the 14 years it took to complete.

*Acquisition details related to the Mississaugas’ 20% purchase option are not available but are believed to expire quickly.

** The Ontario government agreed to pay $20 million to residents and business owners of Caledonia who suffered through the native protest at a housing development in Caledonia.

Hydro One’s 3rd Quarter 2019 results will make shareholders happy and distribution customers unhappy

Hydro one just released their 3rd Quarter results and net income after taxes increased from $194 million to $241 million or 29.4%.  Net income increased by only $14 million or 6.2% after adjusting the 2018 results upwards for the costs associated with the failed Avista acquisition.

Let’s look at those results by Hydro One’s client base of transmission (generators and local distribution companies or LDC) and distribution (ratepayers).

Transmission Revenue and Income Down                                                                                    What is interesting about their results is it shows transmission revenue decreased by $50 million (down 10.1%) as “peak demand” keeps falling.  Year over year the latter fell by 1,805 GWh (gigawatt hours) or 7.9%.  As a result, net income (before financing and taxes) from the transmission business dropped by $55 million or 19.2% from $287 million to $232 million.

Distribution Revenue and Income Up                                                                                       On the other side of their business Hydro One’s distribution revenue (net of purchased power) was up from $370 million to $403 million for a $33 million (+ 8.9%) gain and the revenue growth translated to a $33 million jump in net income (before financing and taxes).  The latter increased from $120 million to $153 million (+27.5%) year over year.

The jump in distribution income occurred despite the fact Hydro One’s 1.4 million customers reduced their consumption from 6,817 GWh to 6,627 GWh for a decline 190 GWh or 2.8%.  The forgoing means the average delivery cost per kWh increased from 5.43 cents/kWh to 6.08 cents/kWh year over year and amounts to a jump of 12%.   The 12% increase is co-incidentally what we were promised to see as a reduction in our rates by the Ford government.

Summary                                                                                                                                                 While all customers are billed for both delivery and transmission costs, the latter tends to represent a very small charge whereas delivery costs represent (on average) about 30% of your monthly bill.  Hydro One’s delivery costs however, are closer to 40% so it is disappointing to see that portion of the bill for their 1.4 million customers keeps climbing at rates well above inflation.

Getting rid of the $6 million man did nothing to reduce Hydro One’s delivery costs!