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!

Is the IESO finally trying to get it right?

The baby’s not happy… are his parents being scammed?

One of the IESO’s responsibilities is to ensure Ontario ratepayers are billed fairly. That’s been a challenge with more than 100 “directives” from the former Liberal government. First in a series

July 30, 2018

Ontario’s Independent Electricity System Operator (IESO) is responsible for monthly settlement (dollars in and dollars out) with all LDC (local distribution companies), transmission companies (Hydro One) and with thousands of generators of various stripes connected to the TX (transmission gird) and DX (distribution grid).

In order to capture the vagaries of what the monthly settlement encompasses, the IESO have a 164-page market manual entitled, “Settlements Part 5.5 Physical Markets Settlement Statements Issue 69”.  Its effective date was March 7, 2018, the fifteenth update of the manual over the last three years!

I’m confident the 15 recent updates were a result of directives emanating from the desks of former Liberal Ministers of Energy, namely Messrs. Bob Chiarelli and his successor Glenn Thibeault, and include the actions related to the Fair Hydro Act and the rebate of the 8% Provincial portion of the HST.

The directives and the changes they entail indicate the IESO is trying to “get it right” in their responsibility in dealing with the variables. Those variables were created by the Liberal government as it toyed with the energy portfolio over the last 15 years in so many ways via those directives (117 to OPA/IESO alone).  As an example, IESO in 2017 was responsible for settling about $16 billion related to the costs of generating electricity (what the public is charged for the combination of the HOEP (hourly Ontario electricity price) and the GA (Global Adjustment).

Ensuring ratepayers are correctly billed and generators are paid no more than they deserve places a lot of responsibility on IESO to ensure ratepayers are not being scammed!

On the latter point it is worth noting a CBC article from just seven months ago stated:  “Hydro customers shelled out about $100 million in ‘inappropriate’ payments to a natural gas plant that exploited flaws in how Ontario manages its private electricity generators”. The article said “gaming” of the system was discovered by the Ontario Energy Board (OEB) and contained this statement about the IESO: “the investigation found IESO did little checking into the details of Goreway Power Station’s billings.

Data not audited

That is somewhat disconcerting. When I recently asked IESO about the Fair Hydro Plan’s “variance account” for the month of May 2018 being very high ($309.9 million), they answered “Please note that settlement data submitted to the IESO by the LDCs is not audited by the IESO (audit responsibilities reside with the OEB) and is processed as submitted.”

In viewing IESO’s December 31, 2017 financial statements, their independent auditors (KPMG) attempt to capture their responsibilities, listing 30 of them as if they were simply the Ten Commandments. The one directing the activities associated with the money movement related to the FHP (Fair Hydro Plan) says: “engaging in activities related to making payments to and receiving payments as contemplated under the FHP and related settlement activities”.

The disconcerting part of this is that the Fair Hydro Plan alone will (according to the Financial Accountability Office of Ontario) amount to approximately $1,750 million on an annual basis — the 8% HST provincial rebate will add another $1 billion annually.  That certainly leaves the taxpayers and ratepayers of the future exposed to any one of the LDC “gaming” the system, or inadvertently submitting incorrect information.

Can we current and future ratepayers trust that Hydro One and all of the other LDC will submit correct “data” to IESO and that it will be properly audited by the Ontario Energy Board?

Stay tuned!

Second installment to appear tomorrow