Honesty, virtue, and energy policy (2)

Yesterday’s post in respect to honesty and energy policy examined a small city in Texas and how its mayor has been courted around the world by proponents of renewable energy — because his actions sit into their narrative. However, I also showed how incomplete information given to the media can lead to bad results for those directly affected, the people who have to pay the bills for the “virtue signaling”.

What follows is how the two parties (politicians and energy proponents) collectively stomped on Ontario’s taxpayers/ratepayers!                                                                                                                

CanWEA spin

The Canadian Wind Energy Association (CanWEA) recently published an article that carried this claim:  “The Pan Canadian Wind Integration Study – the largest of its kind ever done in Canada – concluded that this country’s energy grid can be both highly reliable and one-third wind powered.”

The annoying part of the “study” is that it was completed by biased parties and used considerable taxpayer funds!

Perhaps Ontario’s grid operator, IESO, did make wind generation reliable but at what cost? As it turned out, in 2017, wind turbines delivered only 24.9% (9.2 TWh) of their capacity and curtailed* over 26% (3.3 TWh) of what they could have actually delivered.  That generation also caused hydro spillage of 5.9 TWh and nuclear steam-off of one (1) TWh!

IESO’s 18 Month Outlook Report also indicates they only rate the capability** of wind turbines to deliver generation 12.9% of the time it may be needed. Wind power generation also contributes to a reduction in the “real market” (HOEP) price, meaning we sell our surplus generation into the export market well below its cost.

Virtue signaling from former Ontario Premier Wynne                                    

Just over three years ago Ontario’s Auditor General released her report that noted the billions of dollars in extra costs Ontario ratepayers had to pay for the Liberal government’s green energy. The AG’s report said consumers would pay $9.2 billion more for 20-year wind and solar contracts signed by the Liberals than they would have under the former procurement system.

Premier Wynne’s response was: “There’s a cost associated with getting out of coal, of putting more renewables in place, and we’ve got other jurisdictions looking to Ontario as a model for how to do that,” said Wynne. “I’m happy to defend the changes that we’ve made.” She went on to say: “You only have to look at other jurisdictions that are struggling with air quality, with particulate matter in their air, with families that don’t feel they can let their kids play outside,” she said. “I know we weren’t in those serious straits, but the fact is we have reduced our pollution in this province.“

Apparently lost on her was the concept of the costs her government later imposed on those “kids” when in an attempt to win the last election she kicked in the neighbourhood of $50 billion down the road for them to pay via the Fair Hydro Act.

Premier Wynne earlier (about five years ago) got a pat on the head from Al Gore the climate crusader, when the last Ontario coal plant was about to be shut down.  In her speech she also referenced the children who will be paying back the above costs when she said: “And I would contend it’s our moral duty to take action to protect our children, our grandchildren, and our fellow citizens. We’re lucky today to be in the presence of a man who’s been fighting on these fronts for many years.”

In another announcement with Al Gore present she claimed: “Becoming a coal-free province is the equivalent of taking up to seven million cars off the road, which means we’ll have cleaner air to breathe, while saving Ontario $4.4 billion in health, financial and environmental costs”

It has now been four years since Premier Wynne said that so it would be nice to know, from a ratepayer and taxpayer perspective, what has happened to that $17.6 billion, we were supposed to have saved?

We should suspect Premier Wynne’s remarks was simply political spin meant to preserve her position as Premier while driving up our cost of living for a necessity of life. Our health care system has not improved in the last four years and the province’s financial situation has only become worse!

The self-evident virtue signaling has simply resulted in increasing a future cost for “our children, our grandchildren and our fellow citizens”.

PARKER GALLANT

*Those 3.3 TWh of curtailed wind cost Ontario ratepayers almost $400 million or more than all of the curtailed wind in the UK which was estimated as costing them more than £100 million in 2017 to switch off their turbines and NOT produce electricity. The equivalent of the UK’s cost was about $174 million Canadian!

**Forecast capability of capacity for other major generating sources are:  nuclear 81.9%, hydroelectric 68.4%, gas/oil 81.4% and solar 10%.

NB: If one wants to view what former Minister of the Environment and Climate Change, Glen Murray knew about the Ontario energy sector have a look at his interview at the COP 20 Conference in Lima, Peru here.  You will see that Minister Murray gave many incorrect answers and even wrongly cites the Atikokan (200 MW) coal station as the largest in North America.  It was Nanticoke (3,964 MW!

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Honesty and energy policy

The new buzz is “virtue signaling” in which politicians espouse environmental solutions — but are they being honest? First in a three-part series

Texas small-town mayor Dale Ross: a star is born. But is he really a leader? [Photo: CBC]

An article penned just a couple of weeks ago focused on the spin emanating from industrial-scale wind power proponents and coupled their spin with less than honest political diatribe. Needless to say, the spin and diatribe continue.

Here is one example:

Mayor’s spin in Georgetown, Texas

Mayor Dale Ross* of Georgetown, Texas, population 70,000, has become an international celebrity. The reason: the city contracted for 100% renewable energy from a wind power development and a large solar farm, both hundreds of miles away. Because of this, Mayor Ross has been touted by Al Gore in his sequel to “An Inconvenient Truth,” interviewed by the UK’s BBC as well as many other national and international radio and TV stations. Mayor Ross, in this linked article estimated he has been seen by over 500 million people (now 2.1 billion-see below) around the world. What could go wrong? 

“To achieve 100% renewables, Georgetown negotiated two long-term (20+ year), fixed-price power contracts, one with EDF Renewables’ 194 MW Spinning Spur 3 wind plant beginning January 2016 and the second with NRG’s 154 MW Buckthorn solar site, effective July 2018. Details on pricing were withheld citing business confidential, but the contracts are for 144 MW of wind and 150 MW of solar for a combined annual quantity of nearly 900,000 MWh.”

Both of those generating sources were hundreds of miles away from Georgetown! 

Mayor Ross spins in Edmonton, Alberta

Mayor Ross was invited to speak at the 2018 Alberta Climate Summit organized by the Pembina institute. During that visit he was interviewed by the CBC where he claimed, in respect to a question about how he could support this as a Republican while the U.S. Republican president is pro-coal: “My daytime job is being a Certified Public Accountant and we make our decisions based on facts. In Georgetown, we put silly national partisan politics to the side and we just do what’s good for the voters and citizens that put us into office.”

Mayor Ross and CanWEA

Canada’s wind power trade association CanWEA naturally took an opportunity to interview Mayor Ross during his visit to Alberta and the Q & A session had the usual spin.  On closer examination however, some things Mayor Ross disclosed had a few bits of truth, but they were couched in such a way the reader would have to have knowledge of how electricity grids function to find them.

The Mayor said: “2.1 billion people have heard, read or saw my message”. When asked what advice he would give other communities, he had this to say: “In Georgetown’s case, it was mitigation and hedges to prevent negative pricing impacts of fuels components of energy production. Those take many forms and are often debated but certainly are a major component of electric generation pricing that use any form of fuel component in the process.”

If one reads about the subsequent events that have occurred to the public utility delivering electricity, water and waste collection in Georgetown, it is obvious Mayor Ross is really admitting that a few “facts” he and the City’s council based their decision on were missing.

What Mayor Ross didn’t say

A recent article notes Georgetown’s average annual consumption is about 575,000 MWh, which means they were forced to sell the surpluses into the real-time market usually at prices well below the contracted rate, including negative prices.

This small city is now facing a problem! “Actual power purchases for 2016 were 22% over budget coming in at $42.6 million against an expected cost of $35 million. In 2017, costs surged again to $52.5 million and all indications are Georgetown electricity customers will take another bath this year.”

This unexpected cost will presumably have a detrimental effect on the services that the city will be able to deliver OR service costs (electricity, water and waste removal) will spike much higher! These are just a couple of facts” that will make Georgetown’s utility consumers upset!

The message, even from a mayor who claims as a Certified Public Accountant, his decisions are fact-based, is that “virtue signaling” outweighs telling your constituents the real truth!

PARKER GALLANT

*Reading about Mayor Ross of Georgetown reminded me of Chatham Kent (population 102,000) where Mayor Randy Hope has a love affair with wind power, and CanWEA awarded him the “Friend of Wind Award” in 2017. Mr. Hope was defeated in the municipal elections of 2018.

 

 

 

 

 

Wind power: separating truth from spin

The quote “A lie told once remains a lie, but a lie told a thousand times becomes the truth” is attributed to Joseph Goebbels, the Minister of Propaganda in Nazi Germany from 1933 to 1945.

Ontarians have been lied to by politicians (although none has held the title “Minister of Propaganda”) particularly related to electricity. Here are some examples.

Job creation                                                                                                                                           Deputy Premier and Minister of Energy and Infrastructure George Smitherman, in a speech to the Toronto Board of Trade February 20, 2009 at the launch of the Green Energy Act had this gem: “Mimicking the impressive employment growth in various European jurisdictions, economic modeling projects that the GEA will create more than 50,000 jobs in the next three years.”

Those jobs never materialized despite repeating that claim (lie?). Instead as electricity costs climbed many good manufacturing jobs were actually lost inOntario.

Low cost renewables                                                                                                                                           Smitherman also made an interesting claim to the Ontario Standing Committee on Estimates on May 27, 2009.  He said: “Through our projected investments and expenditures as part of the Green Energy Act, electricity prices are expected to rise approximately 1% annually, on average, over the next 15 years for ratepayers.”

Wow, 1% annually over the next 15 years! What really happened was that at the end of 2008, electricity prices were 5.2 cents/kWh, and by the end of 2017 they were 11.55 cents/kWh for an increase of 122% for residential ratepayers over the nine years. Not quite the 9% increase Smitherman promised (under oath) to the Committee. Needless to say, those claims were repeated over and over again to presumably make us believe it was the truth.

CanWEA’s role                                                                                                                                                                         One can only assume fabrications like these were developed as part of a communications strategy either by politicians or by stakeholders who stood to reap financial benefits from the passage of the Green Energy Act. The spin by lobbyist and trade association the Canadian Wind Energy Association (CanWEA) and by “environmentalists” has been constant in order to get buy-in from gullible politicians! The spin has been highlighted in the past by many including me. A couple of examples are:

  1. A 2016 Pan Canadian Wind Integration Study (partially funded with tax dollars) in an article titled: Wind power industry claims Canada needs more wind power–with a hefty price tag for electricity customers and more recently another
  2. One titled Wind Power in Panic Mode as a new Ontario Government signaled the end of lucrative wind energy contracts and another more recent one titled
  3. CanWEA makes promises it can’t keep which suggested Canada could get one third of its power from industrial wind turbines (IWT)

Still spinning

CanWEA’s spin hasn’t stopped as their President Robert Hornung once again is singing the praises of that biased Pan Canadian Study in a recent posting on their website titled: Wind Energy: A Reliable Part of Today’s Energy Mix. Hornung’s article on wind power has Hornung describing it as “low-cost” twice, as “reliable” eight times and he even makes the claim that wind turbines would “help grid operators maintain reliability in the case of system imbalances or emergencies – services wind energy can often supply to the grid more quickly and cost-effectively than conventional generation.”

As if that wasn’t enough of a blatant distortion of reality, Hornung suggests the Pan Canadian “study found that if Alberta increased its wind energy capacity from 1,500 MW to 17,700 MW, reserves would need to increase by only 430 MW or 2.4 per cent of total wind energy capacity. In most of the rest of Canada the percentage would be even lower.”

What he doesn’t mention in the same context is the billions and billions of dollars needed to augment the grid via transmission spending for the many times wind turbines simply don’t generate sufficient power. The net result would mean Alberta and “most of Canada” would need to depend on neighbours to supply them with electricity should the wind be dormant—that would require those major transmission enhancements. As an alternative wind power could be backed up with gas plants as we do in Ontario and as elsewhere around the world.

It certainly appears CanWEA is hoping to convince Premier Notley or her successor that Alberta should believe his spin just as the Ontario government did under former Premiers McGuinty and Wynne. As if Alberta (and Canada) is not suffering enough due to the restricted ability for the province to build even one to pipeline to get a natural resource (oil) to a competitive market.

“Politics preys on people’s naivete,” wrote Bangambiki Habyarimana, in his book Pearls of Eternity.

Many people have taken advantage of Ontarians’ wish to do what’s right for the environment by using “feel good” promises and claims for power and profit.

In the future it is likely those who were preyed upon will realize the benefits promised by wind power proponents was simply “spin” meant to capitalize on their naivete.

PARKER GALLANT

OPG: generating less power, but earning more

Lots more. A record, in fact.

K2 Wind: first-to-the-grid rights for wind and solar, and lucrative 20-year contracts added to costs

Ontario Power Generation (OPG) released its 3rd Quarter report in mid-November, and it was impressive!

Revenue was up $156 million to $1,373 million (+12.8%) and after-tax income was 113% higher, increasing from $131 million to $279 million. For the first nine months of 2018, OPG reports RoE (return on equity) of 10.8% and will easily generate record after-tax profits for the full year of well over $1 billion. Nine-month profits sit at $948 million, up 84% or $433 million—that’s a record.

Revenue is also poised to crack the $5 billion-dollar level (nine-month revenue is $4,062 million) as it has many times in the past; however, after-tax profits have never been this high since the creation of OPG in 1999 when Ontario Hydro was broken up into several different entities.

What’s interesting about those record profits? OPG is record profits despite a substantial decline in generation.

Look at year-end December 31 2000: OPG generated and sold (into the grid) 139.8 TWh (terawatt hours) and earned revenue of $5,978 million for an after-tax profit of $605 million.   What that means is, back in 2000, OPG’s approximate cost to generate 1 TWh was $42.7 million (4.3 cents/kWh). In 2018 (so far) the cost has jumped to $74.8 million (7.5 cents/kWh) for the 54.3 TWh delivered in the first 9 months.

The 54.3 TWh delivered so far in 2018 is down from the comparable 2017 period by 1.7 TWh or 3% and from 2000 (9 months) by 49.4 TWh* or 46%!   Comparing the first nine months of 2018 to 2000, net income is up $405 million or 74.6%

With such significant drops in generation one would expect net income to drop so what happened?

Some five years ago (December 4, 2013) an article I wrote for Energy Probe was headed up: “OPG-whipping boy for the Ministry of Energy” and it outlined how the GEA (Green Energy Act) had a detrimental effect on OPG’s electricity generation and its revenue, which resulted in declining profits.

I noted how their many “unregulated hydro” assets received only the HOEP (hourly Ontario energy prices) which produced revenue of just over 2 cents/kWh, and how they had been instructed to build “Big Becky” (cost of $1.5 billion) and the Mattagami run-of-river project (cost of $2.6 billion).  Falling out of the GEA also was the rise in prices caused by wind and solar generation with first-to-the-grid rights and had resulted in declines in consumption. That meant much of OPG’s power generation was called on less and less.

OPG were also instructed by the Liberal Minister of Energy to convert power plants such as Atikokan and Thunder Bay from coal to biomass and to close the remaining coal-fired plants, one of which required a multi-million dollar write-down for prior expenditures on “scrubbers” to eliminate emissions.

As all this was happening, over the subsequent years, OPG applied for rate increases such as being paid “regulated prices” for all of their hydro assets and for revenue when they were forced to spill hydro. Those were eventually approved along with other increases to cover pension contribution shortfalls, increases in operational management and administrative costs (OMA), and for refurbishment of some nuclear plants.

OPG’s capacity has fallen from 25,800 MW in 2000** to 16,218 MW today, yet in 2000 they generated electricity at a capacity level of almost 62%. So far in 2018, they are operating at a capacity level of just under 51%.

OPG power could have eliminated excessive costs for wind and solar

If OPG were granted the rights to operate at the 62% level of capacity as they did in 2000, they could have generated 65.8 TWh easily, replacing all the generation produced by industrial wind turbines and solar panels. That generation would have resulted in a cost of electricity of less than 7.5 cents/kWh and eliminated the excessive costs for wind and solar under those 20-year contracts!

Today, OPG seems to no longer look like the “whipping boy” but still produces power at prices well below the costs of contracted generation under the GEA and should earn over $1 billion for 2018!

PARKER GALLANT

*Enough to power all of Ontario’s 4.9 million households for a full year with over 5 TWh left over.         **Staffing levels have dropped from 12,250 (including 650 under contract) in 2000 to 7,700 in 2018 meaning the ratio of employees to capacity has remained static at 2.1 employees per MW.

Hydro One shareholders happy with Avista purchase denial

Avista shareholders, not so much

The Hydro One press release immediately following the decision by the State of Washington’s regulator denying them the right to acquire Avista Corporation was short but expressed “extreme disappointment.”

“TORONTO and SPOKANE, WA, Dec. 5, 2018 /CNW/ – Hydro One Limited (“Hydro One”) (TSX: H) and Avista Corporation (“Avista”) today received a regulatory decision from the Washington Utilities and Transportation Commission (UTC), denying the proposed merger of the two companies. The companies are extremely disappointed in the UTC’s decision, are reviewing the order in detail and will determine the appropriate next steps.”

How did investors view the denial? Avista shareholders were definitely in the “extremely disappointed” crowd as their shares tumbled, but Hydro One investors were probably “extremely happy” as their shares had one of their very best days ever!

Remember, Hydro One offered to purchase Avista shares well over book value and at a high multiple to earnings ratio.  While the prior Board of Directors of Hydro One and then CEO Mayo Schmidt, along with Glenn Thibeault, former Minister of Energy, were excited about the offer to purchase Avista, it certainly appears that shareholders weren’t!

Some media blame “political interference” by Premier Ford as the principal reason for the denial! One such individual was quoted in CBC article stating: “Ontario Liberal finance critic Mitzie Hunter said Ford’s “reckless conduct” at Hydro One continues to damage the province’s interests.” Apparently Hydro One’s investors are not buying Mitzie’s claim!

There will, however, be a cost to Hydro One. When the purchase was negotiated, they agreed to a “termination fee” of US$ 103 million (CAD$ 139 million) and will have to pay that to Avista for distribution to their shareholders.  Hydro One will also have to unwind foreign exchange forward contracts and accumulated acquisition costs which will be expensed.  They also have to deal with the large convertible debenture issue ($1,540 million) which has a 10-year maturity and interest payments above market rates prior to conversion.

I assume we ratepayers will have to sit on the sidelines until Hydro One’s year-end report in early 2019 is issued before we get an estimate on the costs of the denial by the State of Washington’s regulator.

We can then hope our regulator, the Ontario Energy Board (OEB), doesn’t grant a rate increase to Hydro One to cover the costs of their ill-considered attempt to acquire a company 3,200 kilometres away at an inflated price.

Only time will tell.

PARKER GALLANT

How Kathleen Wynne could have avoided public outcry over electricity costs

Former energy minister Thibeault and former premier Kathleen Wynne: no opinions wanted, thank you

Or, how she might have benefitted from listening to opinions (and saved Ontario millions)…

The following tweet from TVO reporter John Michael McGrath reflects the attitude of former Premier Kathleen Wynne to a question she was asked about an estimate of energy costs from yours truly:

 “John Michael McGrath‏ @jm_mcgrath                                                                                                           Tories introduce an estimate of energy costs from Parker Gallant, Wynne declines to comment on “one person’s opinion, one person’s research.”      10:20 AM – 3 Dec 2018”

The Select Committee on Financial Transparency questioning Wynne is/was attempting to determine the actual reason (e.g., hide debt and push the current cost of energy generation into the future) behind the creation of the Fair Hydro Plan (FHP) by the former Ontario Premier and her Cabinet.

Ontario is now one and a half years into the FHP which provides an opportunity to review the estimated costs of the 10 years of deferral by the Financial Accountability Office (FAO) of Ontario and see what has actually happened so far.

The FAO’s forecast estimated the deferral would cost $18.4 billion over 10 years plus another $21 billion for interest. The average monthly deferral (before interest costs) would therefore average $153 million.  Since the FHP first kicked in, IESO has posted monthly, what they call; the “Global Adjustment Modifier” (GAM) so, it is a relatively simple task to determine how the FAO’s estimates have played out, versus actual deferrals.

So far GAM deferrals (without interest costs) are $3,843 million for the 18 months — that’s about $770 per ratepayer. What that indicates is, the monthly average, so far, has been $214 million for the 17% of the GAM deferral versus the estimated $153 million in the FA0 forecast.  Should those averages continue for the next 10 years the deferred amount will be $25.7 billion or $5,140 per Class B ratepayer without interest costs. The additional $7.3 billion of the GAM deferral would also drive up interest costs to approximately $29 billion adding another $5,800 per ratepayer that would need to be repaid.

What that means is, future ratepayers could be on the hook for as much as $54.7 billion!

How could that $54.7 billion transfer to future ratepayers have been avoided?

The numbers are up in IESO’s website reflecting how much grid-connected wind power generation has been delivered for the first 9 months of the current year. My friend Scott Luft has provided the estimate of curtailed wind: the collective 8.98 TWh (terawatt hours)** translate to costs of $1,190.7 million. If one extrapolates the first nine months to a full year, the estimate of costs are $1,587.6 million for wind power.  IESO does not publish solar output (except for grid-connected) as most of solar is embedded within the distribution system.  Despite the lack of data, one can assume solar will have generated 15% of its capacity (380MW are grid-connected [TX] and 2,081 are distribution connected [DX]) meaning the 2,461 MW of capacity should generate approximately 3.23 TWh annually at an average cost of $448/MWh. That adds about $1,450 million to renewable’s costs.  Wind and solar together will therefore add $3.038 billion (rounded) annually to electricity costs assuming their capacity levels and annual generation remain at current levels.

As you can see, the estimated cost of wind and solar at $3.038 billion exceeds the adjusted annual GAM costs of $2.562 billion (18-month costs of $3,843 million/18 months X 12 months = $2,562 million) by $476 million.   At the same time TX- and DX-accepted wind (7.52 TWh) and solar (3.23 TWh) is assumed to come in at 10.75 TWh which presumably would need replacement.  In that regard the Ontario Power Generation 2018 3rd Quarter report indicates they spilled 2.4 TWh in the first nine months, which will probably transition to 3.2 TWh for the full year (ratepayers pay for spilled hydro so no additional costs) leaving a shortfall of just 7.55 TWh to be supplied to replace ALL wind and solar generation!

Without knowing, at this point, if nuclear generation had been steamed-off or exports could have been reduced, the question becomes: could gas plants*** have provided the 7.55 TWh (net after allowing for spilled hydro) wind and solar will probably provide for 2018?

Gas plants for the first nine months of 2018 generated 7.89 TWh; If extrapolated to 12 months, gas could generate 9.22 TWh and represent about 12.4% of its total capacity (8,500 MW). Adding another 7.55 TWh of generation would mean they would be required to operate at 22.5% of capacity so they could have easily replaced wind and solar generation.   The additional costs of that generation would be fuel costs plus a small mark-up.  Even if fuel costs and the mark-up were as much as $50/MWh the costs of the 7.55 TWh would amount to slightly less than $400 million.

What the foregoing suggests is that with no wind and solar generation, the costs of generation could have been reduced by $2,638 million (wind and solar costs of $3.038 billion less $400 million for additional gas generation of 7.55 TWh).

Coincidentally, the cost reduction of $2.638 billion per annum is remarkably close to the above noted GAM costs of $2.562 billion that will accumulate in the OPG Trust every year for the next 10 years along with the interest on that debt.

So, without wind and solar, former Premier Wynne might have avoided the public outcry about electricity costs and her party might have been re-elected.

Just “one person’s opinion, one person’s research”!

PARKER GALLANT

*Based on 5 million ratepaying households and Class B business consumers.                                                                   **Grid accepted: 7.52 TWh plus curtailed of 1.46 TWh = 8.98 TWh at a cost of $135/MWh for grid accepted and $120/MWh for curtailed.                                                                                                                             ***Gas plants are paid to idle at a rate as low as $4,200/MW per month (Lennox) to over $15,000/MW per month.

 

 

 

Hydro One’s curious third-quarter results (and why you should worry)

Hydro One’s third quarter earnings fall     

                                                                            

Ontario ratepayers should be worried about bad planning and whether the Ontario Energy Board will protect us from more rate increases

Why is the title above practically the opposite of Hydro One’s November 8, 2018 press release headline which claimed “Hydro One Reports Strong Third Quarter Results”?

While gross revenues for both the distribution and transmission businesses were up—quarter over quarter, by 6.1% ($63 million) and 4.7% ($22 million) respectively—Net Income for the quarter was actually down 11.4% or $25 million compared to the same quarter in 2017.

The revenue gains were a reflection of prior rate application approvals by the OEB (Ontario Energy Board) coupled with increased demand and the revenue was provided by the ratepayers of the province.

So, if revenue was up, what caused net income to fall?

Here is a partial explanation from Hydro One’s quarterly financial statement:

“The increase of $35 million or 30.7% in financing charges for the quarter ended September 30, 2018 was primarily due to the following: • an unrealized loss recorded in the third quarter of 2018 due to revaluation of the deal-contingent foreign exchange forward contract related to the Avista Corporation merger”. [emphasis added]

It appears previous management believed finalizing the Avista purchase would occur sooner and that the Canadian dollar would remain where it was when the purchase offer was originally accepted by Avista’s shareholders. That would suggest poor planning!

As ratepayers in Ontario, we should be concerned about Hydro One’s financial results and how their spending impacts us via rate increases.

The Ontario Energy Board (OEB) on an annual basis sets the acceptable RoE (Return on Equity) for all distribution and transmission companies. The current RoE is 9% and Hydro One expects it will remain at that level. Right now, Hydro One has two pending transmission and one distribution rate application(s) before the OEB, and will file one transmission and five distribution rate application(s) later this year and into early 2019.

Here’s the question we ratepayers should ask: will the OEB protect us by ensuring we will not be picking up any of the costs associated with the Avista purchase such as the “foreign exchange forward contract” loss or the “financing charges” referenced above? Ratepayers should not be penalized for bad planning!

Hydro One’s quarterly statement under the heading ‘Risk Management” notes:

“Market risk refers primarily to the risk of loss which results from changes in costs, foreign exchange rates and interest rates. The Company is exposed to fluctuations in interest rates, as its regulated return on equity is derived using a formulaic approach that takes anticipated interest rates into account. The Company is not currently exposed to material commodity price risk.”

The “increased financing charges” and the “foreign exchange forward contract” costs related to the Avista merger were clear “risks” management should have foreseen!

On the surface, they could suggest part of the fall in net income is attributable to Canada’s inability to sell its oil at market prices which had a detrimental effect on the Canadian dollar’s exchange rate. But that claim would ignore the fact it was Hydro One’s management decision (blessed by former Ontario Energy Minister Glenn Thibeault) that led to the “foreign exchange forward contract” loss and the increased “financing charges.”

The blame should be shouldered by past management decisions.

Many said, at the time the planned acquisition of Avista was announced, that it made no sense. With that in mind, one would expect the OEB will indeed make the right decision and not allow rate increases that fail the test of bringing value to Ontario ratepayers.

We can only hope.

PARKER GALLANT