(November 16, 2014) Both Ontario Power Generation (OPG) and Hydro One announced their third quarter results last week within a day of each other and the news was mixed.

Hydro One’s revenue was flat and net income down by $45 million or 20.6%. Distributed electricity was also down from 7.2 terawatts (TWh) to 6.9 TWh and the cost per TWh was up from $103.3 million/TWh to $113.0/TWh (10.3 cents per kilowatt [kWh] versus 11.3cents/kWh) for the comparable 2013 quarter, for a jump in the electricity commodity cost of 9.4%. Out of curiosity, a visit to the Yearbook of Distributors was undertaken where it was determined that in 2013 Hydro One paid an average of $101.36 per megawatt hour (MWh) for their power purchases but the average for the other 72 local distribution companies (LDC) was only $98.61/MWh. Why Hydro One, the largest LDC in the province paid an average $2.75 more per MWh is a burning question. Sounds like the same philosophy used by the LCBO who don’t use their buying power to get better pricing. The LCBO explains it away as helping to discourage drinking so is Hydro One’s reasoning for not using their purchasing power their way to discourage electricity consumption?

Looking at OPG’s results for the quarter is also a surprise as they show an increase in earnings of $88 million (before an “extraordinary gain” of $243 million). The earnings increase of $88 million included an appreciation in income of $58 million from the Nuclear Waste Management Business so had little to do with higher production (up marginally by .3 TWh) or greater efficiencies. The extraordinary gain however is something that only a tax accountant might be able to explain as the the press release described it as follows:

The increase primarily reflects the recognition of an extraordinary gain of $243 million related to the forty-eight previously unregulated hydroelectric facilities prescribed for rate regulation effective July 1, 2014. The gain relates to deferred income taxes expected to be recovered from customers through future regulated prices in respect of these newly regulated facilities.

We are aware that OPG submitted a request to the OEB in September 2013 asking for a significant rate increase by requesting their unregulated plants be regulated. The Minister of Energy allowed the regulation 53/05 to be changed as noted in an earlier article. At the time, the change appeared to add about $170 million to Ontario ratepayer bills not the “extraordinary gain” of $243 million.

The announcement makes it appear as if OPG is attempting to do an end run by declaring the $243 million is “deferred taxes” sitting in a “regulatory account” indicating the dollars in that account were already approved by the OEB. It is unclear how this will play out.

While the increased income fits nicely into the Liberal’s fiscal update it also delivers on the Ed Clark led “Advisory Council on Government Assets” Premier Wynne had in mind when she appointed the panel to “maximize the value to the people of Ontario” of the LCBO, Hydro One and OPG!

Maximizing the value of OPG however comes at a huge cost to Ontario’s ratepayers!

Parker Gallant is a retired bank executive and a former director of Energy Probe Research Foundation. As with all independent bloggers on this site, Parker’s views do not necessarily reflect those of Energy Probe.