No prizes for guessing who’s really to blame for Hydro One’s soaring rates

(January 6, 2017) Contrary to claims from Queen’s Park, higher electricity rates haven’t been used to make the province’s grid more reliable. Now, Hydro One wants more money to do the real work of keeping the lights on.

This article, by Brady Yauch, first appeared in the Financial Post

Ontario’s electricity grid is aging and the risk of increased and longer outages is increasing. Hydro One, the company that owns and operates the province’s transmission network, says it needs billions of dollars to solve the problem — translating to faster-than-inflation rate increases over the next two years.

But the province, not Hydro One, is largely to blame. Contrary to the government’s claims that the double-digit rate increases in recent years “helped ensure system reliability,” money spent supporting the province’s renewable energy policies led Hydro One to defer work to improve reliability and, ultimately increased the risk of more blackouts for its customers.

With the passage of the Green Energy Act in 2009, the then wholly government-owned Hydro One embarked on a ratepayer-funded spending spree to give renewable generators access to Ontario’s electricity grid. The Ontario Energy Board (OEB), which sets the company’s rates, was directed by the government to approve those costs. Over the next four years, Hydro One spent $566 million to comply with provincial policies supporting both renewable generators and the closing of Ontario’s coal plants, necessitating the deferment of badly needed upgrades.

As a result, 28 per cent of Hydro One’s transformers, nine per cent of its breakers and 19 per cent of its conductors are outdated and more prone to failure, increasing the risk of blackouts and other interruptions.

Catching up on the backlog of work will be a costly exercise. The company wants to more than double the amount it ordinary spends on upgrades, from $389 in 2012 to $776 million in 2017 and $842 million in 2018. The increase in transmission rates needed to support that spending will exceed five per cent in 2018 — even more, if demand falls once consumers look for ways to contain their soaring bills. Looking beyond the next two years, Hydro One has plans to increase its annual capital spending to more than $1 billion — nearly three times the amount spent in 2012.

Maintaining the status quo — failing to modernize its assets to limit rate increases — would make the problem worse, Hydro One says. Over the next five years, according to information Hydro One presented to some of its largest customers, if it were to “do nothing” or keep spending at past levels, the risk of more blackouts and other interruptions would increase by 20 per cent.

Hydro One is warning that kicking the can down the road any further will result in a higher risk of blackouts, which for many of the large industrial customers that connect directly to the transmission grid would be a costly bet. Along with price, large consumers of power consider reliability their top concern.

Conservation advocates — including the province, which has made conservation a pillar of its energy policy — argue that putting more money into conservation will prevent this “day of reckoning” and, ultimately, save consumers money. Yet conservation isn’t saving anyone any money. As Hydro One admitted when asked whether there was “any threshold” of conservation where the cost of delivering power to consumers on the transmission system will go down, officials replied that they couldn’t “think of one.” In fact, the less power the company sells, the more it must charge for each unit of power it delivers along its transmission lines.

Hydro One’s predicament is another example of the many hidden costs of the province’s rush into renewable energy. For years, Hydro One was legislated to spend hundreds of millions of dollars ensuring the province’s renewable energy dreams became a reality. In doing so, it allowed its assets to age and the risk of blackouts to increase. Now it needs the money to do the real work of keeping the lights on.

Read the original article at the Financial Post

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236

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One Response to No prizes for guessing who’s really to blame for Hydro One’s soaring rates

  1. Andrew Roman says:

    Political management of all parts of the electricity system is like Fentanyl for the Ontario Government: highly addictive, and ultimately, lethal. The Government is still at the stage where it continues to be addicted, believing that the escalating electricity prices we have seen to date from political management will be cured by … more political management.

    The Ontario Government, the OEB and Hydro One, three separate legal entities, are now essentially functioning as a single unit, led by the Government. This level of integration would be impossible without the public ownership of Hydro One. The existence of the OEB as a politically directed regulator hides this reality to some degree, but does not diminish its harmfulness. Only after all Provincial public ownership of electricity generation, transmission and distribution facilities have ended and the OEB restored to substantial independence will this Province’s electricity system begin to work properly.

    I do see a faint glimmer of hope from the Government’s scaling back of the renewables funding. When this renewables programme was first introduced the political rhetoric was to call this Ontario’s “leadership” of other governments. However, when “leadership” has no followers (for good reasons), while leading to rapidly escalating electricity prices with energy-intensive employers disinvesting in the Province, there comes a time to stop boasting about leadership. That, at least, has been recognized.

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