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Wynne's sale of Hydro One...Bad...or Good?

Discussion in 'Canada' started by Ktowntslafan, Nov 20, 2015.

  1. Ktowntslafan

    Ktowntslafan Member

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  2. Doug_G

    Doug_G Lead Moderator

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    Somehow I doubt Wynn is even aware of this.
     
  3. sitter_k

    sitter_k Member

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    Agreed, we all know what happens when people in Ontario follow the provinces advice and switch to off peak power, they jack up the off peak rates because they're making less money.
     
  4. Doug_G

    Doug_G Lead Moderator

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    Actually the gap between peak and off-peak has increased. It's just that the rates have gone up overall.
     
  5. sandpiper

    sandpiper Active Member

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    Crafty and Wynne are two words that should not rationally be in the same sentence. Unless is was something like "Today, bowing to popular demand, Wynne announced her retirement, citing a desire to spend time doing some more "crafty" things... like cutting paper dolls and scribbling in colouring books.
     
  6. mknox

    mknox Well-Known Member

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    Some interesting history (briefly):

    When the electricity system was set up in Ontario in the early 1900's, it was designed to provide "power at cost" to the people of Ontario, but remain out of the hands of the government. Kind of like a big co-op. This was a very important ideology of Adam Beck, the architect of Ontario's power system who did not want to see politicians meddle with the system. The government, of course, regulated the utility just as they would and do for other natural monopolies such as telephone and gas.

    Over time, this "regulation" took the form of manipulating spending for political reasons, and every Party had a part in this heavy-handed regulation over the years. This, and keeping rates artificially low for many years led to the sector racking up a very large debt.

    When the Harris government decided to "de-regulate" the sector in the late '90s the first thing they had to do was expropriate Ontario Hydro and all of the local municipal utilities. They split Ontario Hydro up into 5 successor companies (including Hydro One), set most of them up as incorporated businesses and assigned the shares to themselves. They also set the local utility commissions up as incorporated businesses and "gave" them to the municipalities they served in exchange/compensation for other former provincial services that the government "downloaded" to the cities and towns at the time. The deal was that the municipality could sell their shares or hold on to the utility and earn a rate of return from it (gone was the original concept of "power at cost"). Most Ontario utilities are owned by the local municipality, but some are privately held and some are public/private ventures.

    So today, Hydro One and the local electric utilities earn a rate of return for the shareholder (whoever that may be) which is regulated by the Ontario Energy Board (who does the same thing for the gas utilities like Enbridge and Union Gas). The OEB also regulates the rates electric and gas utilities charge, and the rate setting process is blind to who the shareholder(s) might be.

    So selling Hydro One should have no impact on the rates they charge consumers. I can't see any mechanism where ownership would have any bearing on rates. Many of the privately held Ontario utilities already have lower rates than their municipally or provincially owned counterparts. On the other hand, the province does lose out on the revenue stream by selling shares. I believe the province wants to reduce it's ownership stake to 40% meaning they would earn about 40% of what they currently do. They'll take the cash, blow it like governments do, then likely have to raise taxes to make up for the lost revenue stream.
     
  7. DMC-Orangeville

    DMC-Orangeville 85D and John Deere 5100E

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    Some utilities (and industries) are already looking at energy storage systems - including compressed gas and flywheels - to supply power for demand peaks, charged off-peak.

    Example - Minto flywheel, 2MW, near Guelph. 2-MW energy storage facility up and running in Ontario

    High energy costs - especially in peak periods will drive demand for these types of systems. But to other posters' comments - I agree, utilities will adjust AND governments will just raise taxes to cover shortfalls in revenue.
     
  8. mknox

    mknox Well-Known Member

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    One of the "adjustments" is already coming to residential rates. Currently, utilities charge a fixed monthly fee (around $15) and a variable component based on kWh consumption to cover delivery costs. Remember, the local utility has no stake in the commodity (electricity) simply passing those costs through, and has to live or die on the distribution rate. With conservation, distributed generation and the like, consumption (an associated revenue) is falling even though the utility's costs to maintain the poles and wires, issue bills and so forth remains the same. It costs the utility the same to maintain this plant whether a homeowner uses 10 kWh or 1,000 kWh a month. As such, the distribution component of the rate will be moving to a flat fixed charge and will be phased in over the next 4 years. This will likely be of benefit to large consumers (like EV owners) but could end up costing consumers who use less power more on the distribution line on their bill.
     
  9. sitter_k

    sitter_k Member

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    Hydro One Ltd

    Stock Quote - The Globe and Mail

    [​IMG]
     
  10. DMC-Orangeville

    DMC-Orangeville 85D and John Deere 5100E

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    Further to my comment, the IESO today announced another 16.75 MW of additional storage contracts. They obviously see the benefit of off-peak charging to meet peak demand periods, without producing additional power stations.

    http://www.ieso.ca/Pages/Media/Release.aspx?releaseID=7251
     
  11. wayner

    wayner Active Member

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    If you believe in capitalism you could argue that the incentive to maximize profits will incent the management of H1 to reduce costs. In the past it was not clear what the primary objectives were for companies like H1 and OPG. You could argue that this lead to poor cost discipline - one example being the pension systems at these companies (see- Report warns that Ontario’s hydro pensions are ‘not sustainable’ - The Globe and Mail)

    But until all of H1 is fully privatized this isn't really going to happen as the government will still be the controlling shareholder and will have multiple and confusing objectives, not unlike companies like Petrobras, Pemex, etc. So we all lose except, arguably, the employees of H1 and OPG.

    IMHO the sooner the government stops meddling with the electricity system the better.

    - - - Updated - - -

    This will be another negative for folks looking to install solar panels at home, or at least it will if we move to net metering. This has become an issue in places like California and Arizona. MicroFIT is getting less attractive all the time - they dropped the rate for 2016 installs by about 23% from $0.384 to $0.294.

    I am surprised that no one posted this from last week:

    Hydrostor launching compressed air power storage off Toronto Island

     
  12. Doug_G

    Doug_G Lead Moderator

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    You're right... but we will also need actual competition; otherwise what you have is an unregulated monopoly. Or a government-regulated one, which so far has not been demonstrated to be as "good" as a private monopoly.

    Competition on the delivery side will be hard; I don't expect to see companies vying to install competing power lines. It might be easier on the generation side, the only wild card being the need to continuously keep the grid balanced (at least until we have grid storage).
     
  13. mknox

    mknox Well-Known Member

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    The OEB regulates the rate of return utilities can earn and, when looking at rate applications will include a "productivity factor" thereby reducing the utilitiy's revenue requirement by that amount. The only incentive would be to earn the maximum allowable rate of return because anything beyond that would get rolled in to a rate offset.

    Amen to that, but I don't see it happening any time soon. IMHO, the biggest example of "meddling" was back in the late '90s when the government expropriated the utilities (essentially stealing them) and turned them into revenue generating businesses. Prior to that, the industry provided power at cost (although I won't try to argue it was done with the utmost in efficiency).

    microFIT will be going away and will be replaced by some modified form of net metering. And as in all things "government", it looks like they will want to complicate that too. There is talk of some sort of VOST (Value-Of-Solar Tariff) component in the rate, but the jury is still out on the regulatory mechanisms and technical requirements for implementing it.

    - - - Updated - - -

    The lines and poles are a natural monopoly and I don't think we'll see competition there. Just as with phone and cable, other carriers are permitted to operate on their lines. The same already exists in the electricity sector. You can sign with an independent electricity retailer for the commodity (electricity) component of your bill, but would still pay the local utility for the delivery and regulatory charges. The local utility lives on the delivery charge, so it is no skin off their noses if customers opt for this.It hasn't gone well in Ontario. Retailers have largely been anywhere from (at worst) unscrupulous to (at best) unknowledgeble and have allowed consumers to make some very poor choices. In most cases, electricity purchased through an independent retailer have been more expensive than simply staying on the standard service rate.

    There is also competition on the generation side where generators bid in to the market managed by the IESO. Certain legacy generators and the big wind farms all have fixed price contracts, however.
     
  14. wayner

    wayner Active Member

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    Doesn't a utility get to keep any additional profits earned from cost cutting in the short term before the annual (or regular periodic) resetting of rates? Gas distribution has always been privately owned here - is electricity that much different from gas?
     
  15. mknox

    mknox Well-Known Member

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    Nope. The Affiliate Relationships Code does allow distributors to create so-called unregulated affiliate companies to take on certain related businesses, and would not be subject to limits on rate of return. All kinds of measures to protect cross-subsidization between the regulated utility and the affiliate, and limits on the types of businesses that can be untertaken.
     

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