Orillia Power Corporation and Hydro One have both filed detailed submissions to the Ontario Energy Board (OEB) asking the provincial authority to reconsider their decision to nix an agreement that Orillia Mayor Steve Clarke called ‘transformative’ for the city.
On April 12, the OEB issued its long-awaited decision, surprising the powers-that-be behind the pact, by refusing to rubber-stamp the agreement because, in their words, it did not pass a “no-harm” test.
The city was first approached by Hydro One in 2015 and, over time, agreed to sell the distribution arm of Orillia Power for $26.35 million, which officials estimated was double its value. As part of the deal, Hydro One agreed to assume the $10 million in debt Orillia Power had amassed and said it would protect the 36 affected jobs – for one year.
The deal provided rate certainly for 10 years – 1% discount in each of the first five years and increases tied to inflation for the next five years. It’s important to note 20-25% of a person’s bill is related to the distribution cost; the rest is out of the local utility’s control.
As part of the pact, Hydro One agreed to purchase up to 36 acres at the Horne Business Park where, if the deal was green-lighted, it would build an integrated systems operation centre that would create many jobs.
The OEB, in a 23-page decision, said the deal did not pass its no-harm test and would have led, over time, to higher rates for Orillia’s electricity customers.
But local officials claim the OEB changed its rules during the process, did not give proper weight to certain elements of the deal and believe the body erred in quashing the deal.
“I spoke with our lawyer (Thursday) and feel we put forward a very good case for reconsideration,” said Clarke. “Certainly, they laid out the grounds on which we’re appealing and addressed the questions and issues the OEB had.”
When asked if the crux of the appeal relates to the OEB “changing its rules,” and its concerns about potential rate hikes in Year 11 (after the 10-year rate-certainty period), Clarke said he was unable to comment on specifics.
“That is covered in the documents (submitted),” said Clarke. “I believe Hydro One has done a very good job addressing that (question around rates in Year 11) and stability. Hydro One, for example, demonstrates in the submission that in Year 11, the rate would be no more than status quo.”
He said the OEB “asked for information early on (before) suggesting perhaps they were lacking some information even though it seems to be a deviation from previous applications, but I believe that’s been addressed in the submissions.”
Clarke, who is hoping for a “timely” resolution, said the process could involve a hearing or could “be handed in a couple of different ways.” He said the parties “look forward to the process unfolding.”
To date, the negotiation of the deal has cost the city about $1 million in legal fees – something that does now sit well with city councillors Mason Ainsworth, Sarah Valiquette-Thompson and Rob Kloostra, who voted against the original deal.
The trio had been advocating the city forego an appeal – something Clarke countered was not an option as that course of action was enshrined in the original pact.
Despite that, the three councillors supported a recent rally prior to an April 20 council meeting in which about two-dozen citizens showed up to express their displeasure over the deal with Hydro One.
The submissions filed by Orillia Power and Hydro One are, in essence, legal documents that are complicated and filled with legalese.
Hydro One’s “motion to review and vary the OEB’s decision” is a detailed, 35-page document with 64 different points around which the appeal is based.
The “grounds for the motion are the OEB changed its policy without notice,” says the filing.
“The OEB has articulated its policy and set out its expectations and approach with respect to consolidation transactions in the electricity distribution sector in the OEB’s Handbook to Electricity Distributor and Transmitter Consolidations,” says the document.
Here’s a section of the appeal from Hydro One:
The Handbook recognizes the benefits of consolidation transactions and expresses the OEB’s commitment to reducing regulatory barriers to consolidation. It states that, consolidation can increase efficiency in the electricity distribution sector through the creation of economies of scale and/or contiguity. Consolidation permits a larger scale of operation with the result that customers can be served at a lower per customer cost. Consolidations that eliminate geographical boundaries between distribution areas result in a more efficient distribution system. Consolidation also enables distributors to address challenges in an evolving electricity industry . . . Distributors will need considerable additional investment to meet these challenges and consolidation generally offers larger utilities better access to capital markets, with lower financing costs . . . The OEB has a statutory obligation to review and approve consolidation transactions where they are in the public interest. In discharging its mandate, the OEB is committed to reducing regulatory barriers to consolidation.
In the Decision, the OEB states that in assessing Hydro One’s application it has applied the no harm test “in accordance with its ordinary practice”. The OEB describes its ordinary practice as being the application of the no harm test as described in the Handbook.
However, the Decision demonstrates that the OEB did not apply the no harm test in this manner when assessing Hydro One’s application. Moreover, the OEB did not provide Hydro One with any notice, either prior to or during the course of the proceeding, of its intention to apply the no-harm test in a manner other than as it has ordinarily been applied.
In the Decision, the OEB indicates that it is satisfied that the proposed transaction will cause no harm with respect to reliability and quality of electricity service and that there will be no adverse impacts on financial viability.
As such, the sole basis for the OEB’s determination that the proposed transaction does not meet the “no harm” test are its findings in respect of the impacts of the transaction on price. On this aspect, the OEB explains in the Handbook that its focus will not be on rates but, rather, on the impacts of a proposed transaction on the underlying cost structures of the consolidating entities at the time of the consolidation and in the future.
In the decision, the OEB indicates that it is satisfied that the proposed transaction will cause no harm with respect to reliability and quality of electricity service and that there will be no adverse impacts on financial viability.
As such, the sole basis for the OEB’s determination that the proposed transaction does not meet the “no harm” test are its findings in respect of the impacts of the transaction on price. On this aspect, the OEB explains in the Handbook that its focus will not be on rates but, rather, on the impacts of a proposed transaction on the underlying cost structures of the consolidating entities at the time of the consolidation and in the future.
Orillia Power Corporation’s 11-page submission lays out similar concerns and requests “a review and variance of the OEB’s decision and order.” The crux of its appeal is also based on how the OEB “changed its policy without notice.”
The documents, obtained by OrilliaMatters, are complicated and public. They should be available later today on the OEB’s website.
