The head honcho at Orillia Power was surprised the Ontario Energy Board (OEB) rejected a potential sale of his company’s distribution arm to Hydro One and says the unexpected ruling will mean local residents should expect to pay more for their hydro over the next 10 years.
“There is no question there will be a rate increase,” said Grant Hipgrave, the interim president and CEO of Orillia Power, his employer since 2006.
He said terms of the deal with Hydro One called for a 1% cut in distribution rates for the first five years of the pact. In the following five years, any rate increase would be limited to “inflationary adjustments.”
If the deal cannot be salvaged (an appeal is among the options being considered), Orillia Power will have to file a ‘Cost of Service’ application (CSA) with the provincial energy board – something they are mandated to do every five years.
Distribution rates are set through that CSA and “are based on many things, but primarily on your operation costs as well as your capital asset base.”
Orillia Power’s last CSA occurred in 2010, which means there hasn’t been a rate increase in eight years. The local utility deferred their filing in 2015-16 due to “special circumstances” related to the pending deal with Hydro One.
He said he could not predict the outcome of their next CSA, which he expects will be filed late next year or in 2020. “What I can say is the last time we did this in 2010, the distribution rate increase at that time was between 10 to 15%,” said Hipgrave. “The total bill impact was roughly three per cent of a person’s total bill.”
It’s vital to understand, he stressed, that the distribution rate represents about 20-25% of a homeowner’s bill; the other 75% is out of Orillia Power’s hands.
“It doesn’t matter if it’s Hydro One, Orillia Power, Electra or any other of the many utilities across the province of Ontario, that other 75% is not impacted locally,” he said, noting the larger portion of the bill is “a pass-through; it’s the cost of power and other costs of the electrical system. So, we’re really only talking about the 20 to 25% that is controlled by the distribution company.”
Hipgrave believes in the wake of Orillia Power’s next CSA, a hike similar to the one in 2010 is likely. “Looking back at history and given the time that’s elapsed since our last refiling, it’s certainly a possibility.”
He said a similar process would then occur five years later, likely in 2025. “We’d be back in that five-year cycle, so in 2025 we’d be doing another (application) as mandated,” he said. Both filings and expected rate hikes would fall “within the 10-year period in which with the Hydro One deal, we had rate certainty.”
That’s why the ruling was mystifying, Hipgrave said. He said it’s difficult to understand why, based on those considerations, the potential deal did not pass the OEB’s ‘no-harm’ test.
“I have read the ruling over several times and I am still surprised by it to be honest with you,” he told OrilliaMatters.
Perhaps the biggest surprise is the OEB’s stated concerns about the potential for rates to skyrocket following the conclusion of a decade of rate certainty.
Here’s what the 23-page ruling states about that: However, the OEB has highlighted its concern and its need to better understand the implications of how Orillia customers will be impacted by the consolidation beyond the 10-year period. In the absence of information to address that OEB concern, the OEB cannot reach the conclusion that there will be no harm.
“In the ruling, they make references looking for assurances beyond Year 10 that has never been asked of other parties in similar transactions and actually the OEB’s guidelines don’t speak to that,” said Hipgrave. “There are so many variables in this industry. I heard someone give this analogy: ‘Tell me the price of a litre of gasoline 11 years from today.’
“I mean the Hydro One/Orillia Power deal provided rate assurances for the next 10 years and they’re asking about Year 11 and beyond?” he wondered aloud. “Aren’t the first 10 years a lot more impactful to people?”
He noted the city, Orillia Power and Hydro One are mulling over their options in the wake of the ruling.
“Do I think an appeal is a good idea?” he asked. “I think it’s a good deal, so I would like to see us continue to try to close that deal.”
While he believes the rate certainty was enough for the OEB to green-light the deal, he said there are many other positives that should tip the scales even further in favour of the pact.
“There are a lot of merits and we haven’t even spoken of the economic development this could have on the community,” said Hipgrave, noting the OEB didn’t factor that into the equation as it is beyond their limited mandate. “I think a lot of people are looking at the bigger picture and the OEB is looking at a very narrow scope.”
The deal called for Orillia Power to sell its distribution arm to Hydro One 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.
Hydro One also agreed to purchase up to 36 acres at the Horne Business Park to build an integrated systems operation centre. Hydro One said two other buildings – a warehouse and regional operation centre – would be built there regardless of the outcome of negotiations.
While the future is not yet certain, Hipgrave says it is business as usual at the local utility – just as it’s been since the negotiations began.
“From an operations point of view, we just keep on operating the business,” he said. He said there was no money invested specifically in expectation of the deal.
He applauded staff for their patience through the process. “I do have to say we have a great team of dedicated staff,” said Hipgrave. “Despite all the unknowns, they continued to remain focused on serving customers … we continue to get great feedback from customers on the level of service we give. We remain focused on safety and reliability.”
