Private-sector power project gets rethink
The Ontario government has been struck by sticker shock over the near doubling of the estimated cost of a proposed electricity transmission line, a project awarded to a consortium including Enbridge Inc. and a major pension fund, which chalks up the mounting budget to accommodating tweaks to the plan’s design and timing.
The new $ 777- million estimate for the project’s development and construction has prompted the province to review its necessity amid anger over pricey hydro rates and a plan unveiled earlier this year by Ontario’s Liberal government to lower bills.
The proposed project, known as the East- West Tie Line, is a 450- kilometre electricity transmission line that would mostly mirror an existing power line’s path between Thunder Bay and Wawa in northwestern Ontario.
In 2013, t he province tapped a partnership between Borealis Infrastructure, an investing arm of the Ontario Municipal Employees Retirement System pension plan, Calgary-based Enbridge and the Canadian subsidiary of U. S.- based NextEra Energy Inc. as the project’s developer.
NextEra owns 50 per cent of the partnership, called NextBridge Infrastructure LP, while Enbridge and Borealis each have 25 per cent, show filings to the Ontario Energy Board (OEB), a provincial regulator of the electricity industry.
On July 31, NextBridge Infrastructure submitted an application to the OEB for permission to build the proposed transmission line.
Included in the filing is the estimated development and construction cost of the project: approximately $ 777.2 million, a good deal more than the original estimate of about $420 million.
The filings say the project could increase the average Ontario home hydro bill by approximately 30 cents per month over a 25-year period.
The latest price tag evidently raised eyebrows in the legislature, as Ontario Energy Minister Glenn Thibeault wrote an Aug. 4 letter calling on the Independent Electricity System Operator ( IESO), which manages the province’s power grid, to update its “need assessment” for the project.
In doing so, Thibeault cited “significantly higher” cost estimates for the pro- ject, which would bolster northwestern Ontario’s electricity supply, especially for the mining industry.
“The scale of the cost increases is very concerning to the Ontario Government and it would be appropriate for the IESO to review all possible options to ensure that ratepayers are protected,” wrote Thibeault, who asked for the findings to be delivered to his ministry by Dec. 1.
Outrage over Ontario’s hydro rates spurred the Liberal government to roll out a plan this spring to lower electricity bills by an average of 25 per cent.
Steven Stengel, a spokesperson for NextBridge Infrastructure, said costs jumped because of factors outside its control. As one example, the project’s target in-service date was bumped to 2020 from 2018 at the request of the province.
The project’s design was also updated to better suit the terrain in northwestern Ontario, and the proposed transmission line was lengthened by 50 kilometres “to accommodate Pukaskwa National Park and stakeholder feedback, including First Nations and Métis communities,” Stengel said in an email.
“In spite of these increases, this project continues to present the most cost-effective way to serve the growing power needs of Northwest Ontario,” he said. “The project will create good jobs and economic benefits for the local communities, while expanding the delivery of reliable electricity through the province.”
NextBridge was also awarded the project “under the first competitive bidding process for a transmission line in the province,” the consortium notes on its website.
An IESO report attached to NextBridge’s application said that as of December, 2015, the East-West project could provide a net economic benefit of as much as $ 1.7 billion compared to alternatives. Citing its need, the Ontario government has also dubbed the East-West Tie a “priority” project, smoothing the regulatory approval process.
A CIBC World Markets research report last week cited the East-West project as a “competitive risk” to its price target for Hydro One Ltd., Ontario’s largest electricity distributor and transmitter.
“Ontario’s transmission market has been opened to competition, with the proposed East- West Tie Line awarded to a competitive consortium,” CIBC said.