OPG ordered to cut costs by $500M
Regulator scales back Ontario Power Generation rate-hike request over ‘excessive’ costs
TORONTO—The Ontario Energy Board has ordered Ontario Power Generation Inc. to cut nuclear connected costs by approximately $500 million over five years after finding that some of the company’s proposed expenses, including those tied to compensation, were“excessive “in relation to those of comparable entities. OPG made an application for power payments it will receive for the years 2017 to 2021 to the OEB, the provincial regulator of the electricity industry, in May 2016.
The OEB acknowledged in a decision released Thursday that OPG’s application was the “largest” rate case it had ever heard on a dollar basis, as the company had been seeking $16.8 billion in revenue over the five-year period for its nuclear facilities.
But the OEB also said it would reduce OPG’s proposed operations, maintenance and administration budget for its nuclear power business by $100 million per year, “mainly due to the results of poor OPG performance against its comparators, and excessive compensation when compared to its benchmarked comparators and its own performance, and other excessive costs.”
The compensation eyed by the OEB extends to OPG’s pension and benefit costs, which the regulator said “are clearly excessive.”
“The evidence supports a range of disallowances under different categories which in theory could have supported disallowances that could total much greater than $100 million,” the decision added. “In reaching a final number the OEB has sought to balance the interests of ratepayers in not paying an unreasonable amount, and OPG’s needs to fund its nuclear operations.”
OPG’s requested rates would have inflated the typical household hydro bill by approximately 65 cents a month in each year of the five-year application, the decision noted. The OEB ordered OPG to file a draft of its payments amounts reflecting the regulator’s findings by Jan. 17, 2018, before the OEB makes a final decision some time next year.
“Only then will the exact payment amounts and customer bill impacts be known,” the regulator added.
The decision will be felt across the province, as OPG is the largest producer of electricity in Ontario, operating two nuclear power plants, 66 hydro electric stations, three thermal facilities and one wind turbine.
While OPG is wholly owned by Ontario, it also does business in the capital markets — it released its first public debt issue in October, a $500-million offering. The money will be used in part to help finance the plan to reduce electricity costs for residential consumers by an average of 25 per cent, which was brought in earlier this year by the provincial Liberal government, the so-called “Fair Hydro Plan.”
OPG requested Jan. 1, 2017 as the effective date for its new power prices, but the OEB selected June 1, 2017, potentially cutting into OPG’s payments.
OPG said Friday in a press release that it was “reviewing the decision in detail.”
The subject of OPG’s compensation has been a “contentious” one in the past, the OEB noted in its decision. A previous decision by the regulator on OPG’s 2011 and 2012 payments, disallowing $145 million in nuclear-related labour costs for being excessive, was fought all the way to the Supreme Court of Canada, which sided with the OEB. OPG is the only electricity generator in Ontario that has its rates set through a public process.
The company’s 2017-2021 application also included a “rate smoothing” proposal that would defer the collecting of approximately $1 billion of revenue, plus $116 million of interest, the decision said. The OEB approved a deferral account for the smoothing revenue, with the final details still to come once the “unsmoothed” payments are nailed down.
“The impact of this Decision will not be seen on customer bills immediately due to smoothing and deferred revenue resulting from this proceeding,” the OEB said in its decision. “In addition, because of the Fair Hydro Plan, for residential customers and some other customers, the immediate impact will be lessened.”
OPG’s application also covered the $12.8-billion Darlington “megaprogram,” as the OEB phrased it. The project aims to extend the life of the 27-year-old, four-reactor nuclear power plant, which provides approximately 20 per cent of the province’s electricity, by approximately 30 years. Work began on revamping the first nuclear reactor in Oct. 2016, and the project is scheduled to take until 2026.
Jeff Lyash, president and chief executive officer of OPG, said in a Nov. 9 press release that the project “remains on time and on budget.”
The OEB said in its decision that it had approved adding nearly $5.2 billion to the rate base in connection with the refurbishment of Darlington, which is located approximately 45 minutes east of Toronto.
The OEB also approved OPG’s proposal to spend $292 million on technical assessments for its 46-year-old Pickering nuclear power plant, to see if its life can be extended another four years, to 2024. gzochodne@postmedia.com Twitter: @Geoffzochodne