Regulator orders OPG to scale back over ‘excessive’ costs
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 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 decision will be felt across the province, as OPG is the largest producer of electricity in Ontario, operating two nuclear power plants, 66 hydroelectric 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.
OPG requested Jan. 1, 2017 as the effective date for its new power prices, but the OEB selected June 1, 2017. OPG said Friday in a press release that it was “reviewing the decision in detail.”
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.”