Breaking down an average electricity bill in Ontario
The Ontario government’s recent move to oust the Hydro One board of directors and cancel more than 750 renewable energy contracts are part of the province’s efforts to lower electricity bills, according to Ontario Energy Minister Greg Rickford. But industry observers argue what’s being eliminated will lead to minimal savings.
Keith Brooks, program director at Environmental Defence Canada, said the $790-million in cancelled projects would likely break down to a small amount over what are typically 20-year contracts.
“I've got to imagine that's $790 million over 20 years, or about $40 million per year, or 0.2 per cent of the total cost of Ontario's $20-billion-dollar electricity system,” Brooks told BNN Bloomberg in an email.
The uncertainty over the contracts puts unforeseen burden on businesses in the sector that will soon face potential job cuts, sunk costs and lost future profits, according Darryl McCoubrey, analyst of utility and infrastructure equities at Veritas Investment Research.
He suggests that even while getting rid of renewable energy projects “reduces future generation costs,” there’s the risk of litigation.
“Cancelling renewable contracts could be costly, since developers will sue for damages,” McCoubrey told BNN Bloomberg in an email.
McCoubrey highlighted the White Pines Wind Project in Prince Edward County as a “bad precedent,” an initiative Ford has vowed to scrap in the past, but one that is not on the latest list of project cancellations. German-owned wpd Canada Corp., a shareholder in the farm, has already said it would seek $100 million in the event of a breach of contract.
In a July 13 statement, Rickford confirmed that the government intends to introduce a legislative amendment that would protect hydro consumers from any costs incurred from the project cancellations.
Brooks calls this “a law that says ‘we don’t have to pay you’” when faced with legal action.
REDUCING HYDRO ONE COMPENSATION ‘INCONSEQUENTIAL’
Ford’s decision to discontinue contracts with clean energy companies comes on the heels of his overhaul of the management team at Hydro One, Ontario’s electricity transmission and distribution utility, including its CEO Mayo Schmidt, who Ford wanted out of the position before he was even elected.
“Renewed leadership at Hydro One is the first step to reducing hydro bills for Ontario families,” Ford’s spokesperson Simon Jefferies wrote in an emailed statement to BNN Bloomberg.
As someone who follows Hydro One’s stock closely – and continues to give the company “buy” rating – Veritas’ McCoubrey emphasizes reducing corporate overhead costs at the utility as being “non-material.”
“It’s just not a large enough figure to matter,” he said. “If they reduce the run-rate compensation for the BoD [Board of Directors] and CEO from $9 million per year, there would be marginal reduction to costs…since $9 million is entirely inconsequential to the overall cost of service from Hydro One.”
He added that the move won’t change electricity rates in the near-term because of the company’s fixed-price, multi-year agreement with the regulator.
The new government has yet to outline just how the latest changes will translate into direct reduction of electricity prices for ratepayers.