Friday, October 16, 2015

Wynne deserves no credit for dumbly selling Hydro One

Most of Ontario realizes they are losing a valued asset in the government's sale of a majority stake of the publicly owned Hydro One. The topic is so complicated most just don't realize exactly how they are losing, making it equally difficult to determine who is winning

Ontario's Premier outsourced evaluating the optimal use of public assets to an unelected council led by former retail banker and Bay Street titan Ed Clark. Clark's council reported, in April:
...the integrated Hydro One transmission and distribution business would likely command a fully distributed equity valuation of between $13.5 billion and $15 billion in a public offering, excluding Hydro One Brampton. We believe this valuation is a conservative range in the context of today’s market.
In the spring Clark envisioned $9 billion of cash from a share sale (60% of $15 billion), "with $5 billion going to pay the utility's debt and $4 billion being channelled into infrastructure projects."

The revised prospectus came out last week anticipating a share offer at $19 and $21- making the value of Hydro One's 595 million common shares $11.3 -$12.5 billion - but this valuation comes only after the government gives $2.6 billion to Hydro One, and Hydro One gives the government $800 million. [1] Adjusted for cash exchanges prior to the closing of the deal:
  • the valuation of Hydro One is more realistically $9.5-$10.7 billion
  • the valuation of the 60% of the company to be sold is therefore $5.7 to $6.4 billion
The revenue from the sale of Hydro One is anticipated to be positive for the provincial balance sheet, but not significantly. The government's 2014-15 Financial Statement carried Hydro One as an $8.072 billion asset, so selling off 60% requires writing down the asset $4.84 billion dollars. On the balance sheet the share sale is anticipated to have a benefit of $800 million to $1.6 billion.
“We are going to be able to track the projects that we are building. People are going to be able to look at how much money is coming in and where that money is being spent.”   Premier Kathleen Wynne
The Wynne government remains committed to spending $4 billion of the ~$6 billion share issue on transit, while using $5 billion (of the remaining $2 billion) to pay down debt. All from a transaction having a $1 billion impact on the government's $285 billion net debt - only enough for 34 days of payments on the province's existing debt.

There's a con here.

Tuesday, October 6, 2015

IESO reporting raising doubts about its ability to administer Global Adjustment charges

There are 5 hours every 12 months that determine the distribution of global adjustment charges in Ontario - charges of nearly $10 billion over the past 12 months. The 5 hours are particularly important for Ontario's largest consumers of electricity as cutting one megawatt of use during one of these hours has been estimated to save from $50,000 to $100,000 and more. In this post I'll explain why the hours for the adjustment period ending next April have likely already occurred, with some implications of peak hours for intelligent energy policy.
Background: "Stakeholders" destroying the viability of Ontario's electricity market
While the top 5 hours have already occurred the IESO is not communicating what they are. To understand why the IESO's communication of peak hours is inadequate, it's important to know the definitions of "Ontario Demand", "Allocated Quantity of Energy Withdrawn," and what I'll call "consumption."

  • The IESO's "Ontario Demand" is really demand from IESO transmission (Tx) connected suppliers, including imports. The figure does include generator consumption and transmission losses.
  • The supply withdrawn from that grid by local distribution companies (LDCs) and wholesale consumers, essentially comprises the "Allocated Quantity of Energy Withdrawn" (AQEW). The AQEW and "Ontario Demand" figures do not include generation from suppliers embedded in LDC grids (Dx): 
  • "Consumption" will be AQEW plus "the total volume of electricity, adjusted for losses as required by the Retail Settlement Code, that was supplied by embedded generators to licensed distributors." (Ontario Regulation 398/10)
High 5 hours are determined by AQEW, but the proportionate share of the global adjustment is determined by a Class A user's AQEW (their metered use) as a numerator with total provincial consumption as a denominator.

During an adjustment period the IESO lists only the 10 top daily "Ontario Demand" hours:

The fact that they show AQEW for those hours shouldn't be confused with showing the 10 highest daily AQEW peaks - because after the last adjustment period class A users were surprised to find 2 of the High 5 hours were never shown on IESO's "Top Ten" list as the year progressed.

Thursday, October 1, 2015

Wasting legacy asset value in Ontario: supply income redistribution due to the global adjustment

I regularly update data the drives pages on my data site. Pages on the site are meaningful to me because I recognize the changes over time - as well as seeing changes I anticipate become reality. Today I created a graphic from data that drives the Supply_Costs page, and will use this blog post to attempt to make the graphic meaningful for you.

When understood, this chart indicates numerous issues behind rate increases in Ontario - increases which hit a staggering 26% in the second quarter of 2015.