Hydro One

Service territory

Hydro One is a holding company with four subsidiaries, the largest being Hydro One Networks. It operates 97% of the high voltage transmission grid throughout Ontario, and serves 1.3 million customers in rural areas across the province in its capacity as Ontario's largest distribution utility.

System information

Hydro One's transmission line voltages are 500,000 volts, 230,000 volts and 115,000 volts. Hydro One has interconnections with Manitoba Hydro, Hydro-Québec, Minnesota Power, DTE Energy/ITC, Niagara Mohawk Power and the New York Power Authority.

Generators

Hydro One works with the transmission and distribution network by connecting generating facilities operated by Ontario Power Generation and a number of privately owned companies, to it. The generators deliver the electricity they generate at hydroelectric, natural gas, wind, solar and nuclear facilities to businesses and people across Ontario. The generators have different responsibilities than Hydro One. The power from generators connected to Hydro One’s high voltage system is transformed to more than 50 kV (50,000 volts). The transmission-connected generators are registered with the Independent Electricity System Operator (IESO). Transmission lines, strung between metal towers or concrete poles, are not as plentiful as their distribution lines, which are most commonly strung between wooden poles. The distribution system is connected to Hydro One’s generating facilities. It delivers the electricity generated at hydroelectric, wind and other facilities to businesses and people across Ontario. These distribution facilities work at voltages of 50 kV or less.

Ontario's electricity grid is made up of a 29 000 km high-voltage transmission network that delivers electricity to large industrial customers and municipal utilities and 123 000 km low-voltage distribution system that serves about 1.3 million end use customers mainly in rural service areas and smaller municipal communities in the province. More than 75 percent of the applications to connect small generators are in Hydro One's rural service territory along the company's distribution system. While Hydro One has connected thousands of small projects to the grid it is approaching their technical limits of the wires and equipment in some rural locations. In these areas there are two issues that limit the number of projects that Hydro One can safely connect without putting the grid in jeopardy. The first issue is the physical limits of the power lines and the second is a phenomenon called 'islanding'. In larger areas that are densely populated, Hydro One's wires are thicker and designed to deliver larger amounts of electricity. In rural areas, Hydro One's distribution wires are smaller, thinner and deliver a smaller amount of electricity because they were designed to serve a much smaller number of customers than in large urban centers. These thinner lines deliver electricity safely and reliably to rural customers and are able to support the connection of small generation projects spread across the line, but these lines become over loaded when more electricity is fed back to the grid than the line was built to deliver. In some areas where the program is extremely popular, many generators want to connect to the same thin line but the line is not able to support the transfer of so much electricity.

The second issue is about islanding. Hydro One's distribution system knows how to protect itself under certain conditions. For instance, during a storm if a tree falls on a line, the system shuts itself down, similar to a circuit breaker. This protects the company's customers and employees from accidentally coming into contact with a live electrical line; it also protects appliances like televisions from uncontrolled surges and drops in voltage. In addition, when there is a fault, the line must be dead. Also when solar panels are attached to such lines, they must also be shut down when there is a fault on the line. If they are not shut down, electricity keeps flowing from the solar panels to all points between the panels. This can create an unsafe condition called islanding, which can put at risk customers, employees, and the equipment drawing power from that line. Hydro One prevents islanding by limiting the amount of generation that the company connects in one area; this ensures that the electrical load is greater than generation at all times. Ontario has moved to smart meters, which could support even more solutions to these problems. By using the company's existing network and working with customers, Hydro One is exploring new ways to deliver the cleaner electricity which Ontarians are helping to generate.

History

Hydro One was created out of the Hydro-Electric Power Commission of Ontario (HEPC or Ontario Hydro), which was established in 1906 by the provincial Power Commission Act to build transmission lines to supply municipal utilities with electricity generated by private companies already operating at Niagara Falls. The first chairman was Adam Beck, minister without portfolio in the provincial government of Sir James P. Whitney. Beck had been a prominent advocate of a publicly owned electricity grid.

The commission's initial responsibility was to build transmission lines, in order to supply municipal utilities with power. The power that was being transferred by HEPC was already being generated at Niagara Falls by private companies. Also during 1906, the company appointed Adam Beck as chairman. A year later, Beck and his colleague William Peyton Hubbard fought for the public ownership of the company. Later in 1908, HEPC purchased power from Niagara Falls and sought to transmit this power over its own lines, which at the time, had not been established. The company continued its steady growth for the next few years. and by 1914 HEPC built its first owned power generating station located on the Severn River.

In the early 1920s, HEPC expanded further and became an electricity distributor itself. The company now transmitted to rural areas in addition to municipal utilities. In 1922 the company's first unit of the Chippawa hydroelectric development on the Niagara River began service. Upon the unit's completion in 1925, it was the largest generating station in the world.

This HEPC had bought the generation and transmission assets of the Electrical Development Corporation, which was the last remaining private power company. In 1926, HEPC entered into a long-term contract with Gatineau Power Company, located in Quebec. These contracts were needed to accommodate a growing demand for power and electricity. However, these same contracts were to become a source of controversy during the Great Depression when there was an overcapacity in the system. The development of the St. Lawrence and Ottawa rivers was stalled by jurisdictional complications. The development of the rivers would have allowed access to a preferred source of power. In 1939 the Quebec contracts were reinstated and the development of the rivers were continued.

In the late 1940s and early 1950s HEPC took a great leap forward with development of hydro-electric potential along the St. Lawrence River. During the mid-1950s HEPC joined all its power stations and transmission systems into one network in order to become more efficient and flexible. Also during the 1950s, hydro-electric development was supplemented by the construction of thermal coal-fired power stations in Toronto. And by the end of the 1950s HEPC began construction of Canada's first extra-high voltage (500 000 volts) transmission lines. This brought power from northern Ontario to demand in southern Ontario. However, these transmission lines would only come into service in 1967. And by the start of the 1970s all of Ontario's power systems had merged, creating a province wide grid.

In 1974, the Power Corporation Act reorganized the system as a crown corporation called "Ontario Hydro", the name by which it was most usually known.

In 1998, the Progressive Conservative Party (PC) government of Mike Harris passed the Energy Competition Act which authorized the establishment of a market in electricity. In April 1999, Ontario Hydro was re-organized into five successor companies: Ontario Power Generation, the Ontario Hydro Services Company (later renamed Hydro One), the Independent Electricity Market Operator (later renamed the Independent Electricity System Operator), the Electrical Safety Authority, and Ontario Electricity Financial Corporation. The two commercial companies, Ontario Power Generation and Hydro One, were intended to operate as private businesses rather than as crown corporations.

By 2001, Hydro One had acquired 88 municipal utilities. In December 2001 the provincial government announced its intention to sell Hydro One under an initial public offering (IPO), however by April 2002 various groups in opposition to the plan were able to challenge the government in the Ontario Superior Court, forcing a halt to the IPO.

In 2002, an electricity market began operating. However, critics questioned, among other things, whether the market was truly competitive or could ever become competitive, given that an electricity grid is not a private good. Public dismay at an increase in prices led the government of Harris's successor, Ernie Eves, to freeze electricity prices for residential and small business consumers. This freeze was maintained after the Liberal Party of Dalton McGuinty replaced the PC government in 2003. The freeze was removed and prices were raised in April 2004, and have been increased again subsequently.

Restructuring

Ontario Hydro was restructured on April 1, 1999 into five separate entities: Ontario Power Generation, the Ontario Hydro Services Company, the Independent Electricity System Operator (originally named the Independent Electricity Market Operator), the Electrical Safety Authority, and Ontario Electricity Financial Corporation.

On May 1, 2000, the Ontario Hydro Services Company was renamed "Hydro One Incorporated" and reorganized as a holding company with four subsidiaries:

Between 1998 and 2000, Hydro One acquired 88 municipal electrical utilities. Many local/municipal distribution companies were also consolidated during this time.

In May 2002, the provincial government launched an open electricity market, although generating and distribution remained under control of the government.

Hydro One also owns the distribution utility for the city of Brampton. This is another subsidiary known as Hydro One Brampton. This subsidiary operates separately from the main Hydro One corporation and operates only in the city of Brampton.

In August 2014, Hydro One acquired the assets and customers of Norfolk Power.

Privatization

On October 29, 2015 Premier Kathleen Wynne confirmed rumours that the province planned to sell 60 per cent of Hydro One ("broadenening of ownership"). Some of the proceeds from the sale of shares would be used to begin financing of Premier Wynne's 10-year plan for public transit and infrastructure projects in addition to reducing the provincial deficit.

The plan was criticized by many, including Stephen LeClair, the new financial accountability officer for Ontario. LeClair warned that the sale of an entity that generated a $750-million profit in 2014 would lead to a long term negative financial impact for the province.

The sale will certainly provide short term benefits, generating an estimated total of $9 billion at a time when the provincial government is "desperate for money" according to The Globe and Mail with one of the largest subsovereign debts in the world. The estimated revenue will not all be a windfall for the provincial coffers however, since roughly $5 billion is earmarked to pay down Hydro One's $8.5 billion debt.

The balance of the revenue from the Hydro One sale would help meet the targets laid out by the provincial Liberal government in its April 2015 budget. Although the budget announced some austerity measures, there was no indication of any new revenue sources. Even so, the plan was to reduce the Province's estimated budget deficit by $2.5 billion to $8.5 billion in the 2015-16 fiscal year, then to $4.8 billion in 2016-17 and to have a balanced budget by 2017-18, according to Finance Minister Charles Sousa. This promise was made in spite of increasing demand for government services due to an aging population, at a time when "... a slowing domestic economy are putting downward pressure on its revenue streams,” according to Ed Clark, Wynne's chief advisor on government assets, as quoted in The Globe and Mail.

On November 5, 2015, the province began the first phase of the process, with an initial public offering (IPO) of 81.1 million shares (equivalent to 13.6% of Hydro One) on the Toronto Stock Exchange. It was the largest IPO in Canada since 2000. The estimated proceeds from this IPO were expected to total $1.83-billion. This was the first step in the long-term goal of gradually selling 60 per cent of the utility. Three more offerings, roughly the same size, are expected to follow.

Finance Minister Sousa told stated on November 4, 2015 that the Hydro One IPO was already "oversubscribed" at that time, with more advance orders than the shares that would be available. On November 5, 2015 the stock closed at $21.62, up 5.46 per cent or $1.12 from the IPO price of $20.50, with more than 18 million shares sold. Although this is not necessarily indicative of a rosy future for the share price, Sousa was optimistic. “Every uptick on the market is an indication the future offerings will net even greater proceeds benefiting all Ontarians.” However, shares dropped 3.9 percent on 2 December 2015 because of the Auditor-General warning that the cost of replacing outdated transmission assets was $4.47 billion, information that might continue to depress the share price. Hydro One responded by indicating that steps were under way to increase reliability: "There are several initiatives under way to ensure investments strike the appropriate balance between reliability and cost."

Some consumer advocacy groups and some analysts have raised red flags, concerned with the risk of increasing electricity costs under a privatized Hydro One. On the other hand, Brady Yauch, executive director of the Consumer Policy Institute discussed the potential benefits in a Comment (op/ed) item in the Financial Post, including "lower rates for ratepayers". His premise is based on the potential increase in productivity of Hydro One under private control, "something that the government has failed to do adequately", bringing high salaries into line, and reducing pension liabilities in future, with employees contributing higher amounts to their pensions. "Given the government’s performance over the last 15 years, it calls for hopeful optimism...," in his opinion.

A secondary offering of 72.4 million Hydro One shares, equivalent to 14.5%, in April 2016 generated $1.7 billion in revenue for the provincial government. Crown corporation Ontario Power Generation purchased 9 million of the shares, giving it a 1.5% stake in Hydro One.

First Nations and Métis relations

Hydro One states that it "is committed to continuing efforts to develop and maintain respectful and positive relationships with First Nations and Métis communities across the province." as did its antecedent companies. The company adds that it "understands the value and importance of building relationships with communities on a foundation of mutual trust, confidence and accountability. The First Nations and Métis Relations team has staff committed to each region of Ontario. According to Hydro One, it "owns and operates transmission assets located on 24 First Nations reserves in Ontario and provides electricity distribution services to nearly 100 First Nations communities across the province." It also operates and maintains the generation and distribution assets used to supply electricity to 21 communities across northern Ontario that are not connected to the province’s electricity grid, 15 of which are First Nations.