The Ontario Energy Board just saved $15 million for fee payers.

The Ontario Power Authority (OPA) was hoping it could run off with $15 million of funds it accumulated through overcharging fee payers[1] in recent years and use the money to help pay for its upcoming merger with the Independent Electricity System Operator (IESO).

The Ontario Energy Board had other ideas.

During OPA’s recent application before the Board – in which it was requesting the Board approve its 2014 budget and fees charged to fee payers – the agency received notice from the Ministry of Energy that it must merge with IESO.[2] The OPA then told the Board – as well as interveners, including Energy Probe (a sister organization of CPI) – that it would need to hold on to $15 million that it had planned to give back to fee payers in order to handle the costs of the merger.

Where did that $15 million come from?

Each year the OPA establishes what is known as a variance account to deal with a difference in the amount of revenue it expects to collect from fee payers over the year from what it actually receives. If energy demand is higher and more fees are collected – or expenses at the OPA are lower – than forecasted, the agency will have a surplus in the variance account. If the reverse is true – energy demand is lower or expenses are higher than forecasted – then there will be negative amount in the variance account.

The money that has either accumulated or is owed in the variance account is cleared – or added to the upcoming fees to be collected – when the OPA goes to the Board to approve its upcoming budget.

But the OPA hasn’t been to the Board to get its fees approved in recent years as the Minister of Energy – which must first sign off on the OPA’s budget – never gave the go-ahead. So the OPA has been over collecting from fee payers for several years. In total, the OPA over-collected $33.8 million from fee payers.

The OPA had originally proposed returning all but $5 million of that money to fee payers – keeping that small amount as a contingency fund. Yet, after the Ontario government tabled its most recent budget and called for the merging of the OPA and IESO, the OPA came back to the Board and said it must now keep $15 million to pay for the merger costs.

Energy Probe – and many other interveners – was strongly opposed to OPA keeping the money. We argued that the OPA was essentially asking for an interest-free loan from fee payers to pay for a merger that they (fee payers) didn’t ask for and had no say in how it would be completed. It also ensured that the risk of cost overruns in completing the merger were solely borne by fee payers, as it was their money being used to pay for the merger and OPA had little to no incentive to keep costs minimal.

The OPA was essentially asking for carte blanche to use the $15 million as it saw fit. Any oversight of how the money was spent would come after the fact. OPA also wouldn’t commit to provide any amount of savings that would be achieved because of the merger.

Additionally, Energy Probe argued that the fee payers for the OPA were not the same as the fee payers of IESO, so the merger costs should not be borne solely by the OPA (as was likely to occur).

The panel overseeing the case agreed – and even went against the advice of its own staff. In its decision the Board argued that using these funds to pay for a merger was “beyond the scope of this [variance] account” and that the OPA was “unable to provide concrete examples of its anticipated merger costs.” OPA repeatedly maintained that it had no information on how much the merger would cost or what those costs would be used for. The Board highlighted this as a shortcoming of OPA’s request.

The Board also added that giving the money to OPA and then later dealing with the consequences of out-of-control merger costs was unpalatable, as it wouldn’t be “clear to the Board what remedy there would be if the costs are eventually found not to be reasonable.”

The Board concluded that the surplus funds “should be paid back to fee payers and the costs for the merger should, if necessary, be applied for as part of a future revenue requirement submission.”

And just like that, the Board stopped the OPA from running off with $15 million of fee payer money.

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236.

[1] Fee payers and rate payers are essentially the same thing. Because the OPA charges “fees” and not “rates”, the term fee payer is used when referring to its customers. All ratepayers pay these fees under the “Regulatory” line item on their hydro bill.

[2] The two agencies began merger plans in 2012 before the provincial government called it off. In the most recent budget the provincial government once again directed to the two agencies to merge operations. While it is technically a merger, the OPA is being absorbed by IESO, which will be the name of the combined entity.