The Auditor General also outlined that Hydro One has set a very generous expected life of 60 years for major sections of their infrastructure, including transmission lines. This is well beyond the 40-year average the rest of the Canadian industry (both public and private) usually set for infrastructure life.
In addition, the Auditor General pointed to other previously unreported future costs for the company. Its transmission security needs are likely to be more expensive, there remains a large backlog in forestry operations along hydro corridors, and sustainability investments are needed in both distribution assets and transmission assets.
Taken together, the Auditor seems to suggest that Hydro One could have rather large investment needs that have not been fully disclosed to the ratepayers or the market at the time of the initial public offering. If these investments are not made, reliability and quality of services are both likely to suffer.
All this makes for some difficult decisions for the electricity rate-setting Ontario Energy Board (OEB). The OEB’s mission is to protect ratepayers, while allowing reasonable investment to sustain and maintain infrastructure. However, the Auditor General says Hydro One has been providing “inaccurate” information to the OEB in its filings and not making the investments that previous rate increases were supposed to fund.
A rate increase would mean the province breaking its promise to the people of Ontario that the OEB would be protecting ratepayers and not financing shareholder profit. A reduction in dividends (estimated to be at least 35%) would break a promise to shareholders and also undermine the provincial revenues (one of the main arguments for selling the Hydro One).
The people of Ontario need clarity from the Liberal government on whether these unexpected expenditures will be paid through OEB regulated rate increases or come from revenues (and thus private profits) generated by Hydro One.