Company zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA The - - PDF document
Company zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA The Journey from Local to Regional Distribution The Future of Corporation zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA London Hydro Inc. Weihmayr, CD O.T. [Tom) President
O.T. [Tom)
Weihmayr, CD President Green Energy Dynamics Corporation zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
02008 Green Energy Dynamics
Table of Contents zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
BACKGROUND ......................................................................................................................... 2 The Province
.........................................................................................................................
2 The City of London ............................................................................................................... 2 London Hydro Inc
.................................................................................................................
3 How the Big Players Came to B e ............................................................................................
6
Where zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Do W
e Grow From Here?
............................................................................................
7
Our Choices
..........................................................................................................................
7
Status Quo ............................................................................................................................
7
Centralization .......................................................................................................................
7
Regionalization
.....................................................................................................................
B
The Horizon Story ..................................................................................................................
8
Current Opportunities
..............................................................................................................
8
Looking Forward ...................................................................................................................... zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
9 APPENDIX A ............................................................................................................................
10 Regulatory Responsibility
...................................................................................................
10 A P P E N D I X 8 ..............................................................................................................................
11
Current Local. Distribution Companies in Ontario
............................................................
1 1
A P P E N D I X C
............................................................................................................................
14
LDC Service Areas in Ontario ............................................................................................
14
A P P E N D I X zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
D
............................................................................................................................
15
Commodity Prices (with Forecasts) .................................................................................. 15 A P P E N D I X E .............................................................................................................................
16
..
..
Ranking of 84 LDC's to determine
if Economies of Scale in Cost of Service Delivery
truly exist
..............................................................................................................................
16
1
BACKGROUND zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA The Province zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Not too long ago, there were over 300 municipally-owned public utility commissions in the Province
T h i s meant 300 individual billing systems, banking relationships, HR policies, collective agreements, vehicle fleets, maintenance contracts and Christmas parties. The issues arising out of such a fragmented delivery system for delivering essentially the same sewice are obvious: jurisdictional issues, duplication
economies of scale resulting in a relatively high cost for consumers. In
less than 10 years, the market has consolidated
to 84 companies. While that is much better, it still means that there are 84 companies who must own a billing and customer care system: 84 different people worrying about IT systems and how to bring them into the future, and how to coordinate largely mandated and certainly regulated changes to their individual business processes when changes occur; 84 different people, like some on this learned panel, worrying about cash flow and lines of credit on behalf of everyone else in the system. Additionally, we don't have - practically speaking
services provided by LDC's across the province. T h e Province released a report a couple of years ago that said we have in the order of 4 8 different ways of describing electricity.
The City of London
Guidelines established by the City and the utility on behalf of all its stakeholders, in December
2007, strictly outline that any merger, acquisition
must (among other things)':
*
provide an opportunity for increased investment value to the City of London or reduced electricity costs for Londoners; have a strong local presencez: and, present the best strategic objective to the City of London given the current and expected future policy and regulatory environment in Ontario over the next 10- zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
15 years.
*
1 London Hydro Inc. Shareholder Declaration,
Schedule "2". Schedule "A". pp. 13-14. Signed 6 December 2007.
2 Owing in large part to the estimated
$70MM that London Hydro's Head Office
is estimated to
contribute annually to the local economy.
2
In June of 2008, Board of Control recommended3 that the City adopt its recommendations regarding guidelines for any proposals
Hydro, which (among
*
Would see a headhegional office for a combined utility located in London; and,
London Hydro Inc.
Established in zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
1993,
London zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Hydro Inc. is the Local Distribution Company (LDC)
for the City of London. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
As such, London
Hydro owns and operates the 2,600 kms of overhead
and underground physical electricity infrastructure in the City of London. Wholly owned by the City and its ratepayers, it is the default company from which consumers purchase electricity from the Provincial grid4. London Hydro is the 7Ih largest utility in the Province by Customer Base and is without a doubt, one of the city's most valuable assets. The benefit of having its headquarters in the City of London has been estimated by some experts as contributing
$1 4,0oO,000 to the City's economy annually5. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
3
Board zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Control Recommendation
to Council. 18 June 20%.
4 Commercial zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
8, Industrial customers: 13,000 ($103,000,000 in
revenue); K e y Account customers:
220 ($90,000,000);
Residential customers: 1 15,000 ($84,000,000): Registered Retailers: zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
9 [Associated Customers: 25.000)
according to a February 2004 Presentation to the OEB by Unay
5 T
h e Special Committee of London Hydro's Board tasked with exploring the future value, quality and competitiveness of the utility retained Professor Conklin from the University o f Western Ontario to study this very issue. His calculations set the value to London's economy at around
$70 million dollars over the next 5
years
3
e c a
A little known added value of the utility to its shareholders and customers alike are its
Conservation and Demand Management Initiatives. Our utility's leadership in this field is being recognized across the country. T h e Chill Out Project, where London Hydro removed 16,000 energy-guzzling refrigerators from outlets across the city, earned our utility the 2007 Energy Star Regional Utility of the Year award from the Federal Government. Natural Resources Canada regularly invites London zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Hydro to present their successes at
national conferences to assist other utilities in implementing these programs in their communities. Forward thinking incentive-based initiatives such a s the Great Refrigerator Roundup, Summer Sweepstakes, Small Commercial Direct Install Program, and ERIP have by all accounts enjoyed a very high uptake percentage in relation to other utilities. These initiatives are rarely addressed for what they really are: a value-added benefit to
both the City and the individual accounts.
For example, in the first 6 months of 2008, the Electricity Retrofit Incentive Program (ERIP) has: exceeded all of its OPA targets for the year: zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
4
returned over zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
5
Megawatts of peak demand to the grid, which is equivalent to powering 2,500 homes: injected $618,0856 back to London businesses through O P A ERlP grants: and, reduced
by 35,255,418 kWh - putting
$3,349,264.71 back into
the local economy.
These initiatives not only keep businesses open and Londoners employed longer, they also reduce the city's Greenhouse Gas (GHG) emissions and resultant carbon footprint
R I P , London Hydro conservation measures have reduced GHG emissions by over 7,826,700 kg
...
and, while you will never see these numbers on any financial report,
"London Hydro is one of our top performers for the Electricity Retrofit Incentive Program (ERIP) in Ontario." Jennifer Tidmarsh E R l P Manager, Ontario Power Authority London Hydro is spearheading another strategy by leading a consortium of over 30 utilities in the specification, design and implementation
Smart Meters. T h i s initiative, when fully implemented, will reward those consumers who use electricity at
will actually see a savings on your bill, where today's analog meters and collection practices don't allow for that. T
the Executive Management Team of Bernie Watts, Vinay Sharma and Ken Walsh seem well suited to grow this L D C given the proper mandate by the residents here tonight and eventually by our City Council. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
As if ali this were not enough, and
US evidenced
in the following graph, London zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA Hydro is
when it comes to delivering electricity to its customers7.
6 Per CDM Update Presentation
to the London Hydro Board
26 Jun 2008
7 $1 66 per customer versus the average of over $240.
5
$475 zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA $425 zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
5375 is325 zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
a
$275 $225
UI
$175 $125
so 1
150 200 250 300 Customers per Utility (
1 ' s )
This scattergram has omHted three outlying LDC'r namely. Toronto (680. $236), Hydro One (1173. $357) and Great lakes Power, a rural L D C based In Saub Ste. Marie (12, $692). zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
How the Big Players Came to Be
Hydro One was born and has grown exclusively from acquisitions of smaller utilities. Servicing about 25%
in both size and scopeB. Toronto Hydro merged 6 utilities to become the 2nd largest LDC in Ontario. Hydro Ottawa was formed through the merger of 5 municipal utilities in the National Capital Region to become the 3rd largest LDC in the Province. Building upon the success of their joint purchase of Richmond Hill Hydro Inc.
(RHHI) in 2001, Hydro Vaughan Distribution
Distribution Inc. (MHDI) merged their two utilities to become the 4th largest utility in the Province. The mergers and acquisitions outlined above allowed these utilities to realize some significant efficiencies very quickly. They eliminated duplication
didn't need 3.5
F O s
billing systems. Quite often, the customers of a single utility with a high per-customer cost of
can benefit most from a merger or acquisition with a larger, stronger and better established partner. Increased reliability standards a s well a s improved service responsiveness can be achieved
* zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
8 See Appendix C for a list of acquired utilities
that make up Hydro One. 6
faster and more cost-efficiently through a merger or acquisition than by any
Where Do We Grow From Here? Our Choices
S
They more or less fall into three categories:
First is the Status Quo. Doing nothing while LDC's around u
s are bought and sold to form larger Regional Distribution Companies (RDC's) and erode the value of
Second, is the Centralization of relatively smaller L D C s under Hydro One or some
the divestiture of the smaller utility. T h i s is the top-down approach which so many monopolies -including Bell Canada - have flirted with and ultimately rejected. T h e third is Regionalization
It allows for the creation
and empowerment of bigger, regional utilities to lead the way forward in
acquisitions most closely resembling the Hor'ion model.
Status QUO
Let's start with zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Status Quo. While sometimes doing nothing
is the best approach, time
(unfortunately)
is not on our side in this case. While we have a strong utility today, the
status quo won't hold u s
e need to have a solid strategy to partake of the energy market 10 or zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
15 years from now. T
h i s
are 8 years behind other players who are making hay while the sun is shining. T h e players who will win in the market going forward are those who have the vision to make the courageous decisions to move from where they are today - and do s
and with solid planning and execution. Just sitting there is not good enough given the current climate.
Centralization
T h i s is the idea that we would all best be served by creating one large L D C for the entire province - the Big Brother Theory. It is also built around a model that believes that more government of bureaucracy
is a good thing zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
we are being given the best rates and service. Frankly, this feels like an academic solution - a Business zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA 257 case study if you will. It should make common sense, but it doesn't. T h e question here i s geopolitical: would such a centralized structure satisfy the needs of a modern, industrial economy such a s
geographic province with multiple, dispersed communities
7
by population, economic activity and cultural uniqueness, but we are also more capitalistic than we want to believe. Making money through our L D C is not a bad thing a s long a s the profits continue to subsidize our property taxes, reduce our overall tax burden and contribute to the rebuilding of our city's infrastructure. It is clear from the cost-per-customer analysis of Hydro One has reached a critical mass where economies
perennial problem before us. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Regionalization
The third option is Regionalization such a s what we have seen in the last 8 years with the birth and growth of Horizon Utilities Corporation. T h i s is a very Canadian response to a very Canadian problem
extremes of fragmentation and centralization, while taking advantage of regional commonalities of all stakeholders. I believe we need LDCs to transform into true RDC's that are large enough to optimize efficiencies and service levels, but small enough and invested enough to relate to regional communities of interest. There would be, of course, many questions involved in defining a region within our Province, but for the purposes of this discussion, Southwestern Ontario is a good region to start with, and anything West of Toronto would lend itself to this model. In short, a strong network of regional utilities seems, to me, an interesting idea worth exploring and given our current setting, the most attractive option.
The Horizon zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Story T h e Horizon Story began not too long ago - but long enough that we should take note. T h e City of Hamilton was the only shareholder of Hamilton Utilities Corporation
Distribution Company comprised of zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
5 smaller, though geographically close utilities.
The City of St. Catharines was itself the only shareholder of St. Catharines Hydro. By 2005, their joint exercise in Regionaiization produced Horizon Utilities Corporation -the 5th largest distribution company in the Province. Owned zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
79% and 21% respectively
by the major parties mentioned above, they are each partakers of improved efficiencies, reduced
Current Opportunities
In considering opportunities for growth and expansion within our Region (and the "expanded" region a s noted above), many smaller, viable utilities come to mind. Some are already in play, while others have maintained their role a s autonomous players in the changing market. Burlington Hydro
*
Veridian
*
Oakville
a
Waterloo Kitchener
*
PowerStream Chatham-Ken1 Guelph - Considering a merger with Horizon Enersource Mississauga -Shareholder has announced that it is considering a sale Brant County- Board of Directors has submitted recommendations to Council
Have joint-ventured in the pas! T h e
Looking Forward
*
I have talked about three big options - Status Quo, Centralization, and Regionalization. T
s to build on the momentum of our current successes.
I like the idea of Regionalization in that different regions of Ontario can function
with some degree of autonomy in serving the local community of interest. T h e physical business of delivering, managing and expanding the distribution grid is very much a local enterprise, rooted in geography- and therein also are the financial benefits. Above all, it is my strong recommendation that we give the London Hydro Executives the ability to do what they are supposed to do: which is to deliver power to a s many clients a s possible from the transmission supply point to the meter base in the most cost-effective, safe, and reliable way, and to do s
into the future. T h e wealthiest families in this country and in this city have gotten that way and stayed that way because they follow one cardinal rule: NEVER touch your
this principle
is the equivalent of slaying the proverbial
goose that lays the golden eggs.
*
9
APPENDIX A Regulatory Responsibility zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
The Ministry of Energy has overall regulatory responsibility for the Electricity Sector in Ontario (www.enerav.aov.on.ca). Provincial bodies such as: The Ontario Energy Board
(
b . a
.
. c a l :
Independent Electricity System Operator &yyw.ieso.ca): Ontario Power Authority [www.Dowerauthoritv.on.ca): and, Electrical Safety Authority (www.esoinsDection,net) supervise the Electricity Sector. More information about the Electricity Sector can be found at these websites. 10
APPENDIX B Current Local Distribution Companies in Ontario zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA Local zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Distribution Company zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA Hydro One Networks Inc. Toronto Hydro-Electric System Limited Hydro Ottawa Limited Powerstream
Vaughn +) Horizon Utilities Corp. (Hamilton, Enersource Hydro Mississauga Inc. London Hydro Inc. Hydro One Brampton Networks Inc. Veridian Connections Inc.(Pickering)
ENWIN Powerlines Ltd. (Windsor)
Kitchener-Wilmot Hydro Inc. Bame Hydro Distribution Inc. Burlington Hydro Inc. Oakville Hydro Electricity Distribution Inc. Oshawa PUC Networks Inc. Waterloo North Hydro Inc. Cambridge and North Durnfries Hydro Thunder Bay Hydro Electricity Distribution Guelph Hydro Electric Systems Inc. Greater Sudbuly Hydro Inc. Whitby Hydro Electric Corporation Brantford Power Inc. Bluewater Power Distribution Corporation Niagara Falls Hydro Inc. Peterborough Distribution Incorporated P U C Distribution Inc. Chatham-Kent Hydro Inc. Newmarket - Tay Power Distribution Ltd. E s s e x Powerlines Corporation Kingston Electricity Distribution Limited North Bay Hydro Distribution Limited Milton Hydro Distribution Inc. Holdirnand County Hydro Inc. Westario Power Inc. Welland Hydro-Electric System Corp. Number of Customers (1000’s) zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
1 I73
680 287 236 232 184 142 126 109
85 83
69 62 60
5 1 50
49 49 48 43
38
37 36
35
34
33
32
3 1
28 27 24 23 21 21 21 Cost Per Customer $357 $236 $150 $180 $161 $237
$1 66 zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
$130
$1 74
$294 $145 $121
$1 96
$196 $1 79
$1 58
$223 $197 $263 $206 $197 $261 $247 $181 $222
$1 62
$189 $221 $189 $22 1 $201 $293 $203 $183
$163 1 1
Halton Hills Hydro Inc. Norfolk Power Distribution Inc. Festival Hydro Inc.
Peninsula West Utilities Limited Fort Erie (CNP) Woodstock Hydro Services Inc. lnnisfil Hydro Distribution Systems Limited Erie Thames Powerlines Corporation C O L L U S Power Corp. On'llia Power Distribution Corporation Great Lakes Power Limited
E.L.K. Energy Inc.
Wasaga Distribution Inc. Grimsby Power Incorporated Orangeville Hydro Limited Ottawa River Power Corporation Lakefront Utilities Inc. Lakeland Power Distribution Ltd. Port Colborne (CNP) Brant County Power Inc. Niagara-on-the-Lake Hydro Inc. Tillsonburg Hydro Inc. Midland Power Utility Corporation Middlesex Power Distribution Corporation Kenora Hydro Electric Corporation Ltd. Rideau
Distribution Inc. Northern Ontario Wires Inc. Centre Wellington Hydro Ltd. Hydro Hawkesbufy Inc. Eastern Ontario Power (CNP) West Coast Huron Energy Inc. Fort Frances Power Corporation Renfrew Hydro Inc. Sioux Lookout Hydro Inc. Hearst Power Distribution Company West Nipissing Energy Sewices Ltd. Espanola Regional Hydro Distribution Pam/ Sound Power Corporation Wellington North Power Inc. Clinton Power Corporation Atikokan Hydro Inc. Cooperative Hydro Embrun Inc. West Perth Power Inc. Grand Valley Energy Inc.
20 19 19 16 15 15 14 14 14 14 13 12
11 11
10 10 10 9 9 9 9 8 7 7 7 6 6 6 6 5 4 4 4 4 3 3 3 3 3 3 2 zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA 2 2 2 zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
1
$220 $229 $182 $21 6 $260 $297 $223 $21 1 $329 $21 1 $271 $692 $155 $157 $1 62 $181 $205 $204 $231 $462 $293 $207 $236 $26
1
$21 2 $224 $233 $282 $239 $141
$380
$350 $276 $204 $389 $229 $135 $280 $306 $287 $284 $399 $202 $237 $325
12
Hydro zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Z o o 0 Inc.
Chapleau Public Utilities Corporation Dutton Hydro Limited Newbuly Power Inc. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
$212
$415
$250
$255
13
APPENDIX C
LDC Service Areas zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA i n Ontario zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
14
APPENDIX D Commodity Prices (with Forecasts) zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
$60.00 SS0.00 zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Average HOEP
7 . I $40.00 - $ 3 .
2 .
$10.00
Average Hourly Ontario Energy Price (HOEP) refers to Simple arithmetic average as
in the Progress Report on Electricity Supply published by The Ontario Power Authority (September 2008). Forecasts are based on 3.3% increase per previous 3-year trend.
Cushing, OK WTI Spot Price FOB ($ per Barrel)
$500 I $450 $400
$350 $300
$250 $200 $150 $100 $50 2006 2007 2008 2009 2010 2011 2012 2013 2013
15
Comparative Oil Prices have seen increases of 8.7% and 36.8%. Forecasts are based on an average of these two numbers. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
APPENDIX zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA E
Ranking of 84 LDC's to determine if Economies of Scale in Cost of Service Delivery truly exist. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Top 40
LDC's by Customers
Served
1400
1200 1000
800 600
400
200
1 6
0 zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
200
400 600 SO0 1000 1200 1400
Numberof zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Customers
(1000’s) zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
17