Ontario Power Generation is pursuing expansion in the United States as the Crown-owned utility faces uncertainty over Premier Doug Ford’s pledge to cut electricity rates.
OPG announced on Thursday that it is purchasing Eagle Creek Renewable Energy LLC – which owns 63 small hydroelectric stations in 13 states − for US$298-million, marking the provincially owned utility’s first expansion outside the province.
OPG reached the agreement to buy New Jersey-based Eagle Creek from Desmairais family-controlled Power Corp. of Canada and Claridge Inc., the private-investment firm of Stephen Bronfman, and their partner, U.S.-based Hudson Clean Energy Partners LP.
“By expanding our core business with this purchase, OPG is capitalizing on a new growth opportunity by making an investment in a strategic set of hydroelectric assets that will produce an attractive return for our shareholder, the Province of Ontario,” OPG CEO Jeff Lyash said on Thursday.
“This acquisition will be financed without the use of taxpayer funds and will have no impact on Ontario’s electricity customers,” he said. Instead, the provincially owned corporation will finance the deal with debt through its existing credit arrangements.
OPG’s acquisition comes just weeks after the new Progressive Conservative provincial government cancelled 759 renewable energy contracts in the name of cost reduction.
One of those projects – White Pines Wind – had finalized its contract and was mid-way through construction when Mr. Ford ordered it shut down. His government complained the final approval was given by the Independent Electricity System Operator after the provincial election campaign commenced.
Ontario Energy Minister Greg Rickford defended the cancellations, saying they would help the government achieve Mr. Ford’s promise to cut power costs by 12 per cent.
The government has yet to spell out how it will honor that 12-per-cent pledge, and the uncertainty is hanging over the entire electricity sector, and particularly over OPG, which has for years been saddled with politically motivated directives from the government of the day.
The corporation was founded in 1999, when former premier Mike Harris broke up the heavily indebted Ontario Hydro into a series of operations that include OPG and transmission giant Hydro One, whose chief executive officer and board was forced to resign this summer by the Ford government over high salaries and the sharp run-up in electricity prices over the past decade.
OPG “is not the master of its own fate,” said Tom Adams, an industry consultant who appears frequently at regulatory hearings. “It has repeatedly been given marching orders that a straight-ahead business would never undertake.”
In order to cut costs for customers, the government could order the Ontario Energy Board to reduce the rate of return earned by OPB. Or it could redirect OPG’s stream of dividend, water rental fees and tax revenue from government coffers back to the ratepayers, although that would drive up the provincial deficit.
Mr. Lyash acknowledged he is aware of Mr. Ford’s promise but has had no indication whether it will affect OPG’s operation.
“I worry about it a bit, but all of our earnings go to the government as our shareholder," Mr. Lyash said in an interview. "So you’re best off continuing to keep the commercial pressures on OPG so we run most efficiently and deliver that net income to our shareholder. Where the shareholder decides to point that net income, that’s their call.”
The provincial corporation paid around $800-million to the province last year in dividends, taxes and water rental charges.
The provincial utility is currently undertaking a $12.8-billion, 10-year refurbishment of the Darlington nuclear facility, which has four reactors with capacity to generate 3,500 megawatts of power.
Mr. Adams questioned OPG’s foray into the United States, saying it may prove a distraction when the company must deliver the Darlington project on time and on budget. “Anything that distract attention away – no matter how legitimate – is potentially very costly and I would think ill-advised."