Wataynikaneyap Power LP on April 2 said that the Ontario Energy Board (OEB) has approved the company’s proposal to build the Wataynikaneyap Power Transmission Project, as the board has approved the company’s June 2018 leave to construct (LTC) application.
The project involves building about 1,800 kilometers of transmission lines in northwestern Ontario to connect remote First Nations communities to the Ontario power grid, the company said, adding that the project will reinforce the existing transmission grid to Pickle Lake, as well as expand grid service north of Pickle Lake and Red Lake to ultimately connect 17 First Nations communities.
The OEB’s approval authorizes Wataynikaneyap Power to “deliver upon our commitment to bring reliable, sustainable and clean power to our First Nations communities in northern Ontario,” Wataynikaneyap Power CEO Margaret Kenequanash said in the statement. “We successfully connected Pikangikum to the provincial energy grid in December 2018 and are looking forward to connecting the rest of the First Nation communities who still rely on expensive, environmentally-unfriendly diesel generators for power.”
Wataynikaneyap Power said that it is now focused on the next significant steps in the project’s development before construction, including environmental assessment approvals, choosing an Engineering, Procurement, Construction (EPC) proponent(s) for Phase 1 & 2 of the project, and finalizing financing.
As noted in the April 1 OEB decision and order, the project consists of two parts: a reinforced supply to Pickle Lake – Line to Pickle Lake – and new lines to connect remote First Nation communities in northwestern Ontario north of Pickle Lake and Red Lake – Remote Connection Lines.
The order noted that according to the application, nine of the communities to be connected are served by Hydro One Remote Communities Inc., (HORCI), while seven are served by an Independent Power Authority (IPA), which operates its local system; the IPA systems will ultimately be transferred to HORCI.
Discussing the project need, the order noted that through an order-in-council issued by the Lieutenant Governor in Council in July 2016, the Province of Ontario declared that the project is a “priority project” under section 96.1 of the OEB Act, which means that the OEB is required to accept that the construction of the proposed transmission facilities is needed.
In response to a ministerial directive issued under section 28.6.1 of the OEB Act, the OEB amended Wataynikaneyap Power’s transmission license in September 2016 to include a requirement that Wataynikaneyap Power develop and seek approvals for the project, the order said.
The order also noted that Wataynikaneyap Power estimated the project’s total capital cost to be about C$1.65bn, and that OEB staff submitted that the company’s cost estimates are based on a well-defined project scope, substantially completed routing, completion of conceptual substation configuration design and equipment ratings, as well as completion of preliminary plan and profile drawings.
The project cost estimate includes a 20% contingency, higher than the 5% to 15% contingency Wataynikaneyap Power considers to be typical at this stage of a project, but reasonable in its view given the remoteness of the project, as well as other considerations and risks associated with subsurface conditions and environmental restrictions.
The order added that Wataynikaneyap Power in March 2018 entered into a memorandum of understanding – referred to as the Funding MOU – with the governments of Canada and Ontario that contemplates a total of C$1.6bn of federal funding in support of efforts to connect the remote communities. The funding is conditional on the finalization of definitive documentation and on appropriation of the funding by Parliament, the order noted.
Assuming the Government of Canada does appropriate the funds as expected, the funding will be provided in two tranches:
- The first tranche, to be provided upon substantial completion of the transmission project, will be C$770m less funding provided by Canada for connection of the Pikangikum First Nation
- The second tranche, to be provided upon final completion, will be C$785m
The order added that the Government of Canada will fund the project in part as a capital contribution to Wataynikaneyap Power, with the remainder placed in an independent trust to offset the increase in Rural or Remote Electricity Rate Protection (RRRP) as a result of a transmission rate that Wataynikaneyap Power proposes to charge to HORCI. Wataynikaneyap Power’s understanding is that the recipient of funds from the Trust will be the Independent Electricity System Operator (IESO).
The order also said that Wataynikaneyap Power, at the presentation day of the application, advised the OEB that a capital cost of C$1.61bn results in an implied rate base of about C$1.55bn and a C$197m capital contribution from the Government of Canada. The amount allocated to the Trust would be C$1.353bn, the order said, adding that Wataynikaneyap Power has stated that the Funding MOU has a sliding scale based on approved capital costs, and that Wataynikaneyap Power’s equity position goes down as approved capital costs go up, provided Wataynikaneyap Power’s equity does not go below $400m.
The order noted that if funding from the Government of Canada is appropriated as anticipated, then it will mitigate the project’s impacts on Ontario customers. That funding will reduce Wataynikaneyap Power’s rate base for the Remote Connection Lines through a capital contribution directly to Wataynikaneyap Power with the balance of the funding placed in a Trust. The rate impact for Ontario customers will be mitigated by offsetting the incremental amount of the RRRP attributable to the Remote Connection Lines until the applicable federal funding in the Trust is exhausted, the order added.
Under Wataynikaneyap Power’s cost recovery proposal, the revenue requirement related to the line to Pickle Lake will be recovered through the UTR. The order also said that Wataynikaneyap Power estimates that the annual revenue requirement associated with the Line to Pickle Lake in the period 2024-2033 would be C$32m, and the monthly bill impact for a typical residential customer would be 20 cents in 2024, declining to 17 cents by 2033.
Under Wataynikaneyap Power’s cost recovery proposal, the annual requirement associated with the Remote Connection Lines in the period 2024-2033 is estimated to be C$104m and would be charged to HORCI. The order added that the monthly bill for a typical residential customer would increase by 56 cents. In response to an OEB staff interrogatory, a revised bill impact analysis using more recent IESO outlook data for Ontario energy demand indicated that the monthly bill for a typical residential customer would increase by 73 cents in respect of the Remote Connection Lines in 2024, declining to 65 cents by 2033.
HORCI submitted that it does not want to have to justify incremental spending of C$104m in annual revenue requirement associated with the Remote Connection Lines in its future rate filings as they are related to the project and do not result from decisions made by HORCI, the order added. If the federal funding is appropriated by Parliament, no bill impact on Ontario ratepayers from the Remote Connection Lines is expected from 2024 to 2033, with mitigated, temporary bill impacts from 2021 to 2023.
The estimated total monthly bill impact of the Line to Pickle Lake and Remote Connection Lines for a typical residential customer is 93 cents in 2024, declining to 82 cents by 2033, the order added.
The OEB finds that the project’s impacts on consumers with respect to price are reasonable, and that Wataynikaneyap Power’s approach to the project, including competitive tendering of the EPC contract and the retention of a third-party owner’s engineer to assist with procurement and project management processes, is a reasonable way to manage the risks associated with the project costs.
Wataynikaneyap Power is required to provide updated project costs as part of its future transmission rate applications in accordance with the OEB filing requirements, the order added.
Among other things, the order said that while the OEB agrees with Wataynikaneyap Power that outages are only one measure of reliability, in this case, backup power is an important component of the long-term success of the project, although not part of the project scope that is subject to OEB approval in this proceeding.
As Wataynikaneyap Power has agreed to report to the OEB on the progress of backup power, the OEB will make such reporting a condition of approval, the order said, adding that the first report must be submitted to the OEB about six months following the order, on Oct. 15, and then every April 15 and Oct. 15 thereafter. The order said that the filing of the report will be aligned with the construction work in progress (CWIP) account reporting requirement and will no longer be required once backup power arrangements have been fully implemented.
As noted in the statement, Wataynikaneyap Power is a licensed transmission company, regulated by the OEB, and majority owned by a partnership of 24 First Nation communities in partnership with private investors led by Fortis Inc.