Hydro One says: use less power! We still make money!

hydroshame

Hydro One, in keeping with the directives from former Energy Minister Bob Chiarelli and the Long Term Energy Plan, “Conservation First” tells us: use less electricity.  If I were a Hydro One shareholder I would be struggling to understand why the company would want their customers (all captive) to use less of the product(s) they distribute. Wouldn’t that affect revenue and profitability?

Before privatization of Hydro One we were told by the Premier’s Advisory Council head Ed Clark that “The Council’s main preoccupation relative to unlocking value from its interest in Hydro One is how best to obtain maximum financial value from a transaction while also maximizing protection for taxpayers and ratepayers.”

So, privatization of Hydro One was undertaken because the Ontario Liberal government wanted to unlock the value of Hydro One. Ontario still holds controlling interest in Hydro One so via the Ontario Energy Board (OEB), the Wynne government can ensure revenue and bottom line profitability grow, despite instructions to tell their rate-paying clients to use less!

Hydro One is doing this in two ways.

First is to keep raising distribution rates with the full blessing of the OEB; and second is, issue “shaming letters” labeled as a Home Energy Report.

The Home Energy report tells people, “You used more than average” and then compares our power use to “Efficient Neighbours” and “All Neighbours”.  The reports are sent even to people who live year-round in a tourist area where seasonal homes (cottages and weekend retreats) are located.  Those permanent residents, some of whom have to heat their homes with electricity,  may be suffering from “energy poverty” due to the extremely high distribution rates levied by Hydro One.

An example of climbing distribution rates can be found by reviewing the recent 2nd Quarter 2016 financial report of Hydro One.  Using the information available one can calculate the “average” distribution revenue per kilowatt (kWh) versus the comparable 2nd Quarter in 2015.   First, note the amount of distributed kWh dropped by 7.5% versus 2015, signaling either “shaming letters” are working or people are reducing usage because they want to buy food or pay their mortgage.

Second, you can see Distribution Revenue (net of the “Cost of Power”) is up modestly by less than 1%.

Third, by using figure for terawatts (TWh) distributed in the quarter (6.2 TWh) you can calculate the “average” distribution cost per kWh was 5.63 cents/kWh — an increase from the 2015 comparable quarter by 8.7%.

That’s not the whole story, however.

If you visit the OEB “electricity calculator” Web page you can quickly see distribution rates for the three categories of low, medium and urban “average” ratepayers are respectively: 12.5 cents/kWh, 9.3 cents/kWh and 6.6 cents/kWh.  There is the promise of increased distribution revenue for Hydro One’s shareholders compared to the 2nd Quarter; the OEB approved high distribution costs for the three residential classes, driving up the revenue base to higher levels than the 2nd Quarter average of 5.63 cents.

Hydro One shouldn’t be surprised if that also drives up their “residential arrears” levels at the same time.

It is hard to see how privatization of Hydro One has fulfilled the goal of maximizing maximized “protection for taxpayers and ratepayers.”

Parker Gallant

September 7, 2016

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