The OEB flexes its muscles … but Hydro One keeps asking for more

Hydro One asks for more money. Sometimes, the OEB says no. Sometimes.

The Ontario Energy Board said NO to Hydro One’s request for $30 million, essentially for executive salaries — but another application for a rate increase is coming

Over the past several years, the rate applications submitted to the Ontario Energy Board (OEB) by Hydro One generally got the rubber stamp of approval despite the obvious — their distribution rates were growing at multiples of other distributors and their transmission rates also grew well past inflation rates.

The latter were/are not comparable as Hydro One has a transmission monopoly and that was entirely secured when they purchased Great Lakes Power in late 2016 for $373 million.  The purchase was blessed by the OEB even though it basically gave Hydro One control of over 98% of all the transmission lines in the province.  Prior to the purchase of Great Lakes Power, Hydro One had been snapping up small local distribution companies (LDC) and this writer has been critical of that for some time as outlined here and here.

Hydro One’s most recent attempt to acquire one of Ontario’s smaller LDCs was put on hold, however, by the OEB less than two weeks after the announcement of their plan to acquire Avista Corp. of Spokane, Washington for C$6.7 billion. The OEB’s approval related to the purchase of Orillia Power Distribution by Hydro One was held in abeyance because, the OEB’s “board staff found that rates proposed for previously acquired utilities in Hydro One’s distribution rate application suggest large distribution rate increases for some customers in future.”  Funnily enough, that is what I predicted in 2013 when Hydro One was busy scooping up several small LDCs.

The most recent event when the OEB flexed its muscles was in respect to the application from Hydro One asking for increased rates for their transmission monopoly. The OEB basically told Hydro One they would not be able to allocate $30 million in additional administrative costs to their rate increase application over the next two years.  The $30 million, as the OEB stated, was reflective of “hydro customers gain little from the jump in executive salaries that were largely generated by the IPO. The total corporate management costs for Hydro One in 2014 of about $5.5 million are set to increase to $22.1 million in 2018”.

While the two recent decisions by the OEB are encouraging, the worrying one for Hydro One’s ratepayers is the 2018-2022 Distribution Rate Application (OEB File No. EB-2017-0049). This particular application seeks rate increases totaling $11.75 per month or $141.00 annually for an “average” ratepayer consuming 9,000 kWh. It represents an increase of 1.56 cents/kWh!

The OEB’s 2016 Yearbook of Distributors notes Hydro One’s distribution in 2016 was 36,122,262,000 kWh, so the 1.56cents/kWh is an increase in revenue in excess of $565 million annually. If it’s only the 26,289,000,000 kWh that Hydro One report as their distribution total in their annual report, it will amount to increased annual revenues of $411 million. It it’s the former, it represents an increase in distribution revenue of 45% and if the latter, a 33% increased based on the net distribution income (deducting the cost of power) for 2016.   Either one will represent a multiple of the inflation rate.  And, either of those spectacular increases would go a long way to help Hydro One pay for the above market price they have agreed to pay for the acquisition of Avista!

One certainly hopes the OEB will continue to flex their muscles in respect to Hydro One and ensure they are not allowed to extract another $565 million annually from ratepayers’ pockets just so they can pay obscene executive salaries and dividends to Avista shareholders.

In the meantime, many Hydro One households in Ontario continue to have to choose between paying their hydro bill or putting food on the table.

Author: parkergallantenergyperspectivesblog

Retired international banker.

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