The Niagara Independent

The captioned on-line news outlet is a great source of truthful news and excellent opinion articles and they reached out to me to seek my blessing to run one of my articles. I ageed and it is posted on their site today. You can find it here:

The Niagara Independent also frequently posts articles by Catherine Swift, former CEO of the CFIB (Canadian Federation of Independent Business). Co-incidently one of her articles was also posted today and is definitely worth a read as it covers a lot of ground. Find it here:

Strange Things that Caught My Eye Over the Recent Week

Should you, as I do, consider recent events to be off the scale of normal, it is worth pondering the cause!  Is it related to the Covid-19 pandemic, climate change, the “woke” generation, government bureaucrats or those in political power or perhaps a combination of some or all of them?  Some recent examples:

Planting Trees in Brampton as Part of Two Billion Trees                                                                             

I’m sure most will recall just before the last Federal election in 2019 our PM Trudeau met with Greta Thunberg and promised her we would plant 2 billion trees.  Well, it appears the process, under the Minister of Natural Resources, Seamus O’Regan has finally started according to a press release on August 4, 2021 which contained the following:

Today, Maninder Sidhu, Parliamentary Secretary to the Minister of International Development and Member of Parliament for Brampton East, on behalf of the Honourable Seamus O’Regan Jr., Minister of Natural Resources, announced $1,280,000 to the City of Brampton in support of the Government of Canada’s plan to plant two billion trees over 10 years. This project will see 8,000 trees planted across the region this year and contribute to the rehabilitation of the city’s urban tree canopy.”

Quick math on the cost per tree being planted comes to $160.00 each meaning if Minister O’Regan Jr. continues at this level the total cost to Canada’s taxpayers will be $320 billion for the 2 billion trees. Those 8,000 trees will, eventually, absorb about 174 tons of CO2 meaning the cost per ton of emissions removal is about $7,400. Pretty sure O’Regan could have purchased “carbon offsets” for a few dollars each from former Governor of the Bank of Canada, Mark Carney and saved the taxpayers money!

CONFIDENCE IN CHARITY LEADERS HAS FALLEN SHARPLY OVER THE LAST TWO DECADES – WHAT DOES THAT MEAN FOR THE SECTOR?

In late June Charity Village released a report that tracked “four research streams that asked about perceptions of charity leaders over time, representing 27 distinct surveys.” The surveys cited go back as far as 2000.  One of the comments in their report stated: “In 2000, 27% of Canadians reported a lot of trust or confidence in charity leaders, but in the Environics Institute’s research, only 8% reported having a lot of confidence in 2020,”. Another finding was, “between 2009 and 2020, confidence in charity leaders dropped by 22 percentage points, compared to only eight percentage points for business leaders, six for union leaders, and three for government leaders.” The preceding findings may (in my mind) be a reflection of the growth in eco-charities who provide no real charitable benefits to those in need and are well funded by domestic and foreign charitable foundations. The former includes many of Canada’s colleges and universities with departments focused on “climate change”! Needless to say, the drop in confidence has resulted in fewer Canadian tax filers donating: “In 2000, 25.5% of Canadian tax filers reported charitable donations, but by 2018 it was only 19.4%.” 

Toyota CEO Agrees With Elon Musk: We Don’t Have Enough Electricity to Electrify All the Cars

Toyota’s CEO at the company’s year-end press conference in mid-December 2020 said; “The current business model of the car industry is going to collapse. The more EVs we build, the worse carbon dioxide gets…When politicians are out there saying, ‘Let’s get rid of all cars using gasoline; do they understand this?” 

Interestingly enough, Elon Musk, the founder of Tesla just a couple of weeks earlier noted “Increasing the availability of sustainable energy is a major challenge as cars move from combustion engines to battery-driven electric motors, a shift which will take two decades, Musk said in a talk hosted by Berlin-based publisher Axel Springer.”  Musk also said; “electricity consumption will double if the world’s car fleets are electrified, increasing the need to expand nuclear, solar, geothermal and wind energy generating sources.” In respect to “wind energy” it is interesting to note the Global Wind Energy Council in an article claimed, at the end of 2020 there were “743 GW of wind power capacity worldwide”.  To put that in perspective the Federal Government’s “Canadian Centre for Energy Information” tells us at the end of 2017 Canada’s total electricity capacity was 145,214 MW which is only 145.2 GW! 

As industrial wind turbine’s (IWT) life span is around 20 years we should expect about 50% of those in operation globally will reach their end-of-life in the next 10 years and the rest by the time Musk forecasts capacity must double.   Approximately the same life-span applies to solar panel and batteries for storage. Those politicians and Musk should also understand the USA in 2020 generated 60.3% of it’s electricity consumption from fossil fuels!  I would therefore suggest the “politicians” cited by Toyota’s CEO along with Musk himself have no understanding of what EV will do to the electricity system globally and why both are way off base and have no bearing on getting us to “net-zero” emissions by 2050!

Hydro One submits five-year Investment Plan to the Ontario Energy Board to energize life for communities

Just a few days ago Hydro One issued a press release announcing they had submitted a 5 year plan to the OEB (Ontario Energy Board) seeking approval to spend $17 billion over that time to reputedly: “reduce the impacts of power outages for its distribution customers by approximately 25 per centand “enable economic growth and prepare for the impacts of climate change.” The proposed capital expenditures are about double what they have been over the past several years (eg: 2019 was $1.667 billion and 2020 was $1.878 billion).  The press release claims “If approved, the five-year Investment Plan will have bill impacts below the expected rate of inflation, with the monthly bill for a typical year-round residential customer increasing by an average of $1.68 each year from 2023 to 2027.” Reviewing the OEB’s Yearbook of Distributors to get a sense of how those “power outages” compare due to “defective equipment” the 2015 report states the hours interrupted due to “defective equipment” were over 4.6 million hours and in 2019 (2020 report is not yet published) they had dropped to just under 4.4 million hours.  Since 2015 Hydro One’s residential customer base also increased by 60,000 so hours per customer have dropped.

As a former banker I don’t believe the approximately $2 million the 1,2 million residential customers will cough up at the suggested $1.68 annual increase will be sufficient to pay the interest on the $1.9 billion of new debt (the foregoing additional debt assumes Hydro One will maintain is debt to equity ratio at 2020 year-end levels) they will incur annually.  By 2027 it will be a pipe dream!

Let us all hope the OEB does its job for the benefit of Hydro One’s customer base of which I am one.

Let’s thank our lucky stars Hydro One was not allowed to buy Avista

While on the subject of Hydro One it should remind all that back a few years ago they were intent on purchasing Avista Corporation via an all-cash purchase at $53 (US) per share.  The total cost for the all-cash offer was estimated at Cdn$6.7 billion.  The closing price on Avista’s stock on Friday July 7, 2021 and over three years after the purchase offer was $42.67 (US).  At the time the purchase offer was made Glen Thibeault was the Ontario Minister of Energy and was keen on the takeover saying: “One of the benefits of broadening the ownership of Hydro One was to unlock the potential for precisely this sort of transaction,”.  Thibeault went on to say; “As the single largest shareholder in Hydro One, the Ontario government would benefit from the company’s receipt of additional regulated returns expected to begin in 2019. Those benefits will be above and beyond the proceeds already attributed to the Ontario Trillium Trust as a result of the IPO and subsequent secondary offerings.”

Needless to say, those of us who felt Hydro One should focus on Ontario’s ratepayers were delighted US regulators in the states where Avista operated refused the takeover. Hydro One had planned to borrow $3.4 billion and issue another $1.4 billion of debentures convertible into Hydro One shares which would have, in all probability, detrimentally impacted all of their existing Ontario ratepayers.

Conclusion

Unfortunately, it appears those we elect as our representative politicians often are more influenced by those lobbying them continually such as the “climate change” advocates or they bow to the bureaucrats who are the beneficiaries of our tax dollars for their pay. Combine the foregoing with the “woke” generation screaming and their mainstream media support along with the push for globalization and we should unfortunately recognize what is continuing to happen appears to be the “new normal”!  

Another Broken Political Promise

Back in April 2018 Doug Ford, the then recently chosen leader of the Ontario PC Party promised “to cut hydro bills by 12 per cent if he wins Ontario’s spring election, saying it would be on top of a rate reduction from the governing Liberals, whose plan he has repeatedly criticized. The Progressive Conservative leader said Thursday that he would cut rates through a variety of measures that would save the average ratepayer $173 a year.”

So how has that promise turned out?                                                                             

A recent report from the C. D. Howe Institute titled; “Power Surge: The Causes of (and Solutions to) Ontario’s Electricity Price Rise Since 2006” reminded me of Premier Ford’s above promise. I decided to measure his promise against actual results from our personal Hydro One bills.

A quick calculation of our June 2018 bill indicated all-in costs on the Hydro One bill we received were 15.06 cents/per kWh (kilowatt hour) after being granted a rebate of the provincial portion (8%) of the HST and a further discount under the “Fair Hydro Plan”.  Collectively the two reductions represented 34.5% of what our bill would have been.  Without discount(s) costs would have been 22.6 cents/kWh!

Fast forward three years later to June 2021 and all-in costs were 14.99 cents/kWh or a drop of 0.07 cents not the 1.8 cents/kWh of the promised 12% reduction.  The strange thing about the latter bill however is on the actual calculations the amount deducted is referenced as the “Ontario Electricity Rebate” (OER) and if added to what we paid would have raised the price to 18 cents/kWh.  On page 1 of the bill however, there was a dollar amount cited (Total Ontario support) that was 3.5 times the amount of the OER and if added to what we were required to pay would have increased the costs to 25.5 cents/kWh or 12.8% more than the 22.6 cents/kWh of June 2018. 

What the foregoing suggests is the Ford government has done nothing to reduce the cost of electricity since elected and instead is simply burdening taxpayers at the rate of 10.6 cents/kWh (25.5 cents/kWh minus 14.9 cents/kWh) for electricity consumed by residential and (perhaps) other ratepayers.

In respect to the foregoing the C. D. Howe report contains the following about the taxpayer burden: “As system costs – particularly in energy generation – have continued to rise, the Ontario government has increasingly turned towards taxpayers to keep total bills down. The most recent estimates from the Ministry of Finance show the cost of subsides rising to a staggering $6.5 billion for the 2021/22 fiscal year – or nearly 3.5 percent of total government expenditures. To put this number in context, that same budget proposed to spend $5.8 billion in taxpayer dollars on long-term care.“

Premier Ford left Greg Richford in the portfolio for three years and this suggests he accomplished nothing other than burdening taxpayers with debt! With the advent of Todd Smith as the new Minister of Energy, taxpayers and ratepayers should hope he will somehow start the process of fixing the mess.

The time has come for the Ford led Government to recognize that taxpayers and ratepayers are normally one and the same individual!

Hydro One Shareholders Should Thank Ontario’s Taxpayers and Premier Ford for Seemingly Embracing the Circular Economy

Hydro One earlier this month released their 1st Quarter 2021 report and EPS (earnings per share) were up from 0.38 cents per share to 0.45 cents for an 18.4% increase and the highest 1st Quarter earnings since becoming a publicly listed company.  The net profit after financing costs and taxes of $273 million also appears to be a record as far back as Hydro One post their first Quarter financials which appears to be 2015.

Hydro One’s report noted the reasons behind the increase as: “Revenues, net of purchased power, for the first quarter were $74 million higher than last year, mainly due to higher distribution and transmission revenues as a result of OEB-approved rates including the timing of the OEB decision on the 2020 rates received in the second quarter of the prior year, and higher energy demand and consumption driven by favourable weather.  The reference to “favourable weather”, I believe, suggests it was colder and due to the Covid-19 lockdown meant ratepayers (particularly residential) consumed more kWh (kilowatt hours) then the prior year.  The results noted distributed power increased from 7,484 GWh (gigawatt hours) to 8,156 GWh for an increase of 9%. Average transmission “60-minute peak demand” also increased by almost 6%.

The reference to “purchased power” signaled costs dropped dramatically due to the Ford government changing the former Wynne led government’s “Fair Hydro Plan” into the Ford government’s “Ontario Electricity Rebate” increasing the taxpayer subsidization. What that did was, decrease the cost of “purchased power” for Hydro One from $1,007 million in 2020 to $894 million in 2021 (despite the 9% consumption increase) dropping the cost per kWh (kilowatt hour) from 13.5 cents/kWh to 11 cents/kWh.  That represented a taxpayer subsidy of around $203 million for the quarter (Hydro One customers only) more than doubling the Wynne subsidy! 

It also meant Hydro One’s ROR (return on revenue) and ROA (return on assets) look much better then past returns which presumably helped drive up the share price.  As an indication Hydro One’s stock exchange price closed at $30.40/share on May 21, 2021 whereas back when Ford declared the March 12, 2020 lockdown the share price was $24.50. What the foregoing $5.90 per share increase suggests is the (approximately) 40% ownership the province holds in Hydro One is now worth about $1.44 billion more (up 24%) than it was worth just over a year ago and will presumably reflect itself favourably on the province’s financial statements when they are released. To make matters even better Hydro One’s quarterly dividend on their shares increased from the comparable quarter and resulted in an approximate $60 million dollar payment to the province.

Boiling it down   

By using taxpayer debt to subsidize electricity costs the Ontario government has increased the value of the assets held in the monopoly where we taxpayers own 40%.  Couple the additional taxpayer debt incurred (to subsidize the per kwh charge), plus the OEB granting rate increases for transmission and distribution of electricity and Hydro One’s profit should increase further! Logically that should drive up the market (share price) value even more in the future!

Is this really what our Federal and Provincial politicians had in mind when they referenced the “Circular Economy”?

The Ontario Liberal Electricity Legacy is Complicated

The Cost of Subsidizing Green Energy Contracts for Industrial and Large Commercial Ratepayers came from the Financial Accountability Office (FAO) of Ontario in a report issued March 18, 2021!  What it states is the upcoming three years (2021-2023) will burden taxpayers with a cost of $2.8 billion.

My take on that “burden” was an estimate of $3.8 billion in an article posted November 9, 2020 just days after the Provincial budget was released announcing the subsidy. I did note, at that time, my estimate was a “back of the envelope” calculation and several events have occurred since then affecting the cost estimates.  The FAO’s forecast is the cost is 2.2 times what the budget estimated it was going to be whereas my estimate was 2.9 times the budget number.

The FAO report goes into further detail suggesting out to 2040 “the renewable generation subsidy program will cost the Province a net total of $15.2 billion.” The latter is referenced in the FAO report as the “Net cost to the Province” as the report stated; if the current subsidy program remained in effect through to 2040 for all segments of electricity consumers the total cost would have been $38.6 billion plus a loss of $1.3 billion in HST.  What the recent amendments to the Ontario Electricity Rebate (OER) program did was reduce the “OER discount provided to residential, farm and small business ratepayers”, which resulted in a reduction of $24.7 billion in estimated costs over the 20 years.

No doubt many Ontario ratepayers will recall Ontario’s Auditor General, Bonnie Lysyk, in 2015 issued a report castigating the Ontario Liberal Party stating; “From 2006 to 2014, the electricity portion of the hydro bills of residential and small-business consumers increased by 70%. In particular, the Global Adjustment fees, covering the excess payments to generators over the market price, cost consumers $37 billion during that period, and are projected to cost another $133 billion from 2015 to 2032.”

That report from the AG was the bedrock used by the Ford led Ontario Conservative Party to make it a major issue during the leadup to the last provincial election and at that time they promised to reduce electricity rates by 12%.  We ratepayers are still waiting for that to happen!  With the advent of the relief provided by the province as a result of the Covid-19 pandemic our rates were reduced but the announcement from the OEB (Ontario Energy Board) on February 22, 2021 stated; “residential and small business customers will resume paying Time-of-Use (TOU) and Tiered pricing under the Regulated Price Plan (RPP) at prices that were set by the Ontario Energy Board (OEB) on December 15, 2020.”  To put the foregoing in context a look at TOU rates before the Ford government were elected and comparing them to those announced by the OEB discloses the 12% promise is a distant memory as we see the percentage increases in all three categories has jumped by a large multiple of the inflation rate as the following depicts!

Time of Use    March 2018    March 2021    % Increase
Off-peak              6.5/kWh            8.5/kWh           30.7%
Mid-peak            9.5/kWh           11.9/kWh          25.2%   
On-peak             13.2/kWh          17.6/kWh           31.8%       

The difference between then and now is simply that back then the Wynne led government was using taxpayer monies to provide relief via the “Fair Hydro Plan” which subsidized rates by 29% (based on my bill) whereas the Ford government is now using taxpayer dollars to provide a subsidy of almost 98% (based on my bill).  It’s simply a case of incurring taxpayer debt to subsidize ratepayers.  Instead of taking money from our after-tax pocket they are incurring it for future taxpayers to pay.

In an interview back in March 2020 Premier Ford in response to the question about why he hadn’t achieved the 12% reduction in electricity rates went on and used the phrase “it’s extremely complicated”.  That phase is very similar to the phrases used by former energy ministers such as Bob Chiarelli and Glen Thibeault as well as the current leader of the Ontario Liberal Party, Steven Del Duca. 

What is obvious from the foregoing is the time has arrived for someone/anyone with basic common sense be appointed to the Ministry and make a serious effort to uncomplicate it!

Perhaps it’s simply a pipe dream!

The Ontario Energy Board appears to give special treatment to Hydro One

The OEB recently released their 2019 Yearbook of Electricity Distributors and it provides a full collective report on all distributors in the province as well as individual statistics on each of them.  It includes financial information as well as statistical data and includes information such as; outage tracking and alluded causes, average consumption, number of customers and a myriad of other info.

A quick example how to use data contained is to simply divide the total NET* revenue of $3,921,857,499 by the “energy delivered” of 129,764,883 MWh indicating the average distribution cost was 3.02 cents/kWh in 2019 and 2.83 cents/kWh in 2018.  The increase of about 2 tenths of 1 cent (0.019) translates to a 6.7% increase or about 3.3 times the inflation rate for 2019.  While that slight increase seems tiny it actually represented additional net revenue of $175.2 million in 2019 versus 2018 despite a drop in “energy delivered”.  The latter dropped from 132.4 TWh in 2018 to 129.8 TWh in 2019.

Interestingly enough if one examines Hydro One data for the same two years their net revenue increased by $176.9 million which is more than the collective increase from all the local distribution companies (LDC).  Hydro One’s distributed power declined by 687 thousand MWh or about what 81,000 average household would consume in a year.

Another find in the data is the calculation of the RoE (Return on Equity) and collectively it amounted to an average of 9.7% in 2019 but for Hydro One the RoE was the highest, coming in at 15.88%.  What the latter suggests is when Hydro One seek a rate increase the OEB bless the application ignoring their much higher than average RoE.

The OEB, on November 22, 2018, issued a letter to All Licensed Electricity Distributors and Transmitters telling them: “The OEB has determined that the updated cost of capital parameters for rate applications for rates effective in 2019 are:

Cost of Capital Parameter Value for Applications for rate changes in 2019 ROE 8.98%“!

So, the OEB sets the value for the future and while the overall average came in at 9.7% for 2019 one should realize that due to Hydro One being the largest LDC in the province and due to the 15.88% RoE they achieved the overall average was pushed up to that level by them.

One would hope the OEB brings Hydro One back to earth on future applications for rate increases and protect us ratepayers rather than provide those benefits to their shareholders for the dividends they hand out at their targeted “Payout Ratio” of 70-80%!**

Ratepayers want value for the cost of electricity and the OEB are the government body that is supposed to ensure that happens!

The time has come for the OEB to recognize why they exist!

*Gross revenue less the Cost of Power.

**Hydro One’s Targeted dividend payout ratio remains at 70% – 80% of net income.