Ontario in Panic Mode: how Hydro One gets their money, cleans up their debt record, and you pay for it all

2. Ratepayer relief for Hydro One and its arrears

October 12, 2016

Yesterday, I dealt with the announcements from the Minister of Energy, Glenn Thibeault in September and the ways he promised would reduce our electricity bills. What the minister failed to explain was where the money is coming from.

Electricity ratepayers should be worried.

As Global TV began its coverage of the electricity sector in Ontario and how it affected people’s lives, many horror stories about “energy poverty” were showcased, particularly from Hydro One’s clients. We customers have become accustomed to bad news stories related to Hydro One’s “smart meters” and “over-billing” highlighted by former Ombudsman, Andre Marin.   The stories Global uncovered were even more remarkable as they were able to obtain data from the OEB that disclosed the number of ratepayers in arrears as of December 31, 2015.  As it turned out, Hydro One had almost 226,000 clients in arrears (20% of all their residential clients and 40% of all ratepayers in arrears in the province and 63% [$105.6 million] of the total dollar amount).  Additionally Hydro One Remote (a not-for-profit subsidiary serving remote communities) had 1,147 in arrears (33.7% of all [3,400] their residential ratepayers).

In the latter case, the rest of Ontario’s ratepayers supplement (read: subsidize) the 3,400 “remote” ratepayers at an average of $9,500 each (about $32 million annually) via the RRRP (Rural or Remote Electricity Rate Protection) fund.  The fund is set at $174 million annually which adds 0.13 cents/kWh  to each kilowatt hour consumed in the province.  The fund is also used to reduce the 329,000 Hydro One customers classified as “low-density” ratepayers.  The latter bills are reportedly reduced by $31.50 per month.  This eats up another $124 million of the fund.

It is my strong suspicion that it will be this fund that, using the words in Minister Thibeault’s press release of September 13th, result in:  “Providing eligible rural ratepayers with additional relief, decreasing total electricity bills by an average of $540 a year or $45 each month”.

If just the 329,000 “low-density”1: Hydro One clients are the “eligible” rural ratepayers envisaged in Minister Thibeault’s press release, the cost will be an additional $150 million.  What that means is that “electricity” rates will increase by an additional 0.12 cents/kWh for all the remaining Ontario ratepayers, adding about $20/25 per year to the “average” residential bill.

This also means Hydro One will be handed a guarantee they will receive the $150 million whereas they now have to be concerned with arrears and non-payment from those same clients.  This in turn would favourably impact their writeoffs for bad debts which were reported as $66 million in 2014 and $61 million in 2014.  It would also put Hydro One in the enviable position of knowing they could deliver zero kilowatt hours but still bill their clients for over $725 million or about 53% of their 2015 gross (net of cost of power) distribution revenue.

Hydro One, despite their smart meter and billing mess, have been on a rampage to shame their paying clients. They do this by sending a “Home Energy Report,a printed paper report delivered to participating customers via the mail. These reports include a so-called comparison to “efficient” neighbours and other neighbours.

For shame!
For shame!

People living year-round in low-density rated areas are talking about these reports. The bills I have seen viewed belong to people living close to many “seasonal” residences used on weekends or for short summer periods. A couple of these homes were heated with electricity.  The unsolicited Energy Reports are specific in their language with a cover letter from the “Director, Customer Strategy & Conservation Officer.”  A recent letter falsely claimed “You’re among the first in Ontario to receive this innovative new report”.   I wrote an article about one of those reports almost two years ago so the recent letter provided to me was hardly “among the first.”  One recent letter admonished the recipient “you used 56% more electricity than your neighbours.” In fact this particular ratepayer for the January-June 2016 period used 800 kWh hours monthly which until the May 1, 2016  change announced by the OEB was an “average” ratepayer consuming 9.6 MWh annually.

The ironic issue about these “shaming letters” is if the customer consumes less, Hydro One will submit an application to increase their rates to recover lost revenue.  So Hydro One not only bills us for the “shaming letter” costs (via the $400 million a year spent on conservation efforts) via the cost of the electricity we consume, but they then obtain a rate increase to recover lost distribution revenue.

Sweet deal.

Parker Gallant

NEXT: The third in this series will examine ratepayer subsidies related to another of Minister Thibeault’s announcements.
1. The following chart was provided to the writer by Hydro One who advised me that “Residential-High Density customers are now classified as “Residential-Medium Density”.

hydro-one-residential-customers-by-rate-class

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Wynne government in panic mode

First in a series of three

In July, Energy Minister Glenn Thibeault was pressed by Shirlee Engel of Global TV on the rising cost of electricity bills. He said, “While I’m still not using the word crisis,” said Thibeault. “I know it’s important. For one family if it’s a hundred bucks out of their own pocket that’s a crisis for them and I get that.”

In September Premier Wynne mentioned the word “hydro” at an international plowing match, and was instantly booed.

Now it appears we have a government in a panic mode trying to deal with a crisis of their own making.

The Throne Speech held promises about getting rid of the provincial portion of the HST on electricity bills. Then on September 13, 2016 a press release from Minister Thibeault confirmed the 8% reduction reducing bills $130 annually, and announced other actions such as, “Providing eligible rural ratepayers with additional relief, decreasing total electricity bills by an average of $540 a year or $45 each month”.

The press release did not detail what constitutes an “eligible” rural ratepayer; however, if it is just the 329,000 or so who are Hydro One’s “low-density” ratepayers the annual cost will be approximately $150 million. The press release went on to say: “Empowering businesses to reduce their bill by up to 34 per cent through the expansion of the Industrial Conservation Initiative” (ICI). 

Neither the Throne Speech nor the press releases say where the government is getting the money to pay for those initiatives, but removal of the 8% provincial portion of the HST will be on the backs of the taxpayers.

The electricity sector in the province is a $20-billion (before HST) business. That means $1.6 billion previously allocated to other ministries will now be unavailable, or the government will need to forgo balancing the budget or raise taxes/fees, etc. to cover off the lost tax revenue.

Minister Thibeault issued another press release in September related to “Empowering businesses to reduce their bill”.  This one had a “Customer Impact Example”:

“With more than a thousand new businesses soon eligible for ICI, cost impact across sectors and industries will vary. As an illustrative example of the impact, a plastics manufacturer with an average peak demand of 2 MW that participates in the ICI program could see its electricity price reduced from $154 per MWh to as low as $102 per MWh. This would result in energy cost savings of up to $42,000 per month.”

If you do the quick math on the above and assume each of those 1,000 plus businesses save $42,000 a month the reduction may be $500 million but once again, there is no indication where the funds will come from to cover those costs.

The above electricity bill reductions promised by the government total almost $2.2 billion and considerably more than the $1.5 billion in funds allocated to balancing the budget currently in dispute between the Ontario Auditor General and Liz Sandals, Ontario’s Treasury Board President.

So exactly how the governing party plans to pull off these bill reductions is not known.

Perhaps to create confusion amongst voters/taxpayers and inattentive media, Minister Thibeault issued another press release  September 27th announcing the “suspension” of LRP II to acquire 1,000 MW of renewable energy, principally in the form of wind, solar and biomass.  The press release declared  “This decision is expected to save up to $3.8 billion in electricity system costs relative to Ontario’s 2013 Long-Term Energy Plan (LTEP) forecast. This would save the typical residential electricity consumer an average of approximately $2.45 per month on their electricity bill, relative to previous forecasts.

It is unclear if Minister Thibeault is suggesting suspending future rate increases will somehow cover off the costs of his promises to reduce our electricity bills by $2.3 billion.

Or is it somehow related to the accounting dispute the government is engaged in with the Auditor General?

Parker Gallant

More wind and solar do nothing to reduce emissions: cancel the contracts!

October 3, 2016

Cancel these contracts too, Minister Thibeault

flatline

Ontario’s ratepayers have heard for years the reason we are increasing our renewable energy supply in the form of industrial wind turbines (IWTs), solar panels and biomass is because we need to reduce our CO2 emissions.  It now appears that we have reached the point of no return as the 2nd Quarter Ontario Energy Report is now out and on page 8 is a chart that suggests we have flat-lined!

The chart shows our CO2 emissions for 2014 and 2015 were 7 mega-tonnes and for the first 6 months of 2016 are 3 mega-tonnes (probably heading for another 7).  It now appears more wind or solar added to the Ontario electricity grid will do nothing to further reduce our emissions.  That begs the question: why do we continue to add unreliable and intermittent power coming from those two sources as the only thing they now do is increase the price of electricity.

According to Environment Canada Ontario’s CO 2 emissions in 2014 were 170.2 mega-tonnes and the Ontario Energy Report (page 8) claims the “electricity sector” in the Province was responsible for only 7 of those mega-tonnes in 2014 therefore representing only 4.1% of total emissions.

The recent Throne Speech of September 12, 2016 included the following:

“Over the course of the past decade, Ontario electricity ratepayers have helped cover the costs associated with removing dirty coal-fired generation from our electricity system. And while these investments have resulted in increased costs associated with generation, they have also created savings of more than $4 billion a year in health and other costs associated with smog and pollution from coal-fired generation.”

Now if I was extrapolating the above claim by the Ontario government I would wonder: if 4.1% of those emissions cost the Health Ministry $4 billion annually, how much do the remaining 166.1 mega-tonnes cost? Based on the above claim the 7 mega-tonnes are supposedly costing taxpayers about $565 million per mega-tonne annually. That means the full cost of the CO2 emissions of the 166.1 mega-tonnes would be north of $95 billion and almost 71% of all of the 2016/17 planned budget expenditures.

If that is true, perhaps it’s time the government focused their CO2 reduction efforts on the segment producing the 166.1 mega-tonnes rather than the electricity ratepayers.  If that were to happen Minister Thibeault would be in a position to do some cancelling (not suspending) of renewable energy projects aimed at continuing the efforts to further reduce future rate increases.

We would recommend Minister Thibeault immediately cancel the LRP I contracts which have not been finalized which would affect 300 MW of industrial wind, and cancel all the projects listed on the IESO chart [below] which show just over 1,000 MW of contracted industrial wind projects not in compliance with their contracted operational dates.

Those cancellations would reduce future rate increases per average household by $8.00 per month or almost $100.00 over a year saving ratepayers well over $400 million annually and $8 billion over the 20 years of the contracts.

Now that would give you some firm bragging rights.

Parker Gallant

iesochartjune2016

Sousa’s impossible task

October 2, 2016

Part 3 in a series

The first in this three-part series dealt with laudatory comments bestowed by Premier Wynne on Finance Minister Charles Sousa, but now I will simply look at one unachievable demand.

This article has nothing to do with the energy sector but I had to comment on a section of the Mandate Letter the Premier issued to the Finance Minister — it is completely out of touch with reality.

In the section under the subheading, “Delivering on the Balanced Budget Plan” there is one instruction that will require many magic tricks from Minister Sousa: “Lowering the net debt-to-GDP ratio to its pre-recession level of 27 per cent.”NB

The Province provides information disclosing our GDP growth along with our climbing debt levels and recently the Premier took an occasion to brag how Ontario reputedly “posted higher real GDP growth in the first quarter of 2016 than Canada, the U.S. and all other G7 countries. The province’s real GDP grew by 0.8 per cent in the quarter, or a 3.0 per cent annualized rate.”  The braggadocio, however, needs to be examined in relation to the Premier’s direction to Minister Sousa.

The Ontario Finance Authority (OFINA) posted the Province’s debt information indicating that, as of March 31, 2016, publicly held debt was $313.4 billion.   OFINA also included a chart showing Ontario’s debt-to-GDP ratio was 39.5%.

Using the foregoing data it is easy to discern at that point in time, Ontario’s Gross Domestic Product (GDP) was approximately $794 billion. Extrapolating the foregoing information and using it to calculate how challenged Minister Sousa will be to reduce that ratio to the pre-recession level is also an easy task.  If  the books were balanced as of March 31, 2016 and the debt level remained at $313.4 billion for the future, the GDP required to meet Premier Wynne’s 27% target would need to grow by $367 billion. That’s a 46% increase from its current level.

In the current global economy the Premier’s challenge is impossible to achieve in a reasonable timeframe.

Looking at a Royal Bank of Canada September 2016 report it becomes obvious Minister Sousa is destined to fail miserably in achieving the Premier’s target.  The RBC report indicates Ontario’s GDP is forecast to grow at a rate of 2.7% in 2016 and 2.4% in 2017.  This anticipated growth is a far cry from the 46% increase the Premier expects her Finance Minister to achieve.

The foregoing should remind everyone of George Smitherman’s 2009 forecast that the Green Energy and Green Economy Act would only increase electricity prices by 1% per annum. The Premier failed to see the electricity crisis arrive until her party lost a by-election and she was booed at a plowing match when she mentioned hydro rates in her speech.

It appears the ability to forecast the future is a major flaw in the current government in Ontario so we should expect this mandated one to Minister Sousa by the Premier is simply another unrealistic one.

Premier Wynne and Minister Sousa should prepare themselves for additional booing that may soon come from credit rating agencies.

 

NB: Ontario’s debt-to-GDP ratio has never been as high as it currently is. The Bob Rae NDP government of the early 1990s had to deal with high inflation and a recession that cut the GDP by 3.2%

The Premier’s mandate letters (2): why bills are rising so fast

September 28, 2016

More proof of why Ontario’s electricity bills are rising the fastest in North America

Ontario Energy Minister Thibeault has been the centre of media attention over the past several days for his announcement we will save $2.45 every month because he has “suspended” the Large Renewable Procurement process or LRPII, the result of a directive issued by former Energy Minister Bob Chiarelli to acquire 600 megawatts (MW) of wind and 300 MW of solar capacity.

Premier Wynne’s mandate letter to Minister Thibeault contained directions which were previously tied to a press release issued by his Ministry related to building transmission lines to service First Nations communities. The news release dated July 29, 2016 announced: “Ontario has selected Wataynikaneyap Power LP (Watay) to connect 16 remote First Nation communities that currently rely on diesel power to the province’s electricity grid.”

No mention was made about the cost of the project, only that it would create “over 680 jobs” and “save $1 billion over the life of the project” compared to the “use of costly diesel fuel”.   It was subsequently  reported the project was a $1.4 billion dollar build and would service 10,000 people in those 16 communities and save $43 million in annual diesel costs.  In simple terms that works out to be $140,000 per person and a 32.5 year payback.  I am not sure how the government got to the idea of saving “$1 billion over the life of the project.”

To reinforce the Minister’s earlier press release we must presume these extracts from the Premier’s mandate letter are related: “Working within the principles of the recent Political Accord, and upholding commitments to First Nation and Métis communities, to support and participate in new generation and transmission projects, and in conservation and community energy planning initiatives.” And “Expanding transmission to remote First Nation communities in Northwestern Ontario to reduce reliance on diesel-powered generation.” And, “Continuing negotiations with the federal government to secure a fair cost sharing arrangement in support of the remote communities grid connection project.”

Those comments Ontario is moving ahead with the project while counting on the federal government to kick in money. No matter the outcome of  Minister Thibeault’s negotiations with the federal government, it certainly appears it will be up to the province to supply the lion’s share of the $1.4 billion. What does that mean? Ontario’s electricity ratepayers will pick up the costs.

It is ironic that the Province is committed to the transmission build but not to building a road to the “ring of fire” estimated to only cost $550 million according to a joint study by Provincial/Federal officials and reported in the Globe and Mail.  The road would actually create both investments and jobs for the same First Nations communities and presumably allow cheaper construction of transmission lines while generating new taxes.

The actions of the Provincial government continue to remind me of the recent Cadillac ads which show the car moving forward but everything else in the ad moving backwards.

The time has come for Ontario to move forward with some common sense planning.

Parker Gallant

The Premier’s mandate letters: no sign of plans to resolve a crisis

Premier Wynne: just do what I tell you. Not sure it will work, but do it. (Lucas Oleniuk/Toronto Star via Getty Images)
Premier Wynne: just do what I tell you. Not sure it will work, but do it. (Lucas Oleniuk/Toronto Star via Getty Images)

Part I

September 26, 2016

Ontario’s Premier Kathleen Wynne just issued 35 “mandate letters” to each Cabinet Minister in the government on September 23, 2016. The letters range from three to six pages, and carry platitudes about ministerial accomplishments and directions as to what she expects them to accomplish in the next two years under her premiership. (“Mandate” is defined as an authoritative command.)

One such platitude can be found in her six-page mandate letter to Finance Minister Sousa wherein she notes we (the collective we):  “Worked with the federal government to ensure the Ontario Electricity Support Program (OESP) would not be a taxable benefit.”

Any sensible person would say that money given to support low-income households in the payment of their electricity or other bills should not be a “taxable benefit.”   The OESP is levied as a charge to all of the non-qualifying ratepayers of the province via the Global Adjustment (GA) and becomes a cost of the basic commodity–electricity! So in effect, it is a charitable gift from other ratepayers who pay their escalating electricity bills every month.

Perhaps this “charitable donation” should be recognized by your local distribution company (LDC) who should be required to issue a charitable receipt that you can use when filing your tax return. The government should instruct the LDC to identify that on our monthly bills just as they tell us how much we have saved by not paying the debt retirement charge (DRC).

Interestingly, the same mandate letter to Minister Sousa notes another accomplishment: “Ontario will continue to fulfill its commitment to upload social assistance benefit programs, as well as court security and prisoner transportation costs, off the property tax base. This will ensure that municipalities have more property tax dollars to invest in local priorities.”

Electricity customers carrying the load?

That pronouncement should leave you shaking your head. In one paragraph Premier Wynne suggests the OESP isn’t a “social assistance benefit” but did require federal government approval to ensure it would not be a “taxable benefit,” and later the Premier brags about the wonderfulness of uploading social assistance benefit programs like court security and prisoner transportation costs from municipalities.  Is the reason the province could afford to “upload” those social assistance benefits  because the OESP is being paid by Ontario’s ratepayers without notice or consultation?

If the Wynne government is really looking for more money for municipalities, why didn’t the Premier instruct Sousa to tell MPAC to assess industrial wind turbines (IWT) at their real value rather than the $40,000/MW they are capped at now? Now, that would have increased property tax dollars for municipalities.

The fact is, if the costs of the OESP were properly allocated, they would be under the Community and Social Services Ministry, not the Energy Ministry.   As the ongoing news series from Global TV has noted, the number of people living in energy poverty in Ontario is growing at an alarming rate.

Premier Wynne has publicly noted the “crisis” in respect to the rising cost of electricity and the rise of energy poverty households, yet instructions to the Minister of Community & Social Services fail to respond to the crisis. Her mandate directs the Minister to: “Support the transformation of income-based and other benefit programs, with the Minister of Finance, Minister of Government and Consumer Services and human services system partners, focusing on client-focused delivery and information sharing.”

And in the Premier’s mandate letter to the Minister Responsible for the Poverty Reduction Strategy the instructions are:  “Support the transformation of income-based and other benefit programs, with the Minister of Finance, Minister of Government and Consumer Services and human services system partners, focusing on client-focused delivery and information sharing.”

It is very unclear how her mandated transformation designed to focus on “delivery and information sharing” will resolve poverty.

It is clear she depends on Ontario’s electricity ratepayers as the new charitable organization!

Parker Gallant

 

The Ontario government’s about face

September 21, 2016

Recent events in Ontario present an interesting way of looking at things. First was a request from the Ontario government (It looks like a petition) aimed at getting voters “to support lower hydro bills for Ontarians.”  The request is also being supported by letters written by Liberal MPPs addressed to “Dear friends” followed by, “I am pleased to share with you that our government has announced important action to reduce the cost of electricity bills for families and businesses, in addition to reducing northern, rural and remote bills even more.”

The immediate reaction is, hey, weren’t you the energy ministers, and their leaders Dalton McGuinty and Kathleen Wynne the ones that increased the rates in the first place? And didn’t you do this via the Green Energy Act (GEA)? Didn’t you issue more than 100 directives to the Ontario Power Authority (now merged with IESO), the OEB, Hydro One, IESO and OPG telling them what to do?

So why the about face? Unless it is meant to place the blame on all those foregoing entities when the truth is, oppressive management and the GEA decreed how the bureaucrats should behave while removing democratic rights from municipalities.

The second event that caught my attention was the proroguing of the Legislature so Premier Wynne could present her case for how to resolve the energy “crisis.” (Never mind her recently appointed Energy Minister Glenn Thibeault denied it was a crisis in a recent interview with Shirlee Engel of Global TV.)

Minister Glenn Thibeault’s current behavior is interesting. Several years ago when he was Executive Director of the United Way of Sudbury he said this about poverty in Ontario:  “Every year, right before school starts, our phone at the United Way office starts ringing off the hook.We have mothers and fathers calling us, some crying, as they need to decide whether to buy food or buy a backpack and school supplies for their child. That isn’t right and I’m glad our donors and many of our community partners have stepped up to the plate so we can help a few hundred children.”

Now here we are with families having to choose whether to buy food or heat their homes, and former NDP, former United Way exec Thibeault is the Minister of Energy. I’m sure he has heard cries from mothers, fathers and seniors about energy unaffordability since he commenced drinking from the “fire-hose” he suggested is the Ministry of Energy portfolio during his interview with Global TV.

So why is he not speaking up now for the poor?

Parker Gallant