Hydro One: the Svengali behind the Fair Hydro Act?

If you are a Hydro One customer, when you get your bill this month it will include a letter addressed “To our valued customers” which describes the wonderful things Hydro One has supposedly done for you.  The letter, signed by CEO Mayo Schmidt, is filled with claims about actions taken and how they were all done to “serve you better.”

One of the paragraphs is particularly noteworthy. It declares:

“For our customers who are struggling with affordability, I want you to know that we are strongly advocating on your behalf. Earlier this year we urged government to make affordability a priority and we made several suggestions that resulted in the creation of the Fair Hydro Plan. The majority of our customers consuming 750 kWh a month have started to see an average reduction of 31 per cent on their monthly bill. For many of our customer, this represents a savings of $600 a year.”

So, the take-away from those words of sympathy from CEO Schmidt ($4.4 million* in compensation in 2016) suggests it was he — not Premier Wynne or Energy Minister Thibeault — who conceived the “kick the can down the road” concept that became the Fair Hydro Act!

Look back to a recent comment from Minister Thibeault in a CBC article, he said this about the Plan:  “ ‘This is like remortgaging our house,’ Energy Minister Glenn Thibeault told reporters Monday at Queen’s Park. “I’ve always said that the Fair Hydro Plan was a fair plan; it was the best plan we could come up with when we were talking with energy experts, accounting experts, the legal experts.”

When the Fair Hydro Plan was launched back on March 2, 2017 Premier Wynne said: “I have heard from people around the province who are worried about the price they are asked to pay for electricity and the impact it has on their household budget. Electricity is a necessity. By fixing problems in the system, we will be able to provide every residential customer in Ontario with an average 25 per cent off their bills now and make rates fairer in the future.”

So the question is, does the “we” include Hydro One’s CEO Schmidt, and is he classified as one of the “energy experts” Minister Thibeault claimed they talked with?  If so, I hope Schmidt told him about the rate increases Hydro One has applied for that will increase average customer’s bills by $141 a year in 2022 (based on current Hydro One rate applications under review by the OEB).

Those rate increases are needed by Hydro One to help pay for their upcoming purchase of Avista Corp. as it will represent a revenue gain to them of close to $500 million annually.

The LDC benefiting the most from the Fair Hydro Plan was Hydro One which still has the second highest distribution rates. Before privatization, they had the highest ratepayer arrears (past due accounts), the bulk of ratepayers accessing the Ontario Electricity Support Program (OESP) and the highest level of bad debts.  A part of the rate increase they currently seek would allow them to install “pre-paid smart meters” meaning if a ratepayer couldn’t afford top up their account they would be automatically disconnected.

On October 17, 2017 ratepayers got further bad news from Bonnie Lysyk, Ontario’s Auditor General reported due to the way in which the Fair Hydro Plan is being financed, ratepayers will be required to pay an extra $4 billion in interest costs.  That $4 billion increases estimated borrowing costs by 19% to $21 billion to cover the forecast $18.4 billion cost of the Plan. The latter costs represent the bulk of the 25% reduction (16%**), bringing total estimated costs for this portion to $39.4 billion.

The shell game of the Ontario Liberal government in Ontario’s energy portfolio continues, aided and abetted by Hydro One. If Hydro One’s rate applications are approved, their distribution rates will jump bringing more misery to their ratepayers!

 

* The CEO’s compensation is more than the total amount available annually under the LEAP (Low-income Energy Assistance Program) from the 73 local distribution companies in the province.

** The other 9% comes from removing the provincial portion of the HST (8%) and putting the OESP and RRRP (1%) as a taxpayer responsibility.

 

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Hydro One’s shopping list: new Smart Meters”!

Ka-ching! And, Hydro One is considering asking you to pay for electricity up-front …

Electricity: soon to be a luxury in Ontario? More families choose between heat, or eat

It was just a couple of years ago when then Ontario Ombudsman Andre Marin issued his damning report about Hydro One’s billing errors. As quoted by the Globe and Mail, “Hydro One issued faulty bills to more than 100,000 customers, lied to the government and regulators in a bid to cover up the problem, then spent $88.3-million in public funds to repair the damage.”

The Office of the Ombudsman cannot now report on Hydro One due to partial privatization, so ratepayers obtaining their electricity from them should be prepared for this monopoly to do whatever it wants.

Prior to the release of the Ombudsman’s report the OEB said this:  “On March 26, 2015, the OEB issued a Decision and Order to amend Hydro One’s distribution license to include an exemption from the requirement to apply TOU pricing to approximately 170,000 Regulated Price Plan customers that are outside the smart meter telecommunications infrastructure. The exemption expires December 31, 2019.”

Those 170,000 RRP customers represented about 14% of Hydro One’s customer base. In December of 2015 the Ontario Auditor General in her annual report noted: “Hydro One installed 1.2 million smart meters on its distribution system at a cost of $660 million”. The math on that indicates a probable cost per meter of $550 each, including the 170,000 meters that aren’t working as they should. Now, Hydro One is back in front of the OEB seeking rate increases that will impact their ratepayers for the next five years. They are submitting thousands of pages of documents to justify their needs to increase distribution rates by 1.56cents/kWh for their rate-paying clients.

Looking at one of the Hydro One application documents, you find the following (untenable) claim related to smart meters: “There is a significant increase in projected spending in 2022, which reflects the anticipated commencement of smart meter replacement, as the current population of smart meters approach end of service life.”

This should alarm Hydro One customers—should we once again be concerned about billing problems? Will the replacements once again fall short of being able to communicate data?

Ontario’s record with smart meters is not stellar. A report issued in August 2016 by The Brattle Group report notes: “Besides Italy, Ontario is the only region in the world to roll-out smart meters to all its residential customers and to deploy TOU rates for generation charges to all customers who stay with regulated supply.” The old mechanical meters were much cheaper and longer lasting as an article from 2010 states: “Itron, which formerly produced mechanical meters and now makes smart meters, said that older instruments generally have a lifespan of about 30 years before they start to slow down.”

Another disturbing issue is found on page 2038 in yet another of the documents submitted for the rate increase discloses Hydro One’s plans when it comes to ratepayers who are slow to pay their bills:

“One method of enabling customer control of their electricity consumptions, while in arrears condition, and minimizing Hydro One Network’s financial risk, is through the use of pre-paid meters. Pre-paid meters are a type of energy meter that requires users to pay for energy before using it. This is done via a smartcard, token or key that can be ‘topped up’ at a corner shop, via a smartphone application or online. For customers who are high collection risk, the financial risk will be minimized by rolling out this type of meter. With a pre-paid meter, electricity is paid up-front. Once the pre-paid amount is used up, power is cut-off until the customer is able to load the meter with more credits.”

 If the OEB backs off on their muscle flexing and grants Hydro One’s wishes, ratepayers should expect they will have to prepay their anticipated electricity usage or have their power cut off.

Sad times for Ontario as power becomes a luxury, and many more households face the “heat or eat” dilemma!

 

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.

Hydro One’s scorecard: not a winner

Lose, lose, lose … and more losses to come

Hydro One 2016 Scorecard highlights shortfalls

 

 On several occasions, I’ve expounded on the decision by then Energy Minister Dwight Duncan in July 2004 to direct the Ontario Energy Board (OEB) to instruct all LDC (local distribution companies) to install “smart meters”*   The Premier’s October 2005 throne speech included the comment:  “Consumers can look forward to getting smart meters that will help them save money by telling them when they can pay less.” 

I believe most ratepayers know how McGuinty’s claim worked out: over the past 12 years, our electricity bills have shot up and the Hydro One billing problems were top of mind in the media for many Hydro One in the province, thanks to Andre Marin when he was Ombudsman and thanks to  Ontario’s Auditor General. Those billing problems were caused by the inability of Hydro One to read many smart meters; and, installation costs were double ($2 billion) the budgeted costs, as noted by in the AG in her December 2014 report.

While Hydro One customers have been assuaged with claims the problems with smart meters have been fixed, if one examines their 2016 Scorecard submitted to the OEB it is obvious they are still dealing with issues.  Under the heading “Billing Issues” is this: “The Company’s continued improvement is mainly attributable to ongoing business process optimization, investing in the smart meter network to expand and replace various network support tools, and a continued focus on addressing smart meters that do not meet the necessary quality levels.”

Oh dear.

Further on, under the heading “Asset Management” is this remark in respect to why Hydro One exceeded its planned investment: “Hydro One is replacing meters because its service provider is phasing out network cellular technology by April 2018. The new meters align with the service provider’s new technology and prevent loss of data communication between Hydro One and its customers.”   

Garbage day

Hydro One obviously doesn’t want to encounter the negativity of future billing problems so, now, the expensive meters they installed just a few years ago are being tossed in the waste bin. The cost of the replacements has caused them to ask for further rate increases.

Despite the spending on “smart meters” past and present, Hydro One’s “Customer Satisfaction Survey Results” keep trending down despite their claim of higher billing accuracy according to the Scorecard.

Hydro One also shows a lack of leadership in the “Scorecard’s” System Reliability in both the “Average Number of Hours that Power to a Customer is Interrupted” and the “Average Number of Times that Power to a Customer is Interrupted.”

Scoring high in one area, at least

Yet another very disconcerting leadership role in evidence in the Scorecard is under “Financial Ratios” where Hydro One shows their “Leverage: Total Debt (includes short-term and long-term debt) to Equity Ratio” at 1.46 to 1. That means it ranks as the sixth highest leveraged LDC.   With their plans to purchase Avista their debt will increase substantially ($4 billion), raising this ratio further, and impacting Ontario’s ratepayers in respect to possible credit rating downgrades and the resulting increased borrowing costs.

So far, we see no discernible benefits to Hydro One’s ratepayers — only more costs.

 

Sidebar: Amazingly, Hydro One claims on the Scorecard they scored brilliantly in hooking up MicroFit contracted parties where the excessive cost of what the parties are paid are picked up by all of the other ratepayers of Ontario.

* For more background view this article: Hydro One’s failure to communicate rewarded with rate increase

 

Hydro One’s hype

The power monopoly claimed its advice influenced the Wynne government decision to lower electricity bills. What did the government really hear?

A year ago I wrote an article titled:  “And the winner is: Hydro One! Most expensive residential power rates in North America” and it was posted on my new blog.  The “most expensive” was a reference to what are classified by Hydro One as “low-density clients”.  The article itself drew thousands of viewers, dozens of links to other sites, and may have partially influenced a focus on Hydro One and hydro rates in general by the mainstream media.

On September 12, 2016 Premier Wynne’s government suddenly acknowledged rates were too high and announced the 8% provincial portion of the HST would no longer be charged on residential hydro bills.

The 8% was estimated to cost $1 billion dollars in lost tax revenue, but was a drop in the bucket when measured against the 100% plus rate increases occurring since the Liberals gained power. The pressure to do more built up and because it was top of mind on the list of voter concerns, the Wynne government declared they would do more.

On March 2, 2017 Premier Wynne announced the Fair Hydro Plan declaring,  “I have heard from people around the province who are worried about the price they are asked to pay for electricity and the impact it has on their household budget. Electricity is a necessity.”

The Plan was to reduce residential bills by 25% (including the 8% Provincial tax) by deferring the costs of the reduction for four years. The debt generated would accumulate on the books of OPG and become a rate increase five years hence. What the Plan really does is discard accepted accounting standards! Once the “Plan” turned into an “Act,” local distribution companies were duty bound to make announcements. Hydro One was particularly gushy as noted in a bill insert:  “Our customers have been telling us that their electricity bills are too high. That’s why we advocated to government on their behalf for a more fair and affordable electricity bill.”

This insert also informed their monopolized customers, “the majority of our customers will see an average reduction of 31 per cent on their monthly bills, meaning an annual savings of about $600.”* The “asterisk” identifies a “majority” customer as one who consumes an average of 750 kWh monthly.

Now to explain why “average” Hydro One customers will see a 31 per cent reduction instead of the 25% touted by Premier Wynne and her Energy Minister, Glenn Thibeault! The first element is the Ontario Electricity Support Program (now taxpayer’s responsibility) and the second is the RRRP or Rural and Remote Rate Protection Plan.  Collectively, these two costs added close to $400 million to Hydro One’s delivery line on our bills and presumably make up the additional 6% reduction low-density and medium-density clients will experience.

As you can guess, Hydro One is happy. Taxpayers will pay a part of their bad debt allowances.

To suggest they influenced the decision when their low and medium density ratepayers were screaming is a bit disingenuous: the votes from those ratepayers was what Premier Wynne and Energy Minister Thibeault really heard.

Hydro One’s rates are still the highest in Canada and in five years those deferred costs* will force them even higher!

 

 

 

* A minimum of $25 billion for the whole province.

Hydro One claims it is enhancing consumer satisfaction (and pigs are flying)

It’s all good news! Or, is it?

Reading the news releases since Hydro One was privatized by the Wynne government one would think the company is trending up. A rate-paying customer, or even an early investor in Hydro One shares, however, might not agree, especially with some recent claims in their second quarter news release.

Right after Hydro One announced plans to spend $6.7 billion (CAD) to acquire Avista Corporation of Spokane, Washington, credit rating agencies Moody’s and Standard and Poor’s revised their outlook to “negative” from stable, citing concern about cash flow and increased debt.  Fast forward to August 8, 2017 and the second quarter results demonstrated more negative news as earnings dropped $34 million (21.7%) to $123 million or 20 cents per share.  Back on May 4, 2017 Hydro One had increased their dividend payment to 22 cents per share so they paid out $135 million in the Q2, or $12 million more than their after-tax income.

I wonder how long the credit rating agencies will allow that to happen without a downgrade.

It appears that management of Hydro One at least recognized the “outlook” downgrade as, buried in the notes in their Q2, was this :  “The change in the capital structure of Hydro One as a result of the Merger and the Debenture Offering could cause credit rating agencies which rate the outstanding debt obligations of Hydro One and Hydro One Inc. to re-evaluate and potentially downgrade their current credit ratings, which could increase the Company’s borrowing costs.”

The news release also featured this back-pat from president and CEO Mayo Schmidt, despite the bad news of the quarter and the potential of an upcoming credit downgrade: “We continued to deliver on enhancing customer satisfaction and value while implementing operational improvements and efficiency gains across the organization, despite unseasonably mild weather during the second quarter.”

Not too bright a future

So, let me get this straight: a possible credit downgrade, higher borrowing costs, declining income and lower demand — those don’t add up to “enhancing customer satisfaction and value.” And, with nine rate applications to be filed in the next four years, the future doesn’t look great for Hydro One’s customers.

Hydro One’s distribution revenues (net of purchased power) were flat at $349 million compared to the same 2016 Quarter. However, they actually delivered 4.5% (276,000 MWh) fewer MWh. What that means is Hydro One’s distribution rates for their most recent quarter were 4.5% higher than the comparable quarter in order to make up for the lower demand while maintaining revenue levels.

To make matters worse, the takeover of Avista will put Hydro One into the coal business facing a $100 million dollar cost of cleaning up a toxic waste site partially owned by Avista in Montana.

Effective management and efficiency gains, coupled with lower distribution rates should be the focus for Hydro One before they get to claim they are “enhancing customer satisfaction.”  As well, claiming that electricity rates are lower by actually deferring costs for four years via the Fair Hydro Act just proves Hydro One’s existence as a monopoly should be controlled, rather than allowed to spin tall tales.

Hydro One takeover of U.S. company a big negative for Ontarians

The Financial Post, August 10, 2017

Parker Gallant: Thibeault and Wynne believe it’s wrong for the province to borrow $4 billion to reacquire Hydro One shares, but OK for Hydro One to borrow $5.1 billion while diluting the province’s interest in it

PostMedia photo

By Parker Gallant
On March 28th, a few weeks after Ontario Premier Kathleen Wynne and Energy Minister Glenn Thibeault held their press conference about the “Fair Hydro Plan,” Andrea Horwath, leader of the NDP, delivered a motion to the Ontario legislature calling for a buy-back of Hydro One. The motion failed and later resulted in Thibeault calling the NDP motion “short on details and long on hollow promises.” He noted that many of the NDP’s proposals “rely on a vague and yet-to-be-determined ‘expert panel’ that will be convened in the future.” Buying back $4 billion in Hydro One shares is costly, the energy minister added, and “will not take one cent off electricity bills. What it will do is send billions to the stock market instead of making much needed infrastructure investments in communities across Ontario.”

Fast forward to July 19th, when Thibeault was beside himself with excitement because Hydro One will be paying US$5.3 billion ($6.7 billion) to purchase Avista, a much smaller electricity and natural gas utility headquartered in Spokane, Wash., 3,200 kilometres from Toronto. Hydro One offered a 24-per-cent premium on the traded value of the stock price over its July 18th closing and, based on Avista’s 2016 annual profit, it will take Hydro One 38 years to recoup the $6.7-billion price tag. Thibeault’s press release announcing the takeover carried this obtuse claim: “It is to the shared benefit of Hydro One’s customers, employees and shareholders to see the company strengthened and growing.” He also stated that, “In particular, we welcome the fact that this proposed acquisition will not impact the rates that Ontario customers pay. Neither will it have any impact on local jobs.”

The privatization of Hydro One and dilution of the province’s shareholding keep its debt off of the province’s balance sheet

 Based on that press release, and the requirement to get shareholder approval, we must assume Thibeault gave his blessings to the acquisition and dilution of the province’s holdings, which will decline from 49 per cent to 44 per cent. He presumably also blessed Hydro One’s borrowing program, which will add US$2.6 billion ($3.7 billion) in new debt, not including another $1.4 billion via a convertible debenture paying 12 per cent per annum in interest prior to its conversion to common shares.

Thibeault and Wynne believe it’s wrong for the province to borrow $4 billion, as the NDP suggested, to reacquire Hydro One shares, but OK for Hydro One to borrow $5.1 billion while diluting the province’s interest in it. The privatization of Hydro One and dilution of the province’s shareholding keep its debt off of the province’s balance sheet.

So, is the acquisition all that Thibeault and Hydro One’s CEO, Mayo Schmidt, claim it is or is the spin meant to distract ratepayers into believing the takeover will lessen pressure on future rate increases? Let’s examine a few facts:

— The acquisition of Avista will result in Hydro One’s debt (short and long term) increasing by 46 per cent, or $5.1 billion, to reach in excess of $16 billion. Should interest rates increase Hydro One will submit an application to the Ontario Energy Board (OEB) for a rate increase, an accepted OEB process.

— Hydro One’s 2017 first-quarter report notes it currently has five rate applications awaiting approval by the OEB and plans to file another nine rate applications over the next four years.

— Washington, where Avista’s electricity ratepayers are located, pays the second-lowest rates of any state on average, with all-in residential rates of 9.43 cents/kWh as of April 2017. Only Louisiana can claim lower rates at an average of 9.35 cents/kWh (U.S. rates expressed in U.S. currency).

— Based on the information in Avista’s 2016 annual report, it appears the all-in cost of a kilowatt-hour delivered to its ratepayers was 8.68 cents/kWh.

— Hydro One, on the other hand, has the highest rates in Canada and in most of North America. It is difficult to see how Washington ratepayers will see any benefit from this acquisition. Based on the data supplied by Hydro One to the OEB for 2015, its average cost of a kilowatt-hour was almost double Avista’s at 17 cents/kWh.

It is difficult to believe several of the claims in Hydro One’s news release

It is difficult to believe several of the claims in Hydro One’s July 19th news release. As an example, it states the acquisition of Avista “will be accretive to earnings per share in the mid-single digits in the first full year of operation.” Politicians and regulators in Washington may be tougher than those in Ontario when Hydro One seeks a rate increase! It gains increases in Ontario from the OEB and via political tampering, which recently resulted in a requirement that taxpayers pick up a part of Hydro One’s bad debt allocations via the Ontario Electricity Support Program.

Another quote is also a stretch: “Efficiencies through enhanced scale, innovation, shared IT systems and increased purchasing power provides cost savings for customers and better customer service, complementing both organization’s commitment to excellence.” This claim comes from the company that had the distinction of being singled out by Ontario’s ombudsman for issuing over 100,000 faulty hydro bills. Moreover, last October Global TV found Hydro One had almost 226,000 clients in arrears, which represented 20 per cent of all its residential clients and 40 per cent of all ratepayers in arrears in the province.

Ratepayers and taxpayers should view the Hydro One takeover of Avista as negative. To re-purpose Thibeault’s comment to the NDP leader, this action “will not take one cent off electricity bills.”

Financial Post

Parker Gallant is a retired bank executive who looked at his power bill and didn’t like what he saw.