Ontario’s energy poverty: how we got here and why government plans won’t work

 

Former Energy Minister Chiarelli told us not to worry about costs — now hundreds of thousands live in ‘energy poverty’

An OEB report dated December 22, 2014, completed at the request of the then Minister of Energy Bob Chiarelli opened with this remark: “The Minister asked the Board to provide advice on the development of an Ontario Electricity Support Program (OESP), which would assist low-income customers who are spending a disproportionate amount of their income paying for electricity.”

The report used various methods to determine the potential number of households in the province in that category and concluded: “Using LIM (Low Income Measure) as a measuring tool, and relying on Statistics Canada household data, Ontario has 713,300 low-income households. The OESP is estimated to reach 571,000. This estimate recognizes that not all low-income households in the province pay their electricity bills directly (i.e. utilities included in rent).”

It went on further to state: “Using LICO, (Low-Income Cut-Off) Ontario has 606,100 low-income households, and the OESP would reach only 484,900. Using LICO plus 15 per cent, the current LEAP (Low-income Energy Assistance Program) measure of low-income, the number of households would be 687,300 and 550,000, respectively.” 

What that suggests is that, at the time of the OEB report the StatsCan data in 2014, using LICO, indicates approximately 13,5% of households were “spending a disproportionate amount of their income paying for electricity”. Using LIM, the number jumps to 15.8%! Rate increases from November 2014 to November 2016; according to the OEB, were 1.6 cents/kWh (+17%) for an average residential household, so we would expect more households were thrown into “energy poverty”!*

So what did the Ontario government do to alleviate the problem?

The LEAP (Low-income Energy Assistance Program) kicked off in 2010 requiring all local distribution companies (LDC) to contribute 0.12% of distribution revenue (net of the cost of power).  The total amount allocated for this program is less than $5 million annually.

The RRRP (Rural and Remote Rate Protection) has been around since 2003 and provided relief to some rural and remote residential ratepayers.  The annual cost of $170 million was paid by other ratepayers and was recently (January 2017) expanded by the current government to cover more Hydro One customers increasing the annual cost to an estimated $243 million now paid from tax revenues.

The OESP (Ontario Electricity Support Program) as noted above was triggered by a directive from Bob Chiarelli when he was the Minister of Energy and was estimated to cost between $175/225 million to support those hundreds of thousands of households living in energy poverty.  The program was initiated in January 2016 and paid for by all Ontario ratepayers via the regulatory charge on hydro bills. The program has been expanded to provide more support to low-income households and the costs are now paid out of tax revenues.  The projected cost increased to approximately $300 million per annum!

The First Nations On-Reserve Delivery Credit is a new incentive providing approximately 21,500 customers with free delivery charges (estimated at $85.00 per month) at an annual cost of $21 million.

The Affordability Fund is also a new program funded by taxpayers to provide qualifying households with: LED lights, appliance upgrades, insulation, heat pumps, etc., all for free at the taxpayers’ expense, estimated at $100 million.  It’s not clear if this is to be an annual or a one-time fund!

All of the above initiatives, with the exception of the LEAP program, are now funded by taxpayers, so about $370 million was transferred from ratepayers to taxpayers and annual funding costs increased to approximately $660 million!

That’s on top of the $40 billion deferred under the Fair Hydro Plan!

How was so much energy poverty caused?

The quick answer to the above question is, it was caused by the Green Energy Act (GEA) which gave long-term contracts to mainly foreign industrial wind and solar developers. Wind and solar provide unreliable and intermittent generation and must be backed-up by gas plants doubling up on the costs.  The results have been evident since those power sources were added to our grid in larger and larger quantities.   The following highlight some of the estimated costs for the first nine months of 2017:

  • Nine months of curtailed (could have been generated but wasn’t needed) wind of 2,209,000 MWh (megawatt hours) were paid $120/MWh so cost ratepayers $265 million.
  • Nine months of spilled (over the dam but not through the turbines) hydro power of 4,500,000 MWh by OPG cost ratepayers almost $185 million.
  • Nine months of subsidized surplus power of net exports (exports minus imports) of slightly over 9 million MWh to our neighbours cost ratepayers about $800 million.
  • Nine months of “conservation” spending is estimated to have cost Ontario ratepayers $300 million.

Totalling up the above, and forgetting about the costs of steamed-off nuclear or money paid for idling gas plants to back-up wind and solar, gets this result: Ontario’s electricity system paid for 15.7 million MWh that provided no power for Ontario’s ratepayers.

That 15.7 million MWh could have supplied over 1.7 million average Ontario households with power for a full year, but instead added their costs to our electricity system.   Those costs of an estimated $1.550 billion were 2.3 times the relief provided to households living in energy poverty!

To conclude, what created more “energy poverty” in the province is to simply point to bad planning (no cost/benefit analysis) by the incumbent government. Their plan to resolve it? I will simply repeat former Minister of Energy Bob Chiarelli’s promise, “it’s just the price of a Timmies cup of coffee”—every day of the year for many, many years!

 

* Energy poverty is generally defined as 10% or more of disposable income is spent on heat and hydro!

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Hydro One: the news is bad, bad and even worse

Hydro One’s litany of bad news

Shortly after Hydro One’s CEO Mayo Schmidt announced in July that Hydro One would acquire Avista Corporation of Spokane, Washington, it’s been a litany of bad news for him and the shareholders.

Bad News # 1.

The worst bad news was a recent one by the OEB in respect to the allocation of a large part of Hydro One’s rate increase request, associated with deferred income tax relative to their transmission business.   The note in their recently released 3rd Quarter report states: “On November 9, 2017, the OEB issued a Decision and Order that modified the portion of the tax savings that should be shared with ratepayers. This proposed methodology would result in an impairment of Hydro One Networks’ transmission deferred income tax regulatory asset of up to approximately $515 million. If the OEB were to apply the same methodology for sharing in Hydro One Networks’ 2018-2022 distribution rates, for which a decision is currently outstanding, it would result in an impairment of Hydro One Networks’ distribution deferred income tax regulatory asset of up to approximately $370 million.”

Hydro One was not pleased and as a result are appealing the ruling by the OEB to the Ontario Court of Appeals. They hope the decision will result in a 100% benefit for the shareholders and nothing for the ratepayers instead of the 29% allocated by the OEB.

Bad News # 2. and # 3.

Another bit of recent bad news was related to the ruling of the Alaskan regulators who  rejected the acquisition of Alaska Electric Light and Power Company (an Avista subsidiary) by Hydro One.  Interestingly enough, the rejection came even though Hydro One have guaranteed the regulators (via the Avista Corporation’s application to allow the takeover) a 10-year rate reduction which is estimated to reduce Avista’s revenue by US$31 million.

Bad News # 4.

Almost six months ago, Hydro One submitted a rate application to the OEB that, if fully granted, would increase average residential distribution rates by $141 annually. This was right in the midst of all the chatter about the Fair Hydro Plan the Ontario government was promoting.  When confronted with questions related to that application, the Premier declared to the Elliot Lake Standard: “It’s the Ontario Energy Board (OEB) that sets the rates. The Ontario Energy Board sometimes accepts increases and sometimes they don’t.”  Most ratepayers know that setting rate increases has become the purview of the Minister of Energy and the Premier who decreed rates would be reduced by 25% via the Fair Hydro Act so the claim was disingenuous.  Nevertheless, perhaps the OEB took a signal from the Premier’s message?  What they did was schedule a series of open-house meetings at nine locations in the province.  One should suspect those attending the meetings were not there to support the rate increases!  The OEB is still weighing the Hydro One submission and what they heard at the community events.

Bad News # 5.

Yet another piece of recent bad news came from Spokane, Washington when Avista announced their 3rd Quarter earnings were down 63% from US$12.2million to US$4.5million of the comparable 2016 Quarter. (Could someone please tell me why Hydro One is buying Avista Corp. and paying [US $5.3 million] 45 times current earnings, suggesting there are synergies that will result in savings and benefits to both sets of ratepayers separated by 3,687 km of driving miles?)

Bad News # 6.

Back in August 2016 the City of Orillia agreed to sell Orillia Power Distribution for $26.3 million (30 times 2015 earnings) and Hydro One dutifully submitted the agreement to the OEB for approval. Shortly after Hydro One announced their planned purchase of Avista, the OEB stated “In an order dated July 27, the board said it had determined “that the hearing of this application will be adjourned until the OEB renders its decision on Hydro One’s distribution rate application.”  Energy 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.”  Hydro One resubmitted the application and the OEB’s response was: “On October 24, 2017, the OEB issued a Procedural Order in response to Hydro One’s Motion to Review and Vary, with key dates for filing additional materials on the Motion, hearing date, and filing of reply submissions.”

 Bad News # 7

On November 10, 2017 Hydro One released their 3rd Quarter results: they were disappointing, with distributed power dropping by 395 GWh (gigawatt hours) or 6% compared to the same quarter in 2016. That reflected itself in a revenue drop of 3.7% or $14 million (net of cost of power) despite additional revenue coming from OEB approved rate increases.  The overall drop in consumption in the province also reflected itself in a significant drop in average peak demand (down 9.3%) which would have resulted in a revenue drop if not for the OEB’s approval of transmission rate increases, pushing revenue up by $27 million.

The end result was a $15 million (-6.3%) drop in net income despite the year over year rate increases for both the distribution and transmission businesses. Interestingly Hydro One blamed “milder weather” as the cause of the consumption and peak demand drops whereas Environment Canada reported “From June 20 to July 31, Toronto hit 30 degrees just seven times, compared with 24 days in 2016” but perhaps “milder weather” insofar as Hydro One is concerned references cooler weather or simply reduced consumption due to the cost burden on ratepayers?

 Perhaps the stream of bad news that Hydro One is currently suffering from will allow the company’s executives time to reflect on the decade of bad news Ontario’s ratepayers have experienced as a result of their inability to keep our rates from climbing at a multiple of the cost of living.

Parker Gallant,

November 14, 2017

 

Hydro One and the OEB Yearbook: more fun with figures

The OEB’s just released Yearbook results in questions about the “facts”

Utility performance and monitoring

Photo: Ontario Energy Board

Since embarking on my objective look at the Ontario electricity sector several years ago, one of the events I look forward to is the posting of the Yearbook of Distributors on the OEB’s (Ontario Energy Board) website.  In the current edition (2016) of the Yearbook’s 142 pages you can find almost everything you could think of in respect to information of interest on the 73 LDCs (local distribution companies) that were operating in the province.  From the largest LDCs (Hydro One, Toronto Hydro, etc.) to the smallest (Chapleau PUC, Hydro 2000, etc.) the information is vast!

The filing for the year ended December 31, 2016 was published August 17, 2017. This year’s report raised issues as some of the format had changed and past information (back as far as 2012) had been amended. Those amendments applied mainly to prior reports of Hydro One.

Hydro One: increased Ontario Coverage?

An oddity I missed in reviewing the 2015 Yearbook related to “Rural Service Area” for Hydro One but thankfully, in an exchange with my friend Scott Luft, he pointed out to me their service area had jumped from 2014 to 2015 by over 310,000 sq. km from 650,000 sq km to 961,123 sq. km.  While 677 sq. km were “urban,”* the balance were rural.  What that suggests is that Hydro One’s distribution coverage of the province supposedly jumped from 65% of the total area of Ontario to over 96% of the geographic area of the province.   If one goes to the Hydro One website however they claim “We distribute electricity to over 1.3 million residential and business customers covering approximately 75 per cent of the geographic area of Ontario.” A query to Hydro One about the big jump in coverage to Hydro One made over a month ago remains unanswered!  It would appear that despite a “certified for completeness and accuracy” sign-off by a Hydro One “executive signing officer” (the OEB told me all LDCs must sign off), when the information was submitted to the OEB certain information may not be accurate!  The foregoing will probably remind people of Hydro One’s claim of “billing accuracy” a few years ago.

So, what is Hydro One’s actual Ontario coverage?

Hydro One and the missing kilowatts

One of the principal amendments was in respect to “Total kWh Supplied” (including line losses) which jumped by 8.4% (10,464,000 MWh/megawatt hours) from 2015 to 2016, or enough to supply 1.2 million average households.

When I queried the OEB about the jump I was provided with the answer that Hydro One’s “metric on page 3 has been updated to reflect Hydro One’s 2012 to 2015 data revisions for kWh delivered to all customers” and was described under “note iii on page 3 of the Yearbook.”   Note iii stated, “This metric represents the total kWh of electricity delivered to all customers in the distributor’s licensed service area and to any embedded distributors. Past figures have been updated to reflect distributor data revisions.” It appears to have only applied to Hydro One! So how could the OEB and the distributor (Hydro One) miss reporting on such a significant amount of kWh supplied to their customers? This issue is still being explored with the OEB! On page 69 of the Yearbook Hydro One reports 36,122,262,456 kWh were supplied to its customers.   On page 81 (a new section) where they report the kWh delivered to “Residential Customers,” “General Service Customers” (large and small) and “Sub Transmission Customers” (“embedded distributors” referenced in the OEB’s response) and “Large Users” generally referred to as Class A (Hydro One claim zero Class A customers) they report only 21,444,528,579 kWh were metered (billed) to their customers.

Further, if one reviews the Hydro One Annual Report for 2016 they claim (page 2) total electricity distributed was 26,289 GWh or 26,289,000,000 kWh. So that begs the question — which is it?

Based on the foregoing puzzling facts, it is impossible as one example, to determine what the average distribution rate is by classification of ratepayer yet data provided should logically allow for that to happen.

Hydro One reports $183 million in “Other Income”

This example is related to the income statement filed by Hydro One (page 33 in the Yearbook) which contains a claim they generated “Other Income” in the amount of $183 million. Yet a reference to their audited financial statement for the year ended December 31, 2016 contains no claim related to that heading.

The query to what that was got the following answer from Hydro One:

“Starting in 2016, the OEB restated how the Other Income (Loss) item is reported in their Yearbook. In 2016, the OEB subtracts an accounting item – the Standard Supply Service Admin Revenue – from the Power and Distribution Revenue amount. SSS Admin Revenue is an OEB-set administrative fee paid by customers who purchase electricity directly from their local utility. This charge is also deducted from the revenue requirement in the derivation of rates revenue requirement. To balance, the SSS Admin Revenue is then added back into Other Income (Loss) by the OEB. There are two other accounting items in 2016 for Other Income (Loss): Total Operating Revenues and Other Incomes/Deductions, with the sum of these three adding up to $183M.”

So, the sudden appearance of $183 million under the heading “Other Income” was blamed on the accounting standards of the OEB. That led me to believe it was perhaps related to revenue paid to “embedded” generation from wind, solar, etc., less the cost of billed kWh for consumption by those same ratepayers. When I made the inquiry to the OEB along those lines I brought out the fact that the numbers posted in the Yearbook for Hydro One related to the posted amount for the Cost of Power was $3,292 billion, but on Hydro One’s annual statement it was $3,427 billion or a difference of $135 million.

The OEB’s response was:

“The netting of the revenue/costs is not associated with embedded generation. The OEB revised the individual trial balance accounts that are aggregated to obtain the “Power and Distribution Revenue” and “Other Income” line item values reported in the 2016 Yearbook in order to improve the accuracy. Please refer to Glossary on page 135 of the 2016 Yearbook for a listing of the accounts that are aggregated for the line items reported in the 2016 Yearbook and the OEB’s Accounting Procedures Handbook for details on the individual uniform system of accounts (USoA). As a result of this change, the $183.2 million shown in “Other Income” includes $125 million that Hydro One reported in Account 4245, Government and Other Assistance Directly Credited to Income. The $125 million is related to Rural or Remote Electricity Rate Protection (RRRP)** revenues. The net effect of the change is zero as the increase in “Other Income” is offset by a decrease in ‘Power and Distribution Revenue.’ The change in the account aggregation and reporting format has no bearing or relationship to changes in the Hydro One’s reported consumption data.”

It appears the accounting tricks the Premier Wynne led government concocted under the “Fair Hydro Act” highlighted by the Auditor General may have permeated other parts of the Energy portfolio including either or both of the OEB or Hydro One. All indications are, the new information blurs any transparency it was meant to create.

Parker Gallant,

* I have criticized Hydro One in the past for not claiming they service urban communities as they provide power to small cities (e.g., Trenton) and numerous towns that would be considered “urban” but never claimed they did.

** The Fair Hydro Act moved the costs of the RRRP to taxpayers as it principally supports indigenous communities.

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.

Ontario Energy Board news release: cherry-picked facts and conflicting information

Glaring omissions from the OEB about the “Fair Hydro Plan”

Hydro One’s “low-density” customers pay more —way more

 The June 22, 2017 news release from the Ontario Energy Board tells Ontario ratepayers about the wonders of the “Fair Hydro Plan” and how much rates would have increased without it.

But other related information on the OEB website discloses cherry-picked data and, on examination, reveals shortcomings. One small example is a chart comparing Ontario residential rates with other cities in Canada and the U.S. San Francisco is at the top; Hydro One low-density in fourth place; and Toronto Hydro is in sixth place. The lowest five cities on the chart are all Canadian cities including Montreal; comparing their cost of electricity shows Hydro One’s (low density) costs are 232% higher!

The average monthly cost for U.S. cities are converted into Canadian dollars at $1.3046, pushing them up the scale to create the impression that Ontario’s electricity rates are competitive. What isn’t disclosed is average household income and what percentage of the income is consumed by electricity bill(s) on a comparative basis.  In San Francisco, 1.3% of household income (US$104,879) goes to pay for the comparable “average” electricity bill, whereas in Toronto (household income $75,270) it consumes over 2% of household income.  Household incomes in rural Ontario are lower (20% or more) than large urban centres such as Toronto, etc., as Statscan noted in an extensive report.  Hydro One’s billings in some cases, for their serviced areas, represents 5 to 10% of pre-tax household income.

The news release said if the Fair Hydro Plan hadn’t kicked in, rates per household were scheduled to increase 3.2% May 1st or about $33 annually for the “average” residential ratepayer.  That would have increased total costs of power (COP) by almost $200 million over 12 months for just residential ratepayers, and another $3/400 million (estimated) for the rest of the Class A and Class B ratepayers.  That money will now be part of the 30 year refinancing flowing from the “Fair Hydro Plan.”  Many of those “refinanced” assets will have reached their best before date so ratepayers will be paying for assets with little or no value requiring replacement.

Instead of the rate increase that would have occurred, the average household will see a monthly reduction of almost $22 ($263 a year) commencing July 1, 2017. The foregoing monthly decrease reflects the reduction in time-of-use (TOU) rates taking effect on that date based on the OEB’s standards of usage calculations.  The decrease includes prior announcements moving the OESP (Ontario Electricity Support Program) and the RRRP (Rural or Remote Rate Protection) allocation to the provincial treasury, instead of on the backs of ratepayers.  This was contained in the directive given to the OEB by Energy Minister Glenn Thibeault April 10, 2017.  The latter (OESP + RRRP) are estimated (by the writer) to have cost ratepayers about $5/600 million in 2016, and will increase as the OESP and the RRRP have both been expanded.  Those costs will become the responsibility of Ontario’s taxpayers.  Taxpayers will also bear the burden of the foregone revenue previously generated from the 8% provincial portion of the HST on electricity bills, removed as of January 1, 2017 the same time as “cap and trade” charges began.

More conflicting information in the OEB news release was the sentence: “With the new RPP prices that will start to apply on July 1, the total bill for the proxy customer described under the Fair Hydro Act, 2017 will be about $121. That is about $41 or 25% lower than it would have been without the following mitigation*”  That suggests the “proxy customer” was paying $162 per month, yet the “chart” referenced in the second paragraph contains what is shown as a “Median Ontario Utility (OEB regulated)” with a monthly bill (as of November 2016) of $130.46.  The OEB does not clarify what a “proxy customer” is and the “Fair Hydro Act 2017” contains no reference to a “proxy customer”!

With all this conflicting information from the OEB, it is hard to understand how they are fulfilling item number three in their “Mission” statement which reads: “Making the consumer’s own usage, and the broader energy issues, easier to understand”.

If the OEB was attempting to add clarity to the messages from Premier Wynne and the Minister of Energy, Glenn Thibeault about the Fair Hydro Plan, they have failed!

Parker Gallant

* “Mitigation” includes the OESP, RRRP, removal of the 8% provincial portion of the HST and the “refinancing of a portion of the costs of the Global Adjustment”

Letter to Energy Minister Thibeault on rate increase application

 To: The Honourable Glenn Thibeault, Minister of Energy, Ontario

EB-2017-0049  Hydro One Rate Increase application

My views/thoughts and “What the OEB needs to consider”

  1. The OEB must consider the fact Hydro One has publicly declared1(a) their intent to pay 70% to 80% of their net income after taxes as dividends to shareholders.  No other publicly owned LDC pays out at that level.   Toronto Hydro has recently informed the City of Toronto they will reduce their dividend.(b)  It should be a point of the review by the OEB to limit the payout dividend rate by Hydro One to no more than the average of all of the other LDC dividend payout rates as the higher payout rate increases borrowing needs and resulting interest payments thereby increasing the need for the raising of distribution rates!
  2. The OEB is currently in the process of endeavouring to have the distribution rates become more of a “fixed” cost moving away from variable rates currently embedded within the rate application system. Hydro One’s application ventures away from that path even though they cite the move to fixed rates on their website!(a)  The OEB needs to re-establish their regulatory purpose.
  3. A review of the Yearbook of Distributors(a) filings on the OEB website comparing Hydro One’s filings for 2014 with 2015 (2016 filings not posted yet) indicates OMA costs fell by $103 million from 2014 to 2015 while depreciation increased by $14 million. One would suspect the reported drop in OMA costs would have caused a drop in Hydro One’s distribution costs but no reduction was forthcoming.  One must assume the increased depreciation was due to the OEB approving the completion of capital spending moving previously approved spending within a variance account to current rate recovery status.  Presumably due to the drop in OMA costs; Hydro One reported an after-tax profit in their distribution business of $257.3 million an increase of $68,1 million in fiscal 2015.
  4. We would note either Hydro One has been effective at getting ratepayers to conserve OR their out of line distribution rates have driven ratepaying households into “energy poverty”. The foregoing is evident in comparing the year ended December 31, 2015 with the comparable year ended December 31, 2016.  Distribution volumes fell 8.6% whereas Transmission volumes increased 1.7% signaling distribution rates are out of line with other LDC!  A further 1.1% reduction in distributed electricity is evident in reviewing the 1st Quarter of 2017 as compared to the 1st Quarter of 2016! NB:
  5. We would note that asset classifications of: “Goodwill” and “Intangible Assets” now cumulatively represent $676 million having increased from $400 million in 2012.  Those assets now represent 6.7% of Hydro One’s equity base and in line with the OEB’s annual setting of the ROE allowed by the LDC has the effect of inflation of Hydro One’s rate increases.  It is time to discount the $676 million when considering the current application.  Hydro One has inflated the goodwill (in particular) by enticing local councils to sell their LDC to Hydro One at prices that exceed normal acquisition activities in the private market.  That in turn impacts not only the ratepayers of the acquired LDC but also (via the inclusion of the goodwill) impact all other Hydro One ratepayers.
  6. Of note in respect to the OEB’s responsibility is the January 14, 2016 “Review of the Cost of Capital for Ontario’s Regulated Utilities”(a) wherein we find the following under the heading “Electricity Distributors” and labeled # 4) under “The differences between the OEB approved and the actual results can be attributed to the following:”: is the following: “4) The utility’s ability to manage its costs leading to under or over spending, and demand pressures! Ontario’s ratepayers should rightly expect the OEB to not only “attribute” differences between “approved and the actual results” for the foregoing reason but to also bear that in mind on a comparative basis with all LDC ensuring that “over spending” is not granted the freedom given to Hydro One in the past and in the future!  Costs for the same relative activities should be similar for all LDC!

 Parker Gallant

NB:  What that suggests is having the highest distribution rates during a time when the grid has a large surplus of electricity has two negative effects on ratepayers.  The first is that reducing consumption will have a detrimental impact on the HOEP driving it down further particularly during the shoulder seasons when demand is low and secondly the reduced revenue to Hydro One will cause them to apply for rate increases associated with the revenue drop thereby increasing distribution rates.  It is a downward spiral for ratepayers!  We would also point out that while Hydro One experienced an 8.6% drop in consumption the IESO report that consumption from 2015 to 2016 remained flat at 137 TWh.

 

 

1.(a) https://www.theglobeandmail.com/globe-investor/investment-ideas/research-reports/hydro-one-will-be-a-dividend-stock-worth-considering/article26829880/

(b) https://ca.news.yahoo.com/toronto-hydro-cuts-citys-dividend-172637812.html

2.(a) http://www.hydroone.com/Norfolk/Pages/MovingtoFixedDistributionRates.aspx

3.(a) https://www.oeb.ca/utility-performance-and-monitoring/natural-gas-and-electricity-utility-yearbooks

6.(a)https://www.oeb.ca/oeb/_Documents/EB-2009-0084/OEB_Staff_Report_CostofCapital_Review_20160114.pdf