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


Wind power lobby myth buster is busted

The opening sentence in a recent post on the Canadian Wind Energy Association’s (CanWEA) website states:  “Various pundits assert that the major reason for higher electricity bills in Ontario is the addition of renewable energy to the province’s electricity mix. This is a myth.”

The post was created by Brandy Giannetta, Ontario Regional Director of CanWEA. Ms. Giannetta holds a Master of Arts and Public Policy degree and was recently appointed to the Independent Electricity System Operator’s (IESO) Strategic Advisory Committee (SAC).  The Committee, says IESO, “gives senior stakeholder and community representatives the opportunity to provide policy-level advice and recommendations directly to the IESO Board of Directors and Executive on matters relating to the IESO’s mandate and other matters that may be of concern to stakeholders and the general public.”

I have trouble believing a representative of wind industry trade association CanWEA will represent the concerns of the general public.

Ms. Giannetta’s post on CanWEA’s website on April 24, 2017 underlines my worries.

Her article points to two articles that purportedly support the “myth” she is “busting,” but both require closer examination.   She cites Waterloo professor Natin Nathwani’s, (PhD in chemical engineering and a 2016 “Sunshine list” salary of $184,550) article of March 6, 2017, posted on the TVO website, which supports Premier Wynne’s dubious claims of “a massive investment, on the order of $50 billion, for the renewal of Ontario’s aging electricity infrastructure.”  Professor Nathwani offers no breakdown of the investment which suggests he simply took Premier Wynne’s assertion from her “Fair Hydro Plan” statement as a fact!  It would be easy to tear apart Professor Nathwani’s math calculations — for example, “The total electricity bill for Ontario consumers has increased at 3.2 per cent per year on average” — but anyone reading that blatant claim knows his math is flawed!

The second “study” cited is by Keith Brooks, Program Director at Environmental Defence (Masters degree in Environmental Studies from York) in which he claims “the average Ontario household pays about $11 per month for wind power, and $9 for solar power.”  Collectively it amounts to an annual cost of $240 for the “average Ontario household”.  Mr. Brooks and Ms. Giannetta apparently believe that, by providing a figure representing a small monthly amount, we will all buy into CanWEA’s spin that wind and solar are competitive with other generation sources.

In fact, Ms. Giannetta chose to ignore other more factual information that is readily available on other websites, including the Ontario Energy Board’s (OEB) semi-annual Regulated Price Plan, Price Report.  The following is a chart from the Price Report (May 1, 2017 to April 30, 2018) the OEB uses in setting TOU prices on a go-forward basis for the ensuing six months.  Note the chart provides a breakdown by percentage of generation supply and of the Global Adjustment (GA) and a per kWh cost of the specific generation:

Table 2: Total Electricity Supply Cost

  % of Total Supply % of Total GA Total unit cost (cents/kWh)
Nuclear 60% 40 6.9
Hydro 24% 12 5.8
Gas 6% 15 20.5
Wind 8% 18 17.3
Solar 2% 14 48.0
Bio Energy 0% 0 13.1

Source: Navigant NB: Hydro excludes NUGs and OPG non-prescribed generation. Gas includes Lennox, NUGs and OPG bioenergy facilities. Percentage (%) of Total GA excludes CDM costs.

Based on information in the OEB chart, it is relatively easy to calculate the individual generation supply costs* to the Global Adjustment or GA. The IESO provide the specific detail on the GA and for 2016 it totals $12.333 billion.  As noted, the chart indicates wind is forecast to represent 18% of the GA so the cost of wind should be around $2.220 billion, solar (14%) around $1.6 billion and gas (15%) $1.850 billion.

The OEB forecast is that wind and solar, (granted “base-load” status via their contacts) will cost ratepayers $3.820 billion over the next 12 months representing 32% of total GA costs, but will only deliver 10% of the power generation — often when it’s not needed!

To ensure wind and solar generation is backed up, gas plants (classified as “peaking plants”) stand at the ready and are estimated to impact the GA by $1.850 billion (15%) for a forecast 6 % of generation.

Collectively, wind solar and gas generation over the next 12 months are forecast to provide a meager 16% of total generation but will represent a cost of $5.670 billion of the Global Adjustment or 47% of total GA costs.

Most would agree $5.7 billion in annual costs is more than a “myth” and could have gone a long way in providing social, health, education and transit services for the people in Ontario, rather than creating wealth for wind and solar developers!


*In the prior year’s forecast wind was estimated to generate 8% of supply, solar 2% and gas 9% and represent 44% of the GA costs. Also note the IESO GA reports are on a calendar year (Jan. 1st to Dec. 31st) basis.

Where did the $50 billion go, Premier Wynne?

He said, she said: we say, where did the money GO? [Photo: Toronto Star]
Last September 13, Minister of Energy Glenn Thibeault issued a press release announcing the  Ontario Liberal government would reduce electricity bills for five million families, farms and small businesses.  The relief granted was equivalent to the 8% provincial portion of the HST. The press release also claimed Ontario had “invested more than $35 billion” in new and refurbished generation.

Fast forward to March 2, 2017 and that $35 billion jumped to $50 billion in a press conference the Premier jointly held with Minister Thibeault. An increase of $15 billion in six months!

The press conference was to inform us the 8% relief announced by Minister Thibeault would be added to, with a further 17% reduction. A Toronto Star op-ed Premier Wynne wrote March 7, 2017 reaffirmed the $50 billion investment claim made the previous week, and further claimed: “By delivering the biggest rate cut in Ontario’s history and holding rate increases to inflation for at least four years, this plan provides an overdue solution.”

That made history alright, but not the way she meant. What the Premier forgot to say was that her government had brought us the biggest rate increases in Ontario’s history.  In March 2011 the Ontario Energy Board (OEB) website shows the average electricity rate was 6.84 cents per kilowatt hour (kWh) and on May 1, 2016 it had increased to 11.1cents/kWh.  In just over five years, the price of the commodity — electricity — increased 62%, a multiple of the inflation rate during that five years, which added about $400 to the average consumer bill.

Electricity price goes down, your bills go UP

From 2010 to 2015 Ontario demand fell by 5 TWh (terawatt hours) to 137 TWh.* That is enough to provide electricity to 550,000 “average” Ontario households for a year, yet the price for residential consumers increased 62%.   The increase was not driven by the trading value via the hourly Ontario electricity price (HOEP) market.  In fact, the market treated Ontario generated electricity badly as it fell from an average of 3.79 cents/kWh in 2010 to 1.66 cents/kWh in value for 2016 —  a 56.2% drop.

As to how they were achieving this “relief,” Wynne and Thibeault told us they were pushing the payback period for the 20-year contracts (wind and solar) out another 10 years. Those generation sources are the principal cause of the increase in electricity prices.  (For further proof of that, read  Scott Luft’s recent analysis on the costs of “other” generation in 2016 which confirms its effect on our rising electricity rates.)

Where did the money go?

What the Wynne/Thibeault announcement means is, ratepayers will pay for the intermittent and unreliable power for their 20-year contracted term(s), and continue to pay for the same contracts which, by that time use equipment that will be heading for, or already in the scrap yard.

It is time for Minister Thibeault to disclose what is behind his claim of $35 billion invested and for Premier Wynne to disclose the details of the $50 billion she says went to “necessary renovations” to rebuild “the system.”

Time to come clean.

* Ontario consumption remained at 137 TWh in 2016.

Hydro One: can it deliver on its dividend promise?

The headline on the Hydro One February 10 press release was:  “Hydro One Reports Positive Fourth Quarter Revenue and Operating Cost Trends.” Annual “revenues, net of purchased power” came in at $3,125 million, an increase of $37 million (.4%) over 2015, while Net Income rose from $714 million to $746 million, and “adjusted” earnings per share increased to $1.21/share up from $1.16/share.

If you believe the reporting by Hydro One, you are led to believe a small increase in revenue translated to an almost identical increase in after-tax income.

A closer look is necessary to determine how that happened. As it turns out, transmission revenue was up $48 million and distribution revenue was down $11 million, accounting for the revenue increase. Regulatory assets1. climbed $130 million while operations, maintenance and administration (OMA) apparently fell by $66 million. It is not clear how many millions of OMA expenses were placed into “regulatory assets,” but we should assume a portion of salaries, pensions and benefits were.

As a result, it is impossible to determine whether Hydro One has become more or less efficient, despite this claim in the press release: “Our fourth quarter results demonstrate favourable revenue growth and operating cost control.” We can quickly see “favourable revenue growth” was small potatoes!

There are ways of using information in that press release and annual report to allow for calculations. One area that affects ratepayers is “delivery” costs which is reflected in Hydro One’s “distribution” business line. The annual report indicates the amount of electricity distributed to their 1.3 million residential and business customers fell 8.6% from 28,763 gigawatts (GWh) to 26,289 GWh while distribution revenue fell by $11 million from $1,499 million to $1,488 million. Using simple division one is able to calculate the cost of distribution per megawatt (MWh) increased from $52.05/MWh to $56.60/MWh for an increase of 8.7% or $4.55/MWh.

Everyone pays

Not all of that increase was paid for by Hydro One customers, however, as Hydro One receives revenue from all of Ontario’s ratepayers via the OESP (Ontario Electricity Support Program) which presumably resulted in the year over year drop (at a minimum) of $26 million in Hydro One’s “Allowance for doubtful accounts” from $61 million to $35 million. As well, all Ontario ratepayers pick up the costs of the RRRPP (rural and remote rate protection plan) which was $125.4 million for Hydro One in 2016 and will increase in 2017 to $243.4 million. Adjusting the distribution revenue to reflect contributions to Hydro One by all Ontario ratepayers would reduce their distribution costs to about $54/MWh (5.4 cents/kWh) and bring it almost in line with the claim by Hydro One their distribution/delivery costs represent about 37% of their customer’s electricity bills before HST. If one does the calculation on the OEB’s website however the actual cost of the “delivery” line for a “medium density” Hydro One ratepayer is 43%!

Another asset that showed a big jump on Hydro One’s balance sheet in 2016 was “goodwill” which more than doubled to $327 million, despite their having recovered $60 million in goodwill from the provincial acquisition of Hydro One Brampton before Hydro One went public. This also occurred just before the arranged merger of Hydro One Brampton with PowerStream, Horizon and Enersource. Hydro One has been snapping up some of the small local distribution companies (LDC) such as Norfolk Power, Woodstock Hydro, Haldimand for the past few years and recently applied to the OEB for acquisition of Orillia Power. Hydro One also just completed acquisition of Great Lakes Transmission improving the monopolistic control they hold in this business line to over 98%.   The LDC acquisitions were made well above book value and many of them had their delivery rates frozen for five years.

With Hydro One’s success at being the second most expensive hydro distributor we should expect the ratepayers in the locales of the acquired LDC will see their future delivery rates jump significantly.

On the liability side of Hydro One’s ledger, 2016 saw the acquisition of about $1.7 billion of increased and mainly long-term debt yet, their negative working capital position only improved $716 million. The additional debt raised during the year caused their Debt/Equity ratio to rise from 1.45:1 at the end of 2015 to 1.52:1 at the end of 2016 and brought with it increased interest costs. A rising D:E ratio often precedes a credit rating drop!

Dividend promise impossible, unless …

All this points to a company whose future is dependent on the OEB granting their every wish to increase delivery/distribution rates. If not, the promise to dividend out 70/80% of their annual net profits becomes impossible unless they either: forgo proper maintenance of the infrastructure, or reduce OMA costs via either staff reductions or salary cuts, or sell off assets!

Dividends paid in 2016 on the 5,623,000 common shares were $577 million representing 80% of net income attributable to common shares with just over $400 million going to the provincial treasury leaving about $150 million2. in retained earnings for future investments in infrastructure repairs and refurbishment and the building and/or improvement to the transmission grid(s) and LDC infrastructure.

Something’s got to give, or future increases to Hydro One’s ratepayers will be even worse than the past!


  1. Regulatory assets “represent certain amounts receivable from future customers and costs that have been deferred for accounting purposes because it is probable that they will be recovered in future rates.”
  2. Capital spending in 2016 was reported as $1.6 billion.