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.
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
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.”
Parker Gallant is a retired bank executive who looked at his power bill and didn’t like what he saw.
A Globe and Mailarticle of November 11, 2002 reported that Dalton McGuinty, leader of the Ontario Liberal Party (OLP), then in Opposition, was upset because Premier Ernie Eves had promised legislation to cap electricity prices.
Liberal Leader Dalton McGuinty said the true cost of the Conservative government’s hydro bungling will add billions of dollars to the debt.
“Now that families and businesses have been scared to death, now that new investment in supply has been scared off, now that everyone knows hydro has been completely mismanaged, Ernie Eves is going back to square one,” Mr. McGuinty said in a news release on Monday.
“The government should have had its act together before the market opened. And the bill for its failure to do that hasn’t been cancelled — it’s just been put off.”
Mr. McGuinty said the Ontario Liberals have been calling for action for months, but the Eves government has not acted until now to freeze electricity prices and increase supply.
The Liberal Leader said his real concern is what Ontarians will have to pay over the long term.
Fast forward to September 14, 2005 when Dalton McGuinty was Ontario’s Premier. In a keynote speech to the Ontario Energy Association, he bragged about what the OLP had accomplished and their plans for the future. Let’s examine the promises made in that speech.
McGuinty: “We won’t gamble away Ontario’s future prosperity because of what the next poll might or might not say...”
A noble thought, but discarded by the OLP. When seeking re-election in 2011 McGuinty cancelled the Mississauga and Oakville gas plants and plans to contract for offshore wind developments. Polling in ridings affected by the foregoing showed several Liberal seats in jeopardy. More recently, shortly after a poll indicated Premier Wynne’s approval rating was at 20 %, she announced hydro rates would be cut by 25 %. Policy by polls…
McGuinty: … Or because of what new technology might or might not be developed.
The launch of the Green Energy and Green Economy Act (GEA) in 2009 focused on wind and solar generation at above market prices, without a cost/benefit study as pointed out by the Ontario Auditor General in his December 5, 2011 report. Both wind and solar were old technologies promoted by ENGO and wind and solar associations and known to be intermittent and unreliable sources of generation.
McGuinty: That’s why we asked the OPA to report on a long-term plan.
The Ontario Power Authority (OPA) produced a viable plan with limited wind and solar capacity to be contracted for in a competitive environment, but the plan was suspended by Energy and Infrastructure Minister George Smitherman before approval via his directive to the OPA dated September 17, 2008.
McGuinty: That’s why we acted to take the politics out of pricing.
The recent Fair Hydro Act and the gas plant moves dispel the notion that politics has been removed from pricing, as do the FIT and MicroFIT programs that past Minister Smitherman enabled via a directive issued September 24, 2009 to the OPA which included a domestic content requirement. The latter resulted in a challenge before the World Trade Organization which Canada lost and taxpayers picked up the costs.
McGuinty: This spring, the Ontario Energy Board, a truly arms-length public agency will set the price of power for small consumers. The OEB sets the price based on what electricity costs, not on what politicians think it should cost, or wish it would cost.
While those homilies are correct, the prices are set based on input costs which the OEB has no control over. In simple terms, they divide the input costs accumulated (Global Adjustment + Hourly Ontario Electricity Price + transmission) and divide it by kilowatt hours consumed. The impact of above market (highlighted by the Auditor General reports) contracts with wind, solar, and other generators and the plethora of other spending (e.g., conservation $400 million per year, etc.) dictated by the Energy Minister, plus above market salaries and benefits for OPG and Hydro One employees etc., are all part of those costs.
McGuinty: We could require our businesses and families to subsidize the price of electricity through their taxes.
Premier McGuinty did just that when he moved the gas plants and part of the cost was paid by taxpayers. The Liberal government also drove up the price of hydro and put 600,000 household into energy poverty. It fell on charities, supported by Ontario taxpayers, to help those households. Tax dollars from those households also supplied grants to buyers of expensive Tesla automobiles and those grants continue today!
McGuinty: But, having finally put our province on a sound financial footing, we choose to ensure the price of electricity reflects the true cost of electricity.
The “sound financial footing” didn’t last long, and during the Liberals’ reign Ontario’s debt has increased from $132 billion to over $300 billion. Ontario has seen only one budget in the last decade that will seemingly balance and that was the most recent one.
McGuinty: We can’t guarantee price certainty –; that just isn’t realistic, given the nature of the challenges before us.
The Fair Hydro Act just passed by the Wynne government guarantees price certainty for four years for certain classes of ratepayers. This isn’t realistic: refinancing those assets may conflict with their ability to continue to generate electricity for an additional ten years. Amortization of fixed assets is based on the longevity of those assets, but the Wynne government has decreed that they can extend their life so that our children will be stuck with the replacement costs.
McGuinty: But I can assure you that we will do everything we can to ensure safe, clean, affordable electricity is always in full supply in the Province of Ontario.
When the OLP became the government, the average price of a kilowatt hour was 4.3 cents. By 2016 it averaged 11.2 cents — a 160% increase. The 25% reduction touted by Premier Wynne as the largest in Ontario’s history followed. The subsidy to cover that 25% will accumulate within the confines of OPG and at the end of increases held to “the rate of inflation for the next four years,” that subsidy will rise well above that benchmark in the years following that moratorium.
McGuinty: We won’t subsidize prices or cap prices –; that would mean more debt or higher deficits. Both of which would lead ultimately to higher taxes.
By deferring debt to subsidize hydro prices for four years within OPG’s balance sheet (guaranteed by the Province), the plan is to hide (temporarily) the impact from ratepayers while supposedly balancing the budget.
So, what happened to all those lofty promises of “affordable” electricity costs for consumers and business, that is immune to politics?
Was this what all those promises really meant?
“The true cost of the Liberal government’s hydro bungling will addtens ofbillions of dollars to the debt.”