Tom Adams
Energy Probe
June 1, 2000

 

Toronto Hydro is about to impose shocking rate increases on its consumers. Residential consumers using the average amount of electricity for the residential class will see distribution rates rise by 39% initially and 58% once the increase is fully implemented in 2001. Residential consumers who use a small amount of electricity–typical of consumers in bachelor apartments or conservation conscious consumers–will see an increase of 48% initially. Some small businesses will see an initial increase of 868%. Toronto Hydro has posted on its web site a Q&A series providing its explanation of the increases. In this posting, Energy Probe has taken the text of that statement verbatim and commented on it. Energy Probe’s comments, written by Tom Adams, Executive Director, are in bold.

Toronto Hydro-Electric System Limited Rate Proposal:

Questions and Answers for Customers
May 03, 2000

 

Q:Why does Toronto Hydro-Electric System Limited need a rate increase?

A:The increase is a “one time adjustment”
Wrong. This is not a “one time adjustment” but a stealthy increase in rates over a span of years. Both the Ontario Energy Board (OEB), which is the regulator of the distribution companies, and Toronto Hydro prefer a slow phase-in of the increase to avoid the negative public reaction associated with a rate shock. However, the phase-in does not protect consumers since consumers are forced to be involuntary borrowers from Toronto Hydro, funding the foregone profits in an interest bearing account for later recovery from consumers. You can get more information on this deferred increase and involuntary borrowing mechanism directly from the OEB decision

(www.oeb.gov.on.ca March 15, 2000 – The Board’s Electricity Distribution Rate Handbook, SECTION 5.5.2 Deferred MBRR) that reflects the changes to the marketplace.
Wrong again. The rate increase is due to the OEB’s interpretation of the Ontario government energy policies and bill 35. Relying on the same policies and legislation upon which to base its opinion, Energy Probe considers the increases completely unnecessary. For more information see http://www.energyprobe.org/energyprobe/index.cfm

Municipal utilities have incorporated and must now pay taxes like other corporations in Ontario.
Wrong. The rate increase discussed in this press release has nothing to do with taxes payable to the Ontario government.

We must also provide a financial return to our shareholder, The “shareholder”, meaning the Municipal government, did not invest a dime in Toronto Hydro. Consumers, not the city, invested the funds and consumers should get the financial return from historic investments by consumers. fund capital construction programs in excess of $100 million this year, and invest in new information systems technology that will enable us to operate in the new competitive marketplace.

 

Q:Why are rates changing now?

A:Under The Energy Competition Act 1998, Toronto Hydro-Electric System Limited is required to apply to the Ontario Energy Board (OEB) for new rates. This year, the application must be received by May 1 for consideration over the following two months.

Q:When will rates go up?

A:Subject to OEB approval, the new rates will go into effect on July 1, 2000.

Q:How much will the rate increase cost the average residential customer?

A:The average residential customer using 1,000 kilowatt-hours of electricity per month will have a rate increase of $7.20 per month.
This represents a 39% increase in the distribution rates. By the time Toronto Hydro has completed the phased increase, distribution rates for the average residence will be 58% higher than now. Toronto Hydro prefers to report its rate increase on a fully diluted basis–for residential customers it claims the increase is only 8.7% initially and 13% when fully implemented. Because distribution costs are only 20% of the current bill, the non-distribution portions of your bill dilute the impact of Toronto Hydro’s huge increases.

Q:How will water heater energy rates be affected?

 

A:Water heater energy rates will increase the same amount as electricity rates, but because two old water heater rates are being harmonized into one, some customers will pay a little more and some a little less.

 

Q:Will rates be the same across the amalgamated utility?

A:As of July 1, all residential rates will be the same. All commercial rates will be the same within each of the various commercial rate classes.
Some small business customers in Scarborough will see a distribution rate increase of 868% or about $455.00/month.

Q:When did electricity rates increase last?

A:Our last increase was in 1993. Electricity rates across Toronto have stayed the same or declined since 1994. This increase, our first in seven years, takes rates only two percent higher than they were in 1993.
The main reason why rates in “Toronto” are lower now, before the planned increase, than in 1993 was cost shifting to lower cost regions amalgamated into the megacity. Most customers in York, and Scarborough have already seen huge increases.

Q:Should we expect regular rate increases?

A:The current rate has been designed to cover anticipated costs through 2001, which means that at the present time, we don’t anticipate another rate change until at least 2002. However, there will be changes to the way rates are separated and presented on your bill when the market opens, which is expected to be in November, 2000.

Q:How is the deregulated market expected to affect future rates?

A:We expect electricity prices to come down when the competitive market has been in operation for a while. In the United States, average electricity prices have fallen every year since 1996, when wholesale competition was introduced. What we’re going through this year is the effect of electricity rates having fallen for several years
This statement is incorrect. Rates are rising because the OEB thought the increases were “just and reasonable”. The government imposed rate freeze on Ontario Hydro, initiated in 1993, is completely unrelated to the impending distribution rate increase. combined with some initial start-up costs for the amalgamated Toronto Hydro.

Q:What impact has utility amalgamation had on electricity rates?

A:Amalgamation significantly reduced costs, and therefore pressure on electricity rates. Customers in the amalgamated cities around Toronto got rate increases. It has enabled us to achieve efficiencies that have resulted in cost savings of approximately $60 million since 1998. Although these savings are significant and they can help us mitigate rate increases, they don’t allow us to avoid them altogether.

Q:Has the outstanding debt of the former Ontario Hydro had an impact on rates?

A:The cost of paying Ontario Hydro’s stranded debt has been built into the rate structure for many years now. That situation hasn’t changed at all, so it’s not a major factor in the current rate proposal.
This statement is true but that is the tragedy. The distribution increase, if it funded our historic debts and nuclear waste liabilities, would have been legitimate. Instead, the increase is just providing a new revenue stream to fund government. Since this money is coming to municipalities as a windfall, we are very concerned that municipal government’s will not be accountable for the beneficial use of the funds.

Q:Will the rate increase affect the look of my hydro bill?

A:No it won’t. The bill was recently redesigned as required by the OEB to illustrate the different components of your electricity costs and that won’t change. Because your new bill shows “unbundled” charges, it allows you to make clear comparisons between different retail suppliers who may be seeking your business. The unbundled bill gives you a tool that will help you choose a retailer in the coming deregulated market.

Q:What is unbundling?

A:Toronto Hydro-Electric System Limited presently buys energy and transmission services on behalf of its customers. Up until last year, the charges for these services were bundled together and shown with your energy charge as one single charge. In preparation for deregulation, these charges have now been stated separately on your bill to help you track your usage and make better energy management decisions. That’s why your bill shows separate listings for the energy, distribution, transmission, and customer charges.
The customer charge is also a distribution charge. To find your total distribution cost, that is the total amount of your bill caused by Toronto Hydro, sum the customer charge and the “distribution” charge.

Q:What is an energy charge?

A:The energy charge covers the cost of producing electricity, which can vary on an hourly basis. In an open market, electricity will be treated as a commodity and will be priced on a per kWh basis. This is the portion of your bill that will be subject to competition.

Q:What is a transmission charge?

A:Transmission is the cost of designing, building and maintaining the transmission system that carries electricity from generating stations to municipalities. Because transmission lines are very expensive, it’s most efficient to have one single, regulated provider. For now, that provider is Ontario Hydro Services Company, whose rates are regulated by the Ontario Energy Board.

Q:What is a distribution charge?

A:Distribution refers to the cost of designing, building and maintaining the distribution system, which connects your home or business to the rest of the electricity transmission and generation system. Like transmission lines, distribution wires are also very expensive. Toronto Hydro-Electric System Limited will continue to perform distribution services under regulation of the Ontario Energy Board.

Q:What is a customer charge?

A:The customer charge includes such fixed costs as meter reading and billing which remain constant, no matter how much electricity you use each month. Since these costs don’t vary with usage, the customer charge is a fixed monthly amount. This charge is regulated by the Ontario Energy Board.

Energy Probe’s concluding remarks: Consumers in Toronto have been overcharged for distribution services due to the past inefficiency of Toronto Hydro. Toronto Hydro should be getting more efficient and therefore distribution rates should be going down, not up.

 

In its application for the rate increase to the OEB, Toronto Hydro (referring to itself here a TH-Electrical System) makes the following statement:

 

1.4.25 TH-Electric System recognizes that customers may experience come confusion trying to understand the changes to their rates and the resultant impacts to their bills. The Applicant understands the importance of an effective communication plan to explain these changes and notes the OEB’s direction in paragraph 3.2.11 on the Decision requiring “…the utility to inform and explain the rate changes as well as the reasons thereof.”

 

Energy Probe encourages the reader to consider this statement for themselves.