September 29, 2000
Looming electricity rate increases sought by local utilities must be phased in over a three-year period, the Ontario Energy Board has ruled.
That means the utilities will have less money to pay returns to their municipal owners – including the City of Toronto, which has budgeted to receive tens of millions of dollars in payments from Toronto Hydro this year.
“It’s going to cause our shareholder some pain,” Toronto Hydro spokesperson Stephen Andrews said in an interview. “We won’t be able to provide any returns to our shareholder in the transition period.”
“It’s another blow,” said Toronto Councillor Jack Layton (Don River), who is also vice-chair of Toronto Hydro.
“Somehow we’ll just have to muddle through till next year. But it really means we almost start from a negative standpoint before we even start next year.”
Andrews said the decision is welcome in that it clarifies the rules for utilities – an opinion echoed by Ron Starr, chairman of Mississauga Hydro. Mississauga Hydro had proposed a rate phase-in to the energy board.
“We don’t find this a bad decision. We think that we can work with it,” Starr said.
But one critic said phasing in higher rates amounts to a ploy to disguise the true impact of changes in the electricity system.
“The regulator has decided it’s okay to boil consumers slowly,” said Tom Adams of Energy Probe.
The phase-in means the full impact of higher rates won’t hit consumers until after the next provincial election, he said.
Electric utilities have been applying for sharp increases in electricity rates following radical changes in Ontario’s electricity sector ordered by the provincial government.
The province decided to break up Ontario Hydro, which used to hold a monopoly on generating electricity in the province. The Conservatives want to allow competitors to generate and sell electricity.
The province also gave municipal governments direct ownership of local utilities, such as Toronto Hydro, which own the wires serving businesses and homes.
Some cities, such as Toronto, have responded by converting their ownership into a mixture of debt and equity. That means the utilities have to pay interest and dividends to the municipalities.
Toronto planned to reap $88 million in payments from Toronto Hydro this year.
But the new payments require the utilities to raise rates – when the province had promised that the new competitive system would reduce them.
Toronto, for example, applied for a 6 per cent increase effective July 1.
That increase, plus a further 3 per cent increase Toronto Hydro had planned within the next year or two, will now have to be phased in more slowly.
Energy Minister Jim Wilson accused municipalities of making a cash grab, and ordered the energy board to give “primacy” to the interest of consumers in setting rates.
During hearings before the energy board, some municipal utilities warned they’ll have trouble attracting private investment if they’re not allowed to charge rates that produce an adequate return for investors.
But the board ruled “the concerns that are linked to market returns must be given secondary consideration to the primacy of the consumer protection objective.”
Some utilities said they’d defer rate increases if they were allowed to make up the lost money by boosting rates even higher at the end of the deferral period. But the board’s ruling prohibits that.
Wilson proposed legislation in June that would allow the province to bar utilities from taking “windfall profits.”
A spokesperson said the government will study the board’s ruling before deciding whether to proceed with the legislation.