Ontario ratepayers subsidize taxpayers

(November 15, 2011) Ontario ratepayers are helping to hold down municipal taxes and the provincial debt, writes Energy Probe director Parker Gallant.

Parker Gallant

The Ontario Energy Board (OEB) requires the 80 local distribution companies (LDC) in Ontario to send detailed financial and ratepayer information annually and OEB assembles it in the “Yearbook of Electricity Distributors”. The information is presented in a consolidated and individual basis so viewing it provides a myriad of facts including statistics on the number of kWh purchased, km of overhead lines, etc. It gives collective and individual average delivery costs per customer and a financial picture of each LDC. As an example, Hydro One’s distribution arm collected an average of $949 per customer (year ended December 31, 2010) for “delivery” of electricity whereas clients of Kitchener-Wilmot Hydro ($423) or Toronto Hydro ($752) paid less. Capital expenditures made by your local utility company are also included.

On the latter point Hydro One increased annual capital expenditures from 2005 by $406 million (+142% ) to $574.00 per customer. The other 79 LDCs increased capital spending by $583 million (+91%) to $310 per customer. A major portion of those expenditures reflect the installation of “smart meters” ($2 billion + or -) but why Hydro One’s expenditures are so much more is not explained. Hydro One’s spending does not include capital spending for transmission builds associated with renewable connections such as the Bruce to Milton line at a cost of $700 million.

Why it costs a Hydro One ratepayer 124% more and a Toronto Hydro ratepayer 77% more for delivery then a Kitchener-Wilmot ratepayer calls for an explanation and an examination however, this issue doesn’t receive attention from our political leaders in either provincial or municipal politics. It also doesn’t appear to be a part of the OEB regulatory process except peripherally in setting the allowed Return on Equity formulae.

The yearbooks’ posted on OEB start with the year ended December 31, 2005 and finish with the 2010 year end. If you view the collective net revenue (excluding the cost of purchased power—up by only $9 million as consumption has fallen) which effectively is the “delivery” line on your hydro bill; you note that it increased by $572 million or 23% . Net profit after PIL (payments in lieu of taxes) was up $145 million or 44.3%. The difference ($427 million) between net revenue and the increase in net profits went principally to pay the increasing OMA (operations, maintenance & administration) costs which increased by 35.6% (6% annually) or $355 million ($206 million from Hydro One) over those 6 years.

Collective profits after PIL, of the 80 local distribution companies for the 6 years was $2,303 million however the equity of those 80 LDCs only increased by $1,116 million. The difference of $1,187 million ended up as dividends (51% of net profit) and was paid to the municipality that owned the LDC. Local politicians used those dividends to reduce municipal tax increases (except for Hydro One who paid dividends to the Province), thereby allowing them to defer making tough choices on other services that the municipality might have to reduce. Reflecting further on this, the local municipal government would have less call to demand financial support from the Province helping to keep provincial debt levels lower. As noted above the bulk of gross profits of the LDCs went to pay for OMA as the unions were successful at gaining above market salary and benefit increases.

The result of the foregoing is that the LDC’s infrastructure has suffered from a lack of funds to upgrade or replace it, pushing those costs forward. Those costs will bite the ratepayers severely in the next few years. As an example Toronto Hydro has two rate applications before the OEB presently. The first filed in 2010 seeks an increase in their “service charge” for a residential client of 14.8% and a 16.4% increase in their distribution charge. The 2011 rate application filed in August 2011 seeks double digit increases for distribution for 2012, 2013 and 2014 of 9.7%, 12.4% and 12.6% along with “rate rider” increases of 18.7%, 12% and 12% for those same years.

So municipal and provincial taxpayers have benefited from ratepayers paying above market rates that have not been utilized to refurbish the utilities infrastructure and that same ratepayer will continue to suffer, large rate increases over the Energy Minister’s forecast of 46% in our electricity bills as LDCs now upgrade both their deteriorated capital equipment and continue to spend money on those mandated Green Energy Act directives.

While some in the energy sector have suggested that the taxpayer is picking up some ratepayer costs (via the “Ontario Clean Energy Benefit”) it might in fact be quite the opposite. Ratepayers have helped keep both the local municipal taxes and the Provincial debt lower!

Perhaps the Liberals have simply found a new way of taxing us and we didn’t even know it!

Parker Gallant is a retired banker and a director of Energy Probe.

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This entry was posted in Power Generation in Ontario, Reforming Ontario's Local Electrical Distribution Sector, Reforming Ontario's Local Electrical Distribution Sector and tagged , , , , , , . Bookmark the permalink.

6 Responses to Ontario ratepayers subsidize taxpayers

  1. Pingback: Ontario ratepayers subsidize taxpayers « Ontario's Wind Performance

  2. This Provincial “$$$ grab” by our so-called Energy Sector is nothing short of organized “highway robbery”!
    Stock up on candles to heat your house this winter and try and not dirty too many clothing items unless you have a creek in the back yard where you can beat them on rocks after washing in it. McGuinty and his 1% high rolling execs sitting in the plush leather chairs inside his massive agencies don’t have to worry about that though.as they laugh all the way to the bank……..something is really wrong here folks…………..now you know why there are over 1100 OCCUPY groups trying to change the world right now!

  3. Pingback: McGuinty’s Energy policy is BANKRUPTING Ontario’s Citizens!!!!! « The Big Green Lie

  4. Tom Adams says:

    Many of the key assertions in this essay are wrong. Let’s examine just one paragraph for examples.

    “Why it costs a Hydro One ratepayer 124% more and a Toronto Hydro ratepayer 77% more for delivery then a Kitchener-Wilmot ratepayer calls for an explanation and an examination however, this issue doesn’t receive attention from our political leaders in either provincial or municipal politics. It also doesn’t appear to be a part of the OEB regulatory process except peripherally in setting the allowed Return on Equity formulae.”

    There are three main factual problems with this paragraph and one implied policy recommendation that deserves further consideration.

    A full detailed and historical explanation of the differences in rates between Ontario distributors can be seen in the history of applications and decisions going back to about 2001.
    Energy Probe, as an interventor, claims to assist the OEB in these many of reviews. Energy Probe gets paid significant amounts by orders of the OEB, recovered against rate payers, to participate. If there are gaps in the reviews, the intevenors are at least partly responsible.

    The different rates charged by different utilities is central to the OEB’s work on distribution. By contrast, transmission utilities in Ontario charge a pooled rate.

    The argument presented in the original paragraph is that our political leaders should be more active in determining our power rates. Historically, Energy Probe pursued less political influence on energy decisions.

    The essay closes with a charge against the Ontario Liberal government for the recovery of dividends by some municipalities from municipally-owned electricity distributors. The fundament decisions that created the impugned ownership and financial structure were taken by the Harris government and the Ontario Energy Board in the period 1998-2001, long before the Liberals were elected in 2003.

  5. Parker says:

    The OEB site only contains consolidated statements, etc.from the LDCs from 2005 onwards so comparisons with earlier years and dividend payments has to be done on an individual basis and would take me hundreds of hours to assemble so I’m not about to do that,

    I did look at Toronto Hydro however and note that their dividend payments from 2005 to 2010 represented a payout rate of 60% of after tax (PIL) profits. I went through the prior 4 years financials (2001 to 2004 and note their dividend payout rate was only 21.7%.

    It sure looks like at least one municipality in this province was being bled by the municipal politicians without any oversight/curtailment by the OEB and it happened on the Liberal watch!

  6. Pingback: Ontario ratepayers subsidize taxpayers | OperationEnwin

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