Parker Gallant: Hydro One and Premier Wynne: We’re from the government and we’re here to help

(January 8, 2014) Hydro One rates have increased again “less than a cup of Tim Horton’s coffee” — which amounts to a lot of coffee annually.

Customers of Hydro One will shortly receive a notice stating that delivery rates have increased again, effective January 1, 2014. This notice will say the increase will add $1.25 per month to the “delivery” line.

Energy Minister Chiarelli will explain the increase as “less than a cup of Tim Horton’s coffee” but will not note that the total take from Hydro One’s customers will exceed $18 million — a lot of coffee — annually.

Just a few days ago, Premier Kathleen Wynne wrote an op-ed piece for the Toronto Star in which she defended her use of “grocery gift cards” as a photo-op (well, she didn’t defend that) in Toronto during the ice storm. The haphazard fashion in which it was rolled out has been severely criticized in the media, so the “op-ed” piece was presumably meant to smooth that criticism. The premier finished the article with a heart-rending slathering aimed at making us all feel warm and fuzzy about her as a leader:

“I’ll continue to take smart risks in order to make things better. I will not be constrained by the possibility that I will be criticized or that my political career may take a hit. I’m not in office to play it safe — I’m in office to do my best to help.”

Flying in the face of Premier Wynne’s comment, “I’m in office to do my best to help,” is the Liberal’s push for renewable energy (principally wind and solar); and the cost of delivering it to our homes. Both have increased by more than 100% since the Liberals came to power. What that reflects is that the premier’s sincerity is not what is delivered to rural Ontario.

Kelly Egan of the Ottawa Citizen penned an excellent article that reflected on how the constant climb in energy prices is eating away at the fabric of Ontario’s small towns and rural communities by forcing small church congregations, curling clubs, community halls, swimming pools and hockey rinks to raise their dues or fees to cover the cost of electricity. It is either raise more money or close those facilities which cater to young and old, and are often the only outside activity outlet available to senior citizens.

The lack of oversight by Premier Wynne’s Minister of Energy over OPG was recently highlighted in the Auditor General’s report but the worst offender by far is Hydro One in both their transmission and distribution businesses (effective monopolies). This lack of oversight further extends to the OEB whose first objective was set out in the 1998 Ontario Electricity Board Act as:

  • To protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service” (writer’s emphasis).

That first objective, from all appearances, is ignored, as the OEB treat Hydro One exceptionally well as a trip though the OEB’s “Yearbook of Electricty Distributors” discloses.

If one understands that your local distribution company (LDC) simply passes through the cost of electricity (generator profits are already built into the electricity price, as are transmission profits for Hydro One) and focuses on distribution revenue only;  the 2005 Yearbook discloses: “Revenue from Distribution” was $2,481 million and “Net Income” (also referred to as “Return on Revenue [RoR]) after taxation — payments in lieu of taxes) was $327 million or 13.2% for all LDCs.

For Hydro One, revenue from distribution in 2005 was $839 million and net income was $96 million for an RoR of 11.4%, slightly below the collective return for all LDCs. If Hydro One’s distribution revenue and net income are excluded, the other 72 LDCs produced an RoR of 14.1%.

If one fast forwards to the OEB’s 2012 Yearbook of Electricity Distributors and go through the same exercise it becomes obvious that the OEB has allowed Hydro One increases that have surpassed all the other LDCs by a wide margin.

By 2012, revenue from distribution had grown to $3.3 billion, up 33.5% and net income $581 million, up $254 million or 47.1%, producing an RoR of 15.7% for all LDCs. Looking at Hydro One’s results for 2012 indicates they generated revenue from distribution of $1,261 billion (up 50.3%) and net income of $258 million (up $163 million) for an RoR of 20.5%. Excluding Hydro One’s distribution revenue, and it’s net income, produces a revenue from distribution increase of $408 million (up 24.8%) and an increase in net income of $92 million (up 39.8%) for the other LDCs. The RoR for the other LDC’s increased to 15.7% up1.6% from 2005.

What the foregoing highlights is that in the seven years from 2005 to 2012, revenue from distribution and net income for 72 of the 73 LDCs rose slightly more than the average cost of living (COL). Hydro One’s distribution revenue increased $422 million (up over 50%), or more than all of the other LDCs combined and triple the COL, despite having only 22.9 % of all ratepayers as customers. Hydro One’s net income increased by $163 million, or 170% from 2005, and their RoR by 9.1% to 20.5%; a level that would be the envy of most companies listed on the TSX.

Now the reader having got this far would notice that Hydro One’s revenue increased by $422 million but its net income by only $163 million, so what happened to the difference of $259 million in revenue growth? Meanwhile, PIL paid in 2005 of $71.7 million (42.7% rate), on pre-tax income of $167.6 million, shrunk to $43.6 million (14.4% rate) in PIL in 2012 on pre-tax income of $302.1 million. So that $259 million and $28 million make $287 million, which did not go to reduce delivery rates or help pay down “stranded debt”. Where did it go? The bulk of it went to cover increased expenses related to operations, maintenance and administration, which had jumped by $196 million from 2005 to 2012. Ninety-six million dollars of that increase came in administration costs alone, which add nothing to the “reliability and quality of electricity service,” as defined in the OEB’s first objective. The balance of the increase went to cover financing costs and depreciation.

Perhaps it is time for Premier Wynne to “make things better” by ensuring the OEB actually considers the consumer when Hydro One next applies for a rate increase, or she will be severely “criticized” and her “political career” will “take a hit”.

Parker Gallant is a retired bank executive and a former director of Energy Probe Research Foundation. As with all independent bloggers on this site, Parker’s views do not necessarily reflect those of Energy Probe.

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

3 Responses to Parker Gallant: Hydro One and Premier Wynne: We’re from the government and we’re here to help

  1. Headline didn’t go far enough………should have read: ………..”we’re from the Government and we’re here to help Ontario to go completely BANKRUPT”!!!!!

  2. 1957chev says:

    It is plain to see that Kathleen Wynne and the Liberals have declared all-out war on rural Ontario, and would like nothing more to destroy our manufacturing jobs, and push our entire province, closer to the ideals of the UN’s Agenda 21. We have no choice, but to fight back with everything we have. They do not care who they hurt, as long as they get their way.

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