How utilities are trying to con customers and regulators into higher rates

(May 11, 2015) Ontario’s electricity distributors are doing whatever it takes to hike rates.

Electricity distributors in Ontario – the companies that oversee the local delivery of power to homes and provinces – are looking for any way to hike rates in order to support massive spending programs. Distributors have already attempted to undermine ratepayer groups and other interveners in an effort to convince the OEB that customers support their spending plans, regardless of cost.

Take Toronto Hydro, one of the largest distributors in the province, as an example. As part of its current rate application before the OEB, the distributor embarked on a “customer engagement” program where it surveyed its customers (ratepayers) about its spending plans. Toronto Hydro concluded that overall, ratepayers gave “qualified acceptance” to its significant spending plans and felt that the higher rates this spending would entail were “necessary.”

The OEB, initially, did little to question those claims, while interveners and other ratepayers were far more skeptical. It became clear that Toronto Hydro painted a picture of crisis to its customers. Those surveyed were warned of an aging, decrepit electricity system on the verge of breakdown and one that, barring a massive new spending program, would fail to keep the lights on in the coming years. Any delay in the spending programs proposed by Toronto Hydro, the customers were told, would only push the grid further into disrepair.

Under these circumstances, the customers were then asked, wouldn’t it be wise to spend an extra couple of dollars a month on their distribution bill to make sure the lights stay on? Unsurprisingly, many of them reluctantly agreed. Yet, in some cases, the respondents were given four options, with all but one of the answers giving Toronto Hydro some form of approval for their spending plans.

What the customer engagement sessions didn’t let customers know was that Toronto Hydro’s proposed cost increases were already well above most urban distributors from the United States and Ontario. They also didn’t mention that the utility performs so poorly in terms of productivity compared to other distributors that it is considered an outlier in Ontario.

And finally, the distributor never told customers that, while the monthly increase in dollar terms may not seem great – a few dollars – those increases will add up to a near 50 percent increase in their distribution bill over the next five years. When added to the other increases the customers will face – such as the growing cost of generation and the end of the Ontario Clean Energy Benefit – ratepayers could be facing double-digit increases in their hydro bills in the coming years. This information was never provided.

The OEB initially didn’t confront these shortcomings in Toronto Hydro’s customer interactions. Instead it was interveners who dug down into the details of the surveys and distributor-sponsored engagement sessions that clarified how Toronto Hydro deliberately designed the sessions in order to gain customer backing for its spending plans. OEB staff eventually acknowledged the shortcomings of the customer engagement programs in their final recommendations on whether to approve Toronto Hydro’s plan.

Hydro One, the largest distributor in Ontario, also funds a number of customer engagement programs and discloses the results of these surveys when it applies for rates before the OEB. And, similar to Toronto Hydro, the distributor found that most of its residential and small business customers – 80% according to its research – were “satisfied” with its services.

But what the distributor didn’t ask customers is whether they would be satisfied if Hydro One hiked rates more than 6% annually over the next five years – which is exactly what it did in its most recent rate application. It also didn’t ask customers whether they would be happy with its proposal to exempt it from regulations stipulating that it contact all of its customers when it fails to show up for scheduled appointments.

It also didn’t tells its customers that while they have some of the highest electricity bills in the country, Hydro One is one of the worst performers in terms of reliability when compared to its peers. And like Toronto Hydro, Hydro One is considered an outlier when it comes to productivity.

The “customer engagement” programs of Toronto Hydro and Hydro One – which are emulated by distributors across the province – are often a smokescreen for capital spending sprees and the higher rates needed to support them. Regulators and ratepayers would be wise to take them with a grain of salt.

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI), a division of Energy Probe Research Foundation. You can reach Brady by email at: bradyyauch (at) or by phone at (416) 964-9223 ext 236

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

4 Responses to How utilities are trying to con customers and regulators into higher rates

  1. Toronto Hydro are # 3 as the most costly of distributors and Hydro One # 2. Only Algoma Power are higher and their service area is huge in terms of customers per square kilometre. Both Hydro One and Toronto Hydro speak to the need to replace aging ‘infrastructure’ (the buzz word of the Wynne government) but replacement is often simply to create reasons for rate increases. Hydro One also claim their costs are high due to their service area and have almost 80% of their employees on the sunshine list (rural costs should be lower) and employee pay surveys generally put them 10% above their peer groups! Toronto Hydro should have “economies of scale” based on their “customers per square kilometer” but are the third highest in respect to costs and one has to wonder why. You have done a good job of highlighting the two worst managed local distribution companies we have in the province.

  2. Western Mark says:

    The very profitable Ottawa Hydro is also looking for a rate increase for infrastructure renewal even though they handed the City a dividend of near $20M last year.
    I have my fingers crossed the Quebec Hydro is looking for an investment in Eastern Ontario – rural Ottawa in particular.
    Imagine buying Ontario’s excess electricity on the wholesale market to be used in rural Ottawa.

    • consumerpolicyinstitute says:

      Thanks for the remark. Hydro Ottawa is employing some of the same tactics as Toronto Hydro in trying to convince the OEB that ratepayers are on board for big capital spending programs and the rate increases that they would entail. The OEB was eventually skeptical of Toronto Hydro — hopefully they’ll do the same for Hydro Ottawa.

  3. Robert Smith says:

    I actually attended one of these sessions you mentioned.

    The way they worded was that it’s either higher rates, or more outages like during the ice-storm.

    While i don’t doubt that upgrades to the system ARE badly needed, I DO wonder how much of the rate increase will be siphoned into administrative and HR accounts and how much will go to actually funding transmission infrastructure upgrades.

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