With the Ontario election just a couple of weeks away there is plenty of chatter from the candidates about electricity rates.
I will do a 3 part series of commentaries on each major party’s proposals over the next couple of days.
Today let’s look at what the PC’s are offering up.
The Progressive Conservative Party
Doug Ford has been pretty specific about what the PC party is proposing on their website. They say they will reduce bills by 12% though 3 commitments.
- Return all Hydro one dividends to hydro customers — saving the average family $70 on their hydro bills.
- Stop the practice of burying the cost of conservation programs on hydro bills and instead move those programs to the tax base — saving the average family $43 on their hydro bills.
- Place an immediate moratorium on any new energy contracts while walking back and re-negotiating existing contracts where possible — saving the average family $60 on their hydro bills.
Let’s look at each item
Return Hydro One Dividends to hydro customers
This is a great idea but it isn’t going to work out as stated for the average ratepayer if it is implemented fairly.
Here is where it helps to be specific with the term ‘hydro’. The statement is difficult to interpret as it refers to Hydro One – the company, and hydro – the commodity. There is an important distinction between the two and some real rub-points. If you don’ know what I mean, you should read my article “What is Hydro”.
Hydro One has 1.3 million customers which is about ¼ of the 5.1 million customers in Ontario.
If I take the commitment as stated by the PC’s it means that the government will take money paid by Hydro One customers to subsidize all ratepayers. That can’t be right. It would be another poke in the eye to Hydro One customers.
If I were a Hydro One distribution customer I would be livid!
In 2017 Hydro One paid $518 million in dividends to shareholders. The Ontario government owns 47.4% of the shares so the ratepayers would be looking at approximately $250 million in dividends if the government wants to rebate all of that revenue.
The majority of the money that contributes to the dividend is from Hydro One distribution customers. Hydro One distribution has 1.3 million customers and they contributed to 75% of 2017 revenues. They represent about 1 in 4 of all customers in Ontario. If you rebate those that actually paid toward the dividend, the 1.3 million customers would get an average of $144 each for the year. Pro-rating by energy use would move the number up or down for specific cases.
Almost all ratepayers receive energy via the Hydro One owned transmission system and pay for it through delivery charges. The transmission charges make up approximately 10% of the bill and that would contribute to 25% of the dividend. When you divide that up across the 5 million customers it’s about $12 a year. If you pro-rate the rebate based on energy use there will be a wide variation on that number.
So while the average return to families isn’t $70, the rebate will certainly help many Hydro One customers. That’s a good thing, but unfortunately math is not one of the strengths of some politicians.
Stop the practice of burying the cost of conservation programs
The cost of conservation programs is quite challenging to determine. I could certainly generate the numbers but even for a retiree, time has its limitations.
So I will shamelessly quote others and offer no comment on the accuracy other than to say – it looks reasonable.
According to a May 2, 2018 article by Barbara Carss in Canadian Property Management, Andrew Pride, a Consulting Engineer, the average family’s annual conservation cost has been overstated. It is actually less than $28 annually.
Still better than a poke in the eye with a sharp stick, but not as stated.
The other factor which is glossed over here is that we start paying for it through our income tax. We don’t know the implications at this point. Any speculation from the PCs on this would be pointless.
Place an immediate moratorium on any new energy contracts
While placing a moratorium on new contracts will help slow down the rising rates, there won’t be anything coming from existing contract relief – other than what is currently underway with NUG contracts. You can see some of the numbers on surplus generation in my article High Cost.
The current government has attempted to reduce the compensation paid to generators by revising the formulae used to determine payments. It didn’t work out so well.
In October 2010 Ontario Regulation 398/10 was passed which changed the calculation for settlement of contracted generators. This reduced the amount that generators were paid resulting in a law suit – Iroquois Falls Power Corporation v. Ontario Electricity Financial Corporation. The OEFC lost the case and was required to pay out the full contract amount in 2016. That amounts to $181 million[1] over what was paid under the revised settlement calculation. In addition, approximately $79 million[2] became payable to certain NUGs that were not applicants to the original claim. All of the costs were recovered via the IESO Global Adjustment.
Enough said
On this last item of the commitment list there is nothing for ratepayers.
The take away
While there are some positives coming out of the campaign for electricity ratepayers, the specific reduction of 12% is fake news.
Expect the most if you are a Hydro One customer, the rest of us will probably earn more in Canadian Tire money for the year.
Smile at someone today!
Derek
[1] Iroquois Falls Power Corporation v. Ontario Electricity Financial Corporation, 2016 ONCA 687 (CanLII), Court of Appeal Summaries (September 19 – 23, 2016), Link and the 2017 OEFC Annual Report
[2] 2017 OEFC Annual Report – Note 10
