On August 15, 2018 Ontario Premier Doug Ford proudly unveiled changes to Hydro One’s direction with a six month deadline to trim the executive compensation package. The continued fixation on Hydro One is a disturbing and no doubt intentional distraction from the real job at hand of reducing electricity rates in Ontario.
Let’s break it down.
Choose between “heating and eating”?
As a part of the rhetoric, Doug Ford has said that Ontario residents have to choose between “heating and eating” while “connected energy insiders” were getting rich.
Nothing that the government has done to date is going to help people that need to choose between heating and eating. The continuing assault on Hydro One is merely a distraction to avoid dealing with the root causes of high electricity rates. There remains a serious risk that the meddling with Hydro One will incur more cost than any potential savings from the reduction of executive salaries.
Should the Avista acquisition fail as a result of the government’s action there is a direct cost of $103 million US in penalties. That’s $135 million Canadian. The acquisition process itself has likely cost Hydro One over a million dollars. All for a circus show at Queens Park.
It’s not worth the price of admission.
Update: The Avista acquisition has failed at a cost of $142 million in direct costs plus the amount spent on the preparation of the proposal, plus the long term cost of a credit rating reduction.
Read about it in my Avista article here.
If I looked at it from a business perspective it would be far more economical to fire all of the PC MPs and let the Hydro One business continue to grow and earn solid dividends. That’s way better value for the money and in fact good for the economy.
Removing executives from Hydro One will not make a material difference to your rates.
Any talk otherwise is a lie.
Next…
Let’s put a stop to the connected energy insiders getting rich
Now that statement is indeed ‘rich’ coming from the PC party. Nobody has created more wealth for private sector insiders at the expense of ratepayers than the PC party! Everyone has such short memories!
The breakup of Ontario Hydro and implementation of the energy market created private sector profits that never existed previously and add no value to the core functions of generating or delivering electricity to customers. It just adds cost. Energy resellers offer a solution to non-existent problems while skimming a tidy profit from ratepayers. This has been going on at ratepayers’ expense for almost 20 years. It has made many insiders lots of money. I would argue that it is even more than the Liberal government energy contracts.
Then there is the quote of the Liberals making executives millionaires. Nobody remembers that the PC government paid 4 OPG executives $40 million for 4 years work during their last term as the government. When you total all of the executive compensation for the Hydro business of that era it would likely exceed that of the Liberal government’s term.
The PCs have made more millionaires than any government. Who is kidding who?
Next…
So who is siphoning off the big money from the hydro business?
Would it surprise you to learn that it is the government?
Prior to the PC government breaking up Ontario Hydro we had power for cost. There were plenty of problems back in those days including excessive debit and the appearance of poor planning. Entire books have been written on the subject (Hydro: The Decline and Fall of Ontario’s Electric Empire by Jamie Swift and Keith Stewart).
The breakup of Ontario Hydro was intended to address many issues, however the one that received the least air-play was that it would make money for private business. It was the golden opportunity to get a slice of a multi-billion dollar industry.
This was the beginning of the ‘Power for Profit’ era.
Good for the economy.
Good for private sector.
Good for government revenue.
Bad for rate payers.
Three out of four isn’t bad…
Part of the restructuring implemented a profit margin for OPG and Hydro One. The IESO would remain non-profit. The profit would go straight to our government as general revenue.
In 2017 the government of Ontario skimmed over $1 billion in profit from OPG and Hydro One alone
There are layers of taxation in the industry (other than the sales tax on your hydro bill) that provide additional revenue for the government.
How about giving that money back to ratepayers? A rebate of the profit would have the single largest impact that the government could achieve. It would actually make a material difference to electricity bills.
Wouldn’t it be ironic that the same governing party that implemented the cash grab would wind up giving it back to customers?
The government has opened the door for this to happen through their campaign promise to return the Hydro One dividend to customers. But that money should be returned to the customers that overpaid Hydro One which is about one in four customers.
The real prize is the OPG dividend which in 2017 was almost 4 times that of Hydro One and would apply to ALL ratepayers.
Why is the government not focused on the OPG dividend?
Next…
Cancel energy contracts that are in the pre-construction phase and re-negotiate other energy contracts
The government has cancelled a large number of energy contracts that were put in place by the previous government. Good on them. It had to be done.
There are going to be cancellation charges of an estimated $100 million that will hit ratepayers.
Next…
Where the real money is…
In 2017 75% of the Global Adjustment went to pay contracted generators. The Global Adjustment in 2017 made up 86% of the energy cost charged to ratepayers.
A quick calculation shows that contracted generation makes up over 60% of energy cost. The existing contracts are where the problem of high rates comes from. How about tackling that?
The takeaway
Most of what the government is currently doing will do nothing to lower electricity bills in Ontario. Much of the rhetoric is indeed hypocritical and counterproductive.
Stop using Hydro One as a scapegoat for the problems in the electricity sector and start focusing on meaningful solutions.
I overheard a statement from John Fraser MPP Ottawa South where he told a reporter
“it’s time for the government to stop campaigning and start governing”.
Well said Mr. Fraser!
Stop the nonsense and get on with what you were elected to do. Please don’t screw it up like the last time.
Derek
