There are several aspects of labour cost that are worth examining.
Relativity of Labour Cost Within Canada
The simplest approach to analyzing data from across Canada is to pull from Statistics Canada. I contacted them and they provided me with data from the Annual Electric Utility Financial Report Survey for 2015 which is their latest. StatCan surveys public and private utilities across the country and presents the information in ‘Table 5’ for administrative and operating employees. In cases where either the private or public sector information is not applicable or available there will be no bar on the chart.
From the data we can see that the Ontario public sector is below median for Canada and significantly less that private sector utility employees.
In order to validate the accuracy of the data I pulled from some other public sources. The Vancouver Sun was able to get the 2012 earnings list from BC Hydro and the average salary plus expenses for 4,290 employees was $127,390. That is close enough to the 2015 numbers to be credible.
The data is clearly suspect for Manitoba Hydro since I see from public disclosure reporting that the average income of a Manitoba Hydro employee in 2016 is actually close to $100K – not $53K as StatCan reported.
It seems that other jurisdictions like to complain about labour costs. See the CBC article about Manitoba Hydro here
Relativity of Labour Cost Within Ontario
In order to make sense of labour costs and the relativity of different organizations within Ontario you need to understand the evolution of the industry. Wages and benefits were not arbitrarily set at some point in time but have evolved over many decades through
- government policy
- the forces of supply and demand
- collective bargaining.
Looking back to the 1970’s we had Ontario Hydro and 311 Municipal Utilities generating and delivering electricity. Ontario Hydro was probably the largest engineering and construction organization of that time and was world-class. They attracted employees from across the world to work on nuclear/hydro/thermal generation projects, high voltage transmission and R&D. They developed local, national and international standards that would be adopted by other organizations that lacked the knowledge and expertise to do the work themselves. Ontario Hydro had to offer competitive wages to attract and retain employees. Municipal utility work did not have the same demands, however they still had to offer competitive compensation to attract skilled workers.
Over the decades the engineering and construction scaled back. The last major generating station to be built by Ontario Hydro was Darlington which was completed in 1993. Design and construction shifted to the delivery infrastructure as it continues today with Hydro One spending almost a billion dollars annually on transmission and distribution infrastructure. The generation portion of the former Ontario Hydro is now Ontario Power Generation which focuses mainly on operating and sustainment. Municipal Utilities merged into larger Local Distribution Companies and face increasing challenges due to renewable generation and the ever-increasing demands of the Smart Grid. The drivers for worker compensation is influenced by the needs of employers – which has shifted significantly over the last 50 years. Layer in changing economics, collective bargaining and unionization of the workforce on top of this and you have a complex situation.
Analyzing the present relativity of labour cost within Ontario is challenging due to the lack of publicly available data in a form that facilitates comparison of similar jobs. Typically the task lies with large consulting firms with extensive experience in finance and worker compensation.
There are several reports available through the OEB Rate Application process. Hydro One and Toronto Hydro have benchmarking studies from Mercer and OPG has used Willis Towers Watson. Enersource (now Alectra) simply submitted the average compensation numbers for their employees. As of 2017, the IESO has agreed with the OEB’s request to have third-party benchmarking performed.
Surprisingly enough, each OEB submission tends to benchmark against other utilities (that is what the OEB is interested in) concluding that other employers have higher rates of compensation than they do. That calls into question the validity of comparison between different employers since every utility cannot have the lowest compensation. It shows how creative consultants can be.
Sources for Labour Benchmarking available through the OEB
Organization Ontario Energy Board Reference
Independent Electricity System Operator (IESO) Referenced in Hydro One Application EB-2012-0031 Exhibit C1 Tab 5
Ontario Power Generation (OPG) EB-2016-0152 Exhibit F4 Tab 3
EB-2010-0008 Exhibit F4 Tab 3
Hydro One EB-2016-0160 - Mercer Total Cost Benchmarking Study
EB-2013-0416 Exhibit C1 Tab 3
EB-2012-0031 Exhibit C1 Tab 5
EB-2008-0272 Exhibit A-16-2
Toronto Hydro EB-2010-0142 Exhibit C2 Tab 1
EB-2007-0680 Exhibit C2 Tab 1
Enersource (Alectra) EB-2012-0033 Exhibit 4 Tab 1
While I do not recommend that anyone actually attempt to interpret the OEB submissions I wanted to show examples where the information is available to the public.
The reason comparisons between companies is difficult is due to the treatment of
- bonus and incentive compensation
- pay progression and performance-based plans
- overtime compensation
- pension and benefits
- non-standard reporting of compensation
- different job roles and accountabilities across organizations
- employee demographics
- surveys done in different years
Each organization has their own implementation of the first four of these elements. Employers are careful to present the data that benefits them without revealing details that would lead to more invasive questioning. Employee demographics play a role in compensation where there are experience-based progression.
The organizations listed have a mix of unionized and non-unionized staff. The unions involved are CUPE, PWU, IBEW and The Society of United Professionals.
Based on my interpretation of the information available in the OEB submissions the compensation ranking of the sample group of organizations from highest to lowest would be:
- The IESO – not even a close call in the ranking. Although I could not find any of their own benchmarking studies they have committed to the OEB to have a third-party perform one (2017). A Hydro One submission from 2013 compared a number of positions. The IESO compensation was consistently 20% higher that Hydro One or OPG for Energy Professionals – before bonus and incentive pay.
- OPG – at least two benchmark studies have been performed by third parties for OPG. These studies also look at Ontario Hydro successor companies although the comparison is very simplistic and overlook some important factors. Benchmarking looks at the contract increases year over year to establish that OPG’s compensation is similar to Bruce Power and Hydro One . It does not consider pay bonuses or the reduction in pay scales at Hydro One in 2007 which eliminated the upper 15% from the compensation range . With bonuses it puts OPG into the second place ranking in the sample group.
- Toronto Hydro – comparing the 2011 test year from the Toronto Hydro rate submission to the 2012 Hydro One documentation from EB-2012-0031 Exhibit C1-5-2 attachment 2, it appears as though Toronto Hydro’s average compensation – with bonus pay is above Hydro One. Union is 5% above, Society (professional union) is 9% above and Management is 25% above.
- Hydro One – extensive benchmarking study data was available for labour costs. The reporting focuses on the median – or average – compensation for ‘comparable’ workers from a wide range of companies. The Hydro One overall ranking has been steadily declining over the last decade and now stands at 8% above median based on the companies surveyed in the 2016 Mercer report.
- Enersource (Alectra) – more than two-thirds of Enersource employees were union and they were benchmarked almost 20% below Hydro One for the average base pay. This is odd since other OEB documentation benchmarks the Power Line Technician role as paying more than most companies including Hydro One. Non-union and managerial roles are also much less that the other 4 examples cited. Enersource is the lowest in the sample group.
Although it is possible to dig deeper into the labour costs or expand the search to some of the other 64+ utilities in Ontario it would be of little value without expert interpretation. Compensation varies by company and is heavily influenced by organized labour and the collective bargaining process. Some positions are above average and some are below.
The details underlying the compensation debate are complex and I am not doing them justice here. Perhaps some other time I will peel back a few more layers.
Public Disclosure
Several provinces in Canada publicly disclose salary information of employees. British Columbia, Alberta, Manitoba and Ontario make the information available in various forms.
In 1996 the Harris government in Ontario started publishing the names of public/quasi-public sector employees earning more than $100k annually. The ‘Sunshine’ list as it has come to be known is released each year in late winter. It always creates a fuss as the “Crabs in a Bucket” mentality engages. Without having any knowledge of what people on the list actually do, it is completely ridiculous to comment on it. For the electricity sector you would expect to see cases where the employees responded to storms , emergencies or generator outages and earned extra overtime pay. In other cases the companies do not have sufficient staff to perform their work and it is far cheaper to pay existing trained staff overtime to manage the work than increase permanent staffing levels. With the passage of time some employees’ base salaries have crept up to the magical $100k level.
The Sunshine list does provide a distraction from the mundane realities of the day-to-day chores and provides an opportunity for the wind-bags at Queens Park to emerge from their winter dens and make a fuss about something. If only we could harness that wind and hot air as a part of the green energy plan! At least we could get some value out of the exercise.
Note that we don’t see Local Distribution Company workers compensation or how much contractors have billed Crown Corporations. That would also be a substantial amount.
Workforce Efficiency – A history of improvement from 1992 to 2016
In Ontario over the 24 year period 1992 to 2016, the industry:
⇒ serves 37% more customers
⇒ maintains twice the distance of lines
⇒ has 60% fewer regular employees
In 1992
There were 311 Municipal Electric Utilities (MEUs) with an unknown number of employees.
The average all-in residential electricity rate was 7.82 cents per kWh[1] for MEUs.
The former Ontario Hydro had 35,000 employees
There were 108,800km of distribution lines connecting customers.
There were 3,739,942 customers served by 311 electric utilities
In 2016
There were 68 Local Distribution Companies (formerly 311 Municipal Utilities) with more than 11,000[2] employees.
Our average all-in rates increased to almost 14 cents per kWh in 2016. Accounting for an inflation factor of 53% over the 24 year period since 1992 that is equivalent to an all-in residential rate increase of 17% above inflation.
The number of regular employees associated with the Ontario Hydro successor companies is 15,000. It dropped by 20,000 or almost 60% (in OPG[3] and Hydro One[4] combined) since 1992.
There were 217,622 km of distribution lines connecting customers. That is twice the length of lines that were in service in 1992.
There were 5,106,528 customers served by electric utilities. That represents a 37% increase in customers.
Although costs have increased by 17% more than inflation there are twice the line assets, more customers and fewer regular employees.
See the Case Study of labour cost increases and their impact on rates here
Derek
[1] Ontario Hydro Statistical Yearbook 1992 page 188
[2] 2016 Yearbook of Electricity Distributors
[3] 2016 OPG Annual Report
[4] 2016 Hydro One Annual Report
