a poor Connecticut: Ontario Electricity Pricing

I found myself in front of some U.S. Energy Information Administration data today, and, as anybody would, thought that with a little summarizing and some formatting it might make for a pretty enthralling scatter plot.

How right I was!

I looked up the data after seeing some comments on a recent article by Parker Gallant (And the winner is : Hydro One! Most expensive residential power rates in North America).

I know I paid about 20 cents/kWh in 2015 (up to ~23 in 2016), so I wanted to check U.S. EIA data to see how that compared – and when I want to check data, I want to check base data. This I found in the form EIA-826 data for Sales and revenue. The data is by utility and state, and it includes revenues, sales and the count for consumer groups – including residential.

Forgetting Ontario temporarily, I summarized data by state and created the posted scatter plot to test for a connection between consumption, and pricing. It seems to exist and that seems pertinent beyond a rant – as well as important within a rant.

The one state where rates are higher than mine (ignoring currency valuations) is Hawaii – which also has the lowest average consumption.

The $113 bill “for nothing” in Ontario

I’ve seen many references to a $113 hydro bill “for nothing” today. With anger high over electricity costs in the province, this seems to be a rallying point for some.

Not for me.

Before I get to the specific bill…

I saw tweets from the official opposition this morning showing the bill, and tonight Christina Blizzard has a report on events that followed; Sousa claims hydro bills going down.

To me, Sousa is an appalling man, but that’s not exactly what he’s shown as saying. This is:

Sousa Debt and the DRC

Ontario’s finance minister, Charles Sousa, delivered a budget yesterday, and within that document described the current electricity sector debt situation:

Ontario Electricity Financial Corporation (OEFC) estimated results for 2015–16 show an estimated excess of revenue over expense of more than $3 billion, which would reduce OEFC’s unfunded liability (or “stranded debt of the electricity sector”) from $8.2 billion as of March 31, 2015, to below $5 billion as of March 31, 2016. This would be the twelfth consecutive year of stranded debt reduction.

For those that haven’t been following the Wynne government’s raid of electricity assets, a quick refresher is in order.

Ancient history: Ontario broke up it’s “power at cost” utility in 1998, revaluing assets and creating a “stranded debt” along with a corporation to oversee them with tools developed specifically to address the RSD. These tools included payments in lieu of taxes (PIL) from the electricity sector, the profits of the successor companies, and prospective revenues from the sale of those companies. All of those tools were not expected to address the stranded debt – the portion they could not address was called the residual stranded debt (RSD), and it was to be paid off with a debt retirement charge of 0.7 cents/kilowatt-hour on all Ontario bills. (see Stranded Debt – Abandoned Responsibility)

Recent History:

1. Wynne listens to Bay Street advisors on selling off the public utility, without regard to the law’s stipulation, “All proceeds… in respect of the disposition of any securities or debt obligations of, or any other interest in, Hydro One Inc… shall be paid to the Financial Corporation [OEFC]
2. The government decides to proceed with that asset sale, promising in last year’s budget, “to sell off a 60 per cent stake in Hydro One to raise $4 billion, which will then be spent on building public transit.”
3. The government rewrites the electricity act and Finance Minister Sousa layers nonsense upon nonsense to hide the obvious – that he is raiding hydro (summarized in Wynne deserves no credit for dumbly selling Hydro One)
4. The province’s new financial accountability officer shows the province could be worse off for disposing of shares in Hydro one – I write that if the officer had used the most recent figures, he’d not show a remaining “residual stranded debt”
5. The government’s bill 144 eliminates the concept of a “Residual Stranded Debt” to allow it to continue to charge business 0.7 cents per kilowatt-hour, and the Minister of Finance is freed of the bothersome need to justify the charge (described here)
6. The government’s fall financial statement advises the government will renege on amounts due to the OEFC (sector profits since 2005) – while claiming proceeds from the disposition of the public utility are used to pay down sector debt, it is deceitfully removing sector assets

Better Guardians needed for Ontario’s Electricity Sector

Retired Toronto Hydro employees called on agencies mandated to protect the public interest to investigate malpractice at Toronto Hydro only to be stonewalled.

Tom Adams’ Ontario Electricity Regulation Crisis Report Part 125 Guest Post: Stonewalled by Guardians demands reading – it’s about Toronto Hydro, but I fear its applicable to most things connected with Toronto.

My interests may be peaked as the guest post is co-written by Paul Kahnert. Adams writes:

On a personal note, some readers might recall that I had a long history as an advocate for the break-up and privatization of Ontario Hydro. The most articulate and energetic advocate for public power on the other side of that debate was Paul Kahnert, then a union activist with CUPE Local 1 and a Toronto Hydro employee. My adversarial engagement against Mr. Kahnert arose from his role as the spokesperson for the Ontario Electricity Coalition whose provincial campaign and court case stopped the sale of Hydro One in April of 2002.

Jump forward to 2015.

As I came to realize that Fiona Crean, then the City Ombudsman (now the Hydro One Ombudsman), was stonewalling my request for an investigation of the Union Street blackout and other major events of operational failure due to Toronto Hydro’s negligence after Crean lead me on, I also learned that Mr. Kahnert was spearheading a similar initiative. If you compare the timing of the Kahnert/Grant initiatives with my posts 122, 123 and 124 of this series, you will see that I was, in fact, following in their footsteps. Although we were familiar to each other previously, it wasn’t until this event that Mr. Kahnert and I realized that we were in many ways kindred spirits, sharing many objectives for an electricity future Toronto can be proud of. As we have become friends, Mr. Kahnert never tires of reminding me that consumers were far better off before the break-up of Ontario Hydro than they are now. He’s right.

This is how adults should act. They exchange ideas and communicate with respect. I do not know Paul Kahnert, but I came into communication with Tom Adams arguing pro-nuclear positions, and I’m very grateful I did.

Sousa returns to Duncan’s lying ways in raiding electricity debt charge revenue

Today’s economic statement from Ontario Finance Minister Sousa should be the last time we get data to demonstrate his theft of residual stranded debt charge revenue. I’ve written on this many times, so in this post I just want to cover the latest farcical accounting, but I’ll provide one more overview of what the “residual stranded debt” was meant to be, and how a charge of $7/MWh (0.7 cents/kilowatt-hour) ended up on electricity bills to address it.

Ontario Hydro was broken up with the electricity act of 1998, and the successor company left with the financial burdens was the Ontario Electricity Finance Corporation (OEFC). It’s a shell company that held about $20 billion more in liabilities than it had in assets (this is known as the OEFC Unfunded Liability). In order to pay the liabilities the OEFC was provided revenue tools; specifically payments in lieu of taxes (PIL) from sector businesses, and profits (above a certain number) from Hydro One and OPG – two successor companies of Ontario Hydro.

The Unfunded Liability that was not capable of being retired through PIL and sector revenues was called the “Residual Stranded Debt”, and to address that debt the residual stranded debt charge was added to our bills.

I was anticipating today’s lie, and here’s how it was pictured:

Let me explain how this is a lie.

finance minister claims he could be worse

a primer for yesterday’s News Release from Ontario’s Ministry of Finance

The Office of the Auditor General of Ontario reported on the Ontario government’s flippant disinterest in accounting for the Debt Retirement Charge (DRC) in its 2011 Annual Report:

Given that the DRC has been collected from electricity consumers for almost a decade and that more than $8 billion in DRC revenue has been collected during that time, our view is that the Minister should make a formal determination of the outstanding amount of the residual stranded debt in the near future and make this determination public.

Subsequently, the Ontario budget of 2012 included a section on the Residual Stranded Debt – which the DRC was introduced to retire:

residual stranded debt is estimated to be $5.8 billion as at March 31, 2011… the residual stranded debt is estimated to be $4.5 billion as at March 31, 2012. Residual stranded debt is estimated to further decline to $3.6 billion as at March 31, 2013.

“$3.6 billion as at March 31, 2013”

The next budget knew less, reporting the $4.5 billion as of March 31, 2012, ignoring March 31, 2013 and preparing to extend the DRC as simply a tax with:

Ontario’s financial accountability officer confirms Ontario will be worse off financially following Hydro One sale

The Toronto Star’s Robert Benzie is reporting the Toronto Star has seen a report on the sale of Hydro One concluding:

“In the years following the sale of 60 per cent of Hydro One, the province’s budget balance would be worse than it would have been without the sale…”

I would have been surprised had he concluded anything other than that.

I’ve written extensively on the sale, recently stating this regarding the financial shenanigans driven by the head of the unelected Premier’s Advisory Council on Government Assets:

It seems the only value Ed Clark’s team has added to Hydro One has come at the expense of future government tax revenues.

The money in, money out, scheming with Hydro One is intended to provide “Deferred Tax Benefit”, and the government has stated it’s grabbing the entire “Deferred Tax Benefit” gained to pay into the Trillium Trust, which is the provincial government’s fund for The Greater Toronto Area’s transit.

From the October 9 Ministry of Energy news release accompanying the release of an updated Hydro One Prospectus:

Based on the [proforma financial statement in Hydro One’s updated prospectus], an estimated deferred tax benefit of $2.6 billion would result in a benefit to the Province, at consolidation, of about $2.2 billion, based on the Province having about an 85 per cent share of Hydro One following the IPO….
As this deferred tax benefit results in a net fiscal gain, the Province proposes to credit it, along with other net fiscal gains, into the Trillium Trust.

The province intends on spending what Hydro One will save from reducing future taxes – ie. avoidance of providing the government with taxation revenue.

Wynne government reneges on the promise of the electricity act

Ontario Premier Kathleen Wynne’s government has betrayed 15 years of debt collection from Ontario ratepayers in completely perverting the Electricity Act to increase efforts, begun with Premier McGuinty, to turn the sector into a net subsidizer of government spending.

In the 1999-2000 Annual Report of the Province of Ontario the government of the day laid out the basic principles behind electricity restructuring:

• Keeping electricity prices in Ontario as low as possible
• Recovering any stranded debt identified as a result of the restructuring from the electricity sector, and not from taxpayers
• Maintaining maximum value in the electricity sector until stranded debt is retired or defeased; and
• Creating a structure where investments are undertaken on a sound commercial basis.

The government of today is carrying on the tradition started by the McGuinty government before it. Rates for winter electricity were announced yesterday and the increase over the previous winter is the highest ever. At over 12.6%, it’s only a little higher than the average of 9% over the past 8 years. While the public generator, Ontario Power Generation, has been a significant contributor to recent price increases, most of the increases came from the contracting of private supply after an Ontario Minister of Finance, Dwight Duncan, specifically planned for using OPG’s largest assets to level pricing: “Fixed prices for a large part of the energy consumed in the province would keep the overall blended price for electricity relatively stable.”

Giving government the ability to contract regardless of cost did not keep prices stable, as subsequent years displayed.

The most recently announced contract may be the most irresponsible yet (it’s one helluva competition). The abandonment of any intent to undertake investments “on a sound commercial basis” is clear in the contracting of 28 megawatts of hydro capacity to be constructed on New Post Creek. Whatever the hidden contracted cost is, it’s enough to justify spending $300 million for 28 MW of capacity. At that price the Darlington refurbishment would justify $41 billion in spending, and the public generators on the Niagara river system would be valued at $26 billion.

Tabuns extracts unsatisfying answers on Hydro One sale

NDP MPP and Energy Critic Peter Tabuns has been asking some very pertinent questions on the sale of Hydro One, particularly the $2.6 billion the government has given Hydro One which matches a $2.6 billion “Departure tax” that will be due when the company ceases to have an ownership that is greater than 90% public.

From October 6:

Mr. Peter Tabuns: I’m going to go back to the $2.6-billion payment that Ontario makes to Hydro One for their departure tax.

Supplementary estimates show that $2.6 billion is coming from the Ministry of Energy and will go to Hydro One. Is that correct?

and so on, until this one passage I will interpret – by highlighting the key words and adding my commentary:

Mr. Serge Imbrogno: I’ll just say that the $2.6 billion goes towards paying down the stranded debt, so that transaction is targeted towards stranded debt. Putting in the additional capital increases our value, and then when we sell the portion of Hydro One, that’s what we’re using to put towards infrastructure. That’s maximizing the amount we can get for infrastructure from that transaction.

The “stranded debt” is not a line item that can be paid down. It is a calculation made by subtracting the assets of the Ontario Electricity Financial Corporation (OEFC) from the liabilities.

Current assets of the OEFC include a note from the government representing, in part the original owner’s equity in Hydro One, and ~$5 billion due from the province of Ontario.

due to confusion between “stranded debt” and “residual stranded debt”, I prefer to use the term “unfunded liability” instead of stranded debt, which matches its appearance on the OEFC balance sheet.

Mr. Peter Tabuns: In part you’re maximizing it

Mr. Serge Imbrogno: So we’ll be paying down the stranded debt and we’ll be reinvesting the proceeds in infrastructure

Mr. Peter Tabuns: But you’re maximizing by reducing the cash that we have available. You’re not going to be paying down more debt than you would have otherwise. Your goal, as stated previously, is $5 billion for debt reduction. Correct?

Mr. Serge Imbrogno: That’s not changing. The $2.6 billion is separate from paying down the debt related to the transaction

Mr. Peter Tabuns: So actually $7.6 billion will be plowed into debt reduction in the aggregate. Correct?

The Unfunded Liability was reported as $8.185 billion as of March 31, 2015 – since which time another ~.5 billion of debt retirement charges were collected. If this were true, there is no unfunded liability

Wynne’s still stranding: changing laws to allow irresponsible plunder of Hydro One

In the past 6 months the government has gutted the intent of the Electricity Act’s financial requirements and now promises to abolish recognizing the value of electricity sector assets in retiring debt claimed to arise from building Ontario’s public electricity infrastructure.

Background:

• I covered the development of the current financial structures in Stranded Debt – Abandoned responsibilities, and
• I covered the illegality of the plan to swap profitable Ontario power for subsidized Toronto transit in Ontario’s Outlaw Premier Plots to plunder Hydro One

The government did, in fact, revise the Electricity Act to facilitate their desires, and they intend on once again changing law to ensure no profits from the sale of Hydro One go to pay down debt allegedly due to Hydro One and other public electricity sector assets.