Ontario Energy Board: new rate design for consumers! (Look out, it’s going to hurt)
The Ontario Energy Board (OEB) plans to implement its “Rate Design for Electricity Distributors”soon. Their report starts with this vague attempt to explain how ratepayers in Ontario have been affected:
“We have concluded that this change is an important step in the ongoing evolution of the electricity sector in Ontario that will benefit customers and support distributors.”
Reading through the 31-page report, it becomes obvious that the author(s) regard the 4.9 million customers of the various local distribution companies as naive when it comes to the consumption of electricity: “Focus groups and surveys undertaken by the OEB suggest that customers have little understanding of how electricity is measured. Customers do not yet have a good understanding of what is meant by a kilowatt hour.” And, “Focus groups and surveys have told us that customers have little understanding of the structure of the electricity industry that underlies the current form of the bill or how electricity is measured.”
Bear this attitude in mind as you read my analysis of what will happen to distribution rates over the next few years, and consider the first objective of the OEB, “To protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service.” Perhaps we need a focus group to see how the OEB met their first objective!
The OEB report preamble notes: “Distribution rates are designed to recover the costs for the poles, wires, meters, transformer stations, trucks and computer systems that bring electricity from the high voltage transmission system to the individual homes and businesses of Ontario. These charges represent about 20% to 25% of a residential customer’s total electricity bill.”
Well, not in Toronto, as Hydro bills suggest the “Delivery” charge is 33%! So, why does this report start with incorrect facts? It goes on: “The new residential rate design will be a fixed monthly charge only. All distributors will make this change. The specific charge will vary from distributor to distributor, depending upon the costs of the specific distributor.”
So the “fixed monthly charge” varies by distributor, and this report suggests it will continue to vary. Why no benchmarking?
Here is the OEB future: “residential customers that use a lot of electricity and those that use very little electricity will see larger changes. Customers that use a lot of electricity (for example, those that heat with electricity) will see their distribution charges go down; customers that use little electricity will see their distribution charges go up.” How exactly is this an incentive to conserve?
Coming so soon after Minister Chiarelli’s launch of the Ontario Electricity Support Program, this proposal will raise rates for people who don’t heat with electricity and those who use very little electricity. It seems destined to raise distribution rates for certain “low-income” ratepayers.
Another distortion of facts is this statement from the report: “The current framework for conservation is being delivered by Ontario’s distributors with funding and coordination by the Independent Electricity System Operator.” (IESO)
Now who has “little understanding”? The author(s) seems blissfully unaware conservation funding is paid by ratepayers in the commodity charge via the Global Adjustment (GA). The error is later corrected: “Every dollar in distribution charges that a customer saves through conservation is subsequently recovered from customers.” So, funding doesn’t actually come from IESO just like the commodity cost, i.e., every dollar we lose exporting surplus generation (lots of it wind power) is recovered from customers via the GA.
Further on in the report the issue of benchmarking is sort of raised: “The new distribution rate design simplifies one aspect of electricity rates. It will also allow for clearer comparisons between distributors.” Does that mean customers will be able to choose a distributor, or simply look longingly at those who are more efficient? One should expect it will be the latter.
Bill impacts projected by the OEB:
“ We analyzed the bill impact for the residential customers on eleven distribution systems, or about 850,000 customers1..
• About 57% of customers will see no change, or will see a bill increase or decrease of less than $5 per month.
• About 21% will see a bill decrease of more than $5 per month.
• About 22% will see an increase of more than $5 per month.
That means 22% of ratepayers will experience a minimum increase of at least $60 annually, and perhaps half of the 57% will experience an increase in the range of $30/40 annually. Without factoring Hydro One’s customers into the “analysis,” this writer is skeptical those numbers will translate to their client base—as one would expect rural clients will be hit the hardest as Hydro One has the most “poles, wires, meters, transformer stations, trucks and computer systems”.
This begs the question: is this simply a way to fatten up the profitability of Hydro One before Premier Wynne sells some or all of it off?
Further on in the report we find this interesting claim suggesting LDCs will no longer need to apply for rate increases because of our conservation efforts: “The more successful distributors are in achieving these conservation targets, the greater the bill savings for customers.”
This ex-banker reads that as, because most of the delivery costs will be fixed, the LDC’s revenue base will have increased and they will not care if you conserve or not because they are getting additional revenue via the higher “fixed distribution” charge. No skin in the game!
The authors of this report apparently see it the same light: “Stable and predictable revenues improve a distributor’s cash flow and also improve credit worthiness.” An improved cash flow would suggest this increases the ability to sell off a chunk of Hydro One at a higher price as the following suggests: “While a number of stakeholders were of the view that the return on equity should be reduced, distributors were of the view that no change would be justified. This issue raises a number of important considerations and requires more extensive analysis, all of which is beyond the scope of this consultation.”
Justifying increased fixed distribution rates, no matter the consumption, was not “beyond the scope of this consultation” but reviewing the “return on equity” apparently is?
There is more: “We are phasing the change to reduce the impact on those customers whose bills will increase. The rate changes will begin in 2016 and will be completed in 2019.”
In other words, we have been guaranteed distribution rates will increase for the next four years by the OEB who take orders from Bob Chiarelli, Minister of Energy.
We ratepayers with “little understanding” should be thankful our Liberal government is instituting distribution pricing to “benefit” customers?
Sure, and the gas plant moves cost only $40 million!
© Parker Gallant,
April 5, 2015
1. Based on the number of customers, Hydro One was obviously not included in the analysis.