Parker Gallant on Hydro One: explaining the unexplainable
Norfolk Power: a good deal for somebody. Not you.
If you are, or could be in future a Hydro One customer there is no reason to cheer about their 2014 second quarter news release … unless you are a ratepayer in Norfolk.
Hydro One’s news release of August 14, 2014 stated the company has received an “approval to acquire Norfolk Power Inc. (Norfolk Power).” The sale price announced last year was $93 million. For the ratepayers in Norfolk that acquisition will mean a five-year holiday from distribution rate increases.
But there is more: Hydro One is now committed to paying 30.4 times the annual profit of Norfolk Power for the year ended December 31, 2013. That price is referred to as the P/E (price/earnings) multiple. The purchase price by Hydro One is pure insanity as the P/E of utility companies trading in the market has traditionally been in the 10/15 times P/E range. Why is Hydro One using taxpayer dollars to benefit only the ratepayers and taxpayers of Norfolk, and why did the Ontario Energy Board (OEB) bless the purchase?
The Hydro One press release had lots of bad news: even though revenue was up by $163 million for the quarter it was due principally to the cost of power increasing by $140 million for the additional 0.2 TWh (terawatt hours) purchased. Doing the math on the extra 0.2 TWh shows a price of $700 per MWh (megawatt hour) or the equivalent of 70 cents per kilowatt hour. That jump pushed the cost of power for the first six months of 2014 for Hydro One customers — up by 17.8%, and 20.5% for the recent three months.
Why is Hydro One paying so much for the additional power? Are all the other LDCs in the same position?
More bad news: Hydro One’s net income was down by $53 million (32%) in the last three months and $70 million (16%) in the first six months of the current year. Comparing the second quarter, 2014 with the same quarter in 2013 shows that profit for Hydro One’s transmission business was up slightly, but profit for the distribution business dropped by $45 million or 53%. What that means is Hydro One will be applying to the OEB for a rate increase for the distribution side.
This was also in the news release, related to the drop in net income: “The reductions in net income were primarily due to higher operation, maintenance and administration costs resulting from increased aging of accounts receivable as a result of a combination of the impact of cold winter weather on customer bills based on increased electricity consumption and prices, as well as our customer service recovery initiatives.”
Translation: they are connecting the reduction of net income to “increased aging of accounts receivable” which is a stretch, unless they ramped up administration costs to collect delinquent ratepayer bills! That might have something to do with the flawed billing system under investigation by the Ombudsman. Or, it could have something to do with “energy poverty” as more and more Ontarians can’t pay the ramped up electricity and distribution costs.
Whatever the answer, it has obviously been caused by one or a combination of all three of these issues which are symptomatic of poor management of expenses, faulty execution of the revamped billing system, and higher energy prices.
Higher prices are the direct result of the push for large-scale renewable power sources by the incumbent Liberal government.
Customers of Hydro One deserve an answers … and the truth.
The views expressed are those of the author.