Op-Ed: North Bay, Ontario, Hydro customers face 13.4% rate increase

North Bay - Over the past five years, North Bay Hydro customers' wallets are noticeably lighter after $12 million was siphoned from their pockets with the blessing of the Ontario Energy Board (OEB) and North Bay City council.

I recently participated in a rate order application submitted by North Bay Hydro Distribution Limited (NBHDL) to the OEB. Rate orders set the delivery charge that the local electricity distributors (LDC) can charge for supplying electricity to customers. The OEB approves rate changes for Ontario distributors of gas and electricity. In those rates they allow the LDC to include an amount classified as return on equity (ROE). This ROE is not to operate the business of delivering electricity to its customers. The delivery expenses, if the NBHDL is an example, are itemized, forecast, estimated and rehashed in the application until every conceivable expense is included in the delivery charge then the ROE (slush fund) is added. The ROE is calculated and adjusted periodically by the OEB and is based on the current return on Government of Canada bonds plus an added percentage for risk. The current ROE rate is 9.85%. This concept immediately raised a red flag for me because I was curious as to the point of charging customers who are also owners an return on equity! That's essentially taking money out of one pocket and putting in the other. In addition, what risk is involved in running a LDC? They have a captive customer base, no competition, are not subject to normal business cycles or pressures and have a built in rate adjustment mechanism to cover all real and imagined increases in expenses. What I discovered made even less sense. When LDC's show a profit, which they do when they add the ROE to rates, they must pay income taxes at the current corporate rate. In order to retain the full amount of the ROE, NBDHL grosses up the figure to include the taxes payable. The ROE, income taxes and HST added to rates in 2010 will relieve N BDHL customers of $2.75 million during 2010. Where will this money go? Well….we’re not exactly sure since NBDHL is not required to provide a line by line accounting of the dispersal of the funds. We do know that income tax payable (approx $686,000) will go to the Ontario Electricity Financial Corporation (OECF) in the form of a payment in lieu of taxes (PILS). The OECF is a crown corporation set up to handle the $ 30 billion stranded debt left over when the old Ontario Hydro was dismantled because of the myriad of financial disasters that had occurred in that organization. We do know that approx $360,000 will be sent to the Federal and Provincial governments in the form of HST. We also know that in 2008 a $1,000,000 dividend was paid to the City of North Bay by the NBHDL. This dividend was in direct contradiction with a City resolution that indicates that the City does not want any shareholder dividend from NBDHL. NBHDL had to bill its customers almost $1,500,000 in order to retain enough cash to send $1,000,000 to the City. The $500,000 was sent directly into the bowels of the OECF . How much does the OEB want to keep as low a profile as possible on this ROE item? Here is an excerpt from a recent OEB press release . As part of the recent settlement agreement, North Bay Hydro updated its cost of capital to incorporate the Board's recent cost of capital parameters. If you can decipher the meaning of that you are among a very, very small minority. What is means that the ROE, set at 8.01% when N.B. Hydro filed the rate order application, was amended by the OEB during the settlement process to 9.85% and N. B. Hydro took advantage of that fact by amending their application to include the increased ROE. That raised rates by an additional $520,000. Following the rate application process, I gave a presentation to council asking the City to have NBDHL reduce its ROE to zero and save ratepayers $2.75 million per year. The city staff was asked to prepare a report on the matter. The subsequent report addressed issues that I didn't raise and offered incomplete, inaccurate and misleading information on the issues that I did raise and my request was turned down. In the meantime, ratepayers across the province have been burdened with yet another 12% increase in the cost of power. City councils have the power to eliminate the practice of billing ratepayers for a return on investment. With hydro rates 65% higher in Ontario than in Manitoba or Quebec, the situation must be addressed. If the current situation is allowed to continue, NBHDL customers and customers of other LDC"s will continue to pay ever increasing rates for power. One can find out the amount of the slush fund for their particular municipality if they visit the OEB website and click on the "Applications before the Board" link.