Thursday, October 13, 2016

Speaking Truth to Power - with Tom Adams

Tom Adams
Tom Adams is an independent energy consultant who was recently featured on the Bill Kelly show at our friends at CHML. We touched base with Tom to help us better understand what is driving up hydro costs so dramatically and what can be done about it. Enjoy our chat with Tom. 

1. In a recent interview with our friends at CHML, and on the Bill Kelly show in particular, you stated that Hydro One has hired a new VP of customer service to deal with the fall out of high hydro bills. Part of what is planned is a redesign of the hydro bill, presumably to better explain it. However, you also stated that a significant part of the high hydro costs that we are seeing, and that will again increase in November, is due to the high labour costs associated with distribution and the associated output. The sense being, that we are not necessarily getting good value for our dollar in terms of its relationship to the money spent on labour. If that is true, does it not follow that Hydro One might be better served hiring someone who can performance manage the labour effort, consistent with comparative benchmarks as to what the value for the labour dollar ought to be? If so, why do you think this does not seem to be the emphasis.

The increase coming in November will be on the commodity portion of all household bills across the province, whether you are served by Hydro One or another distribution utility (like Horizon). Hydro One's first priority should be cost control. Bill presentation ought to be a minor concern.

2. What play, if any, does a labour relations environment have on the ability, will, capacity, to address value for money where the cost of labour is concerned?

Hydro One faces a very tough labour relations environment. It has inherited labour agreements that date back to the old Ontario Hydro with massive compensation levels, benefits and post-employment costs. Added to that, the government bought off the unions with H1 shares, which in my view creates a more conflicted situation for labour relations and further locks in existing excessive payroll costs.

3. People continue to make best efforts to conserve and yet we seem to be no further ahead. If we understood you correctly, you stated that there is a sum of money that hydro consumption must necessarily produce- likely in large part attributed to the labour costs discussed in the previous question. If that is true, does it not follow that conserving energy does not have an impact on the costs? We are not suggesting conservation is a bad thing, but can you explain why our conservation efforts are not yielding the reduction in hydro costs that we were led to believe?

The government has been selling a lot of snake oil labelled "conservation". Conservation is saving money, but the savings are almost all being captured by utilities in Michigan and New York. They are the ones taking Ontario's surplus power at a huge discount. The basic arithmetic driving rates is that the total amount of money that must be collected from consumers every year -- called the revenue requirement -- is rising while the amount of power sold is going down. The effect of conservation is to reallocate among different consumers responsibility for an increasing portion of the revenue requirement. The government has a costly program -- the Industrial Electricity Incentive -- whose purpose is to increase usage. Meanwhile, the government also has costly programs to decrease usage. The real purpose of conservation programs is that they are the government's marketing program to sell you higher power rates.

4. Despite the fact that everyone will be impacted by the rising costs of hydro, the less fortunate and the poor will likely be unable to sustain these increases. The cost to businesses may also cause businesses to pass on costs to customers, thus driving up products and services. Why does there seem to be such a disconnect between the reality of these impacts. How can anyone resort to redesigning a bill, when it is the amount of the bill that is the issue?

The government bought into the notion that their green initiatives would pay off with jobs and exports of equipment made by folks who once manufactured stuff like cars. Queen's Park lived in that bubble so long that the government was genuinely surprised to discover that rising rates were causing pain. The recent Throne Speech showed that the only solution the government could come up with was to shift costs between ratepayers and taxpayers. When the government realized that nobody was falling for this ploy, only then did they start addressing the real issues, canceling the ongoing procurement program that would have imposed even more useless wind and solar contracts on us. I think the bill redesign initiative arose from the same thinking behind the Throne Speech commitment to transfer costs to the tax base as a solution to the problem.

5. What advice might you have for the Ontario Government and municipalities in terms of dealing with the high cost of hydro?

- Cancel all the generation wind and solar contracts that we can escape from at low cost.

- Cancel the wasteful conservation programs. Rising rates are forcing consumers to conserve.

- Disclose the amount spent paying generators in Ontario to not generate.

6. What other information do you think the average person needs to know about why this is happening and what can be done about it?

If you feel confused by your power bill and what's behind it, some folks at Queen's Park are happy with that.

Thanks Tom for sharing your expertise and insights with our readers. To find out more about Tom and his services, click here. 


  1. It’s true that Ontario’s electricity prices are much higher than neighbouring Quebec and Manitoba. However, that’s because both those provinces have an abundance of cheap hydroelectric power. Ontario doesn’t have that luxury because the demand for energy here is far greater than the amount of hydroelectric power that can be generated in the province, says Mark Winfield, co-chair of the Sustainable Energy Initiative at York University.

    “Places whose systems are essentially 100 per cent hydroelectric, it’s fortunate for them, but they’re not necessarily reasonable points of comparison to Ontario,” he adds. “You need to look at the Californias, the New Yorks and the Michigans and places like that.”

    And in comparison to those places, Ontario holds its own: A recent Hydro Quebec report estimated that earlier this year the average monthly electricity bill, including taxes, was $164.04 in Toronto and $167.95 in Ottawa. In San Francisco, $277.31; in New York City it was $314.35; and in Detroit, $197.21. The report priced all the bills in Canadian dollars, but even when the exchange rate used is taken into account, the Ontario prices cited in the study are still competitive with those other jurisdictions.

    “We’re not exceptionally high [in terms of prices] by any stretch of the imagination,” says Winfield. “We’re sort of middle of the pack.”

    Still, there’s no question the province’s hydro prices have been going up: According to the Ontario Energy Board, the off-peak price for residential users of electricity has gone from 3.5 cents per kilowatt hour in May 2006 to 8.3 now – more than double in less than 10 years.



  2. What’s driving the increase? Is it the cost of cancelled gas plants? Green energy schemes? Rising salaries and benefits for hydro workers?

    Those all contributed. Yet a much bigger driver of electricity cost is inflation. The University of Toronto’s Don Dewees has found that between 2000 and 2010, inflation accounted for almost half the increase in cost for the average residential consumer. Since then the rate of inflation has slowed, but Dewees estimates it is still responsible for somewhere around 30 per cent of electricity price increases in recent years.

    The government’s much-criticized renewable energy projects also account for some of the cost, but not as much as many people seem to think, according to Jack Gibbons, chair of the Ontario Clean Air Alliance.

    “The rising rates now are driven partly because they’ve been paying high prices for wind and solar through the feed-in-tariff, and that’s what people like [Progressive Conservative Leader] Patrick Brown only talk about,” he says. A much larger factor, says Gibbons, are the costs associated with the province’s nuclear plants.

    Looking at what’s called the global adjustment (GA) shows just how much more nuclear has driven rising costs than any other form of generation. The GA is a surcharge on the province’s electricity bills that covers a variety of costs including closing down the province’s coal-fired plants and Pickering nuclear plant, building new generating capacity and maintaining existing power plants.

    A breakdown of the global adjustment shows that nuclear costs accounted for 42 per cent of the GA, while gas-powered generation took up 26 per cent and renewables — including hydroelectric, wind and solar power — accounted for just 17 per cent.

    Winfield says there was essentially no choice but to spend billions of dollars on Ontario’s energy infrastructure by the time the Liberals took office because for about 20 years prior, provincial governments of all political stripes had spent very little on maintaining the energy system and building new capacity.

    “We essentially were living off assets that were built some time ago,” he says. “We were keeping prices artificially low, and we reached a point where those assets began to reach end-of-life and had to be replaced. And in some cases those capital costs proved to be much more than anticipated.”

    However, while much of the energy investments over the past decade were unavoidable, both Winfield and Gibbons say the government erred by deciding to refurbish Ontario’s nuclear reactors.

    “As a result we now have surplus generation, in fact surplus nuclear generation, which we’re often exporting at a loss,” says Gibbons.



  3. "the revenue requirement"= conservation does not equate to savings-they need every penny ever paid, and they will go to any lengths to ensure the stream volume is never diminished-it affords our government the opportunity to off load excess at reduced rates for our neighbors.
    Thanks again.

  4. Herman TurkstraOctober 14, 2016

    There may be another factor. As a matter of public policy, Ontario for as long as I can remember attempted to artificially reduce industrial electricity rates to keep auto and steel makers here. In the process, the system was severely underfunded for at least a generation. What have not heard from Mr. Adams is how much this heritage - which goes back to the Conservatives of the sixties - is a component of our current bills. Its easy to beat up on the FIT system which pays 80 cents for a power unit that often gets sold to Michigan and New York for 4 cents as part of load balancing and capacity needs, but I'm not sure that is an accurate proportional analysis of the real nature of our current costs. And comparisons to Quebec and Manitoba are just silly. They use water power which we do not have. I'd like to see comparisons to Ohio and Michigan and Pennsylvannia.


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