Ontario Electricity Regulation Crisis Report Part 55: Perfect Storm

As Hurricane Sandy bore down on northeastern North America, utilities in its path prepared themselves to reconnect blacked out customers as quickly as possible. Consistent with good utility practice, trouble, forestry, and repair crews scheduled for duty in advance of the storm had their shifts cut short so they could be rested for action. As the storm hit, the extra crews were on the job getting the power back on. Where weather conditions were still too dangerous to complete repairs to overhead equipment, crews were busy sectionalizing broken circuits so that as soon as the winds abated, overhead work could begin.

Toronto Hydro took a unique approach. Line crews were not short shifted to rest up before the storm. Extra line crews were not on duty when the storm hit. The coincidental timing of the storm’s arrival was perfect. Toronto Hydro planned to leave customers in the dark for longer and to focus on a different objective.

On October 29, just before the storm hit, Toronto Hydro issued the following statement:

Toronto Hydro-Electric System Limited (Toronto Hydro) is activating its emergency protocols and is preparing to respond to power outages that may occur due to the storm…Toronto Hydro repair crews will be on standby overnight to restore power where required.

Every element of these statements turned out to be inaccurate or misleading.

On the afternoon of Monday October 29, Toronto Hydro gave an interview to CBC’s Toronto drive-home show “Here and Now” claiming that the utility had “All hands on deck”. That statement would have been reflective of good utility practice but turns out to have been entirely false.

Later on the 29th, the utility issued another statement repeating its claim that it had extra repair and forestry crews on duty. However, the statement also contained an oblique reference to the real plan.

It is important to note that the wind speeds may make it impossible for crews to repair our overhead equipment safely from a bucket. Crews will respond to localized outages and if they cannot be fixed, will make the area safe and return when the winds die down.

Toronto Hydro is ramping up crews to start in the early morning once a complete damage assessment has been obtained and the high winds have died down making work safer for staff.

Very early on the 30th, Toronto Hydro issued a statement containing the following warning:

Customers should prepare to be without power for most of day (sic).

Soon after, the utility issued its next statement with a more pointed warning:

Weather conditions may hamper efforts today and customers should prepare to be without power for most of the day and into tomorrow.

Residents without power are asked to prepare for a lengthy service interruption.

At 9:05 am on the 30th, I posted a note containing the following request for information:

If you have independent information on Toronto Hydro’s preparedness for the arrival of Hurricane Sandy, please contact me.

I have received reports indicating the following:

– the utility only deployed its regular complement of 6 standby crews in last night, spread across the utility’s three yards

– no additional repair crews were deployed

– extra staff were called to be on home standby but not called in to work

– field staff were told to concentrate on isolating safety problems developing over night and not undertake repairs

 Until this information is confirmed, it should be treated as anecdotal.

Although this web site was still blocked on Toronto Hydro’s computers at the time this request was issued, information started to arrive.

On 30 October 2012, at 1:09 pm, I posted a note indicating in part:

I have confirmed from original documents that Toronto Hydro management did not take the decision to defer routine system maintenance and installation work until 7 am October 30…In an email sent out by Toronto Hydro management at 11:54 pm last night, the utility indicated that “Our primary function first thing in the morning is to get organized early enough so our crews can get be productive ASAP in the morning at 7:30 AM (sic).”

Also in that posting, I noted an unusual statement in an internal email. The email was describing the go-slow plan for storm recovery but also included this statement:

We need to track when work becomes CAPEX.

CAPEX refers to capital expenditures. What make this statement unusual is that widely accepted, good utility practice is to charge storm recovery to operating cost, not capital cost.

Late on the 30th, Toronto Hydro’s statement started to plead for public patience. This plea for patience was repeated several times in subsequent communication.

The utility reported that at the peak of the damage on the morning of the 30th about 60,000 customers were blacked out.

Early on the 31st, I learned that the utility had declared a Level 2 emergency sometime prior to October 30 at 7 am and then a Level 3 Emergency at 7 am on the 30th.

Environment Canada’s hourly wind speed records for Pearson Airport for October 30th show that the storm was blowing over at exactly 7 am.

I wrote to Toronto Hydro’s communications department at 5:46 am on October 31 as follows:

Please provide a definition for a “Level 2 Emergency” and confirm when a Level 2 Emergency was declared by Toronto Hydro relative to Hurricane Sandy.

Please provide a definition for a “Level 3 Emergency”.

As of November 15, Toronto Hydro has not responded to that request or to follow-up voice and email inquiries.

On October 31 about 9 pm, the Toronto Star posted “Why Toronto Hydro waited to declare a storm emergency”by John Spears, providing the utility’s spin on its go-slow recovery strategy. Note how Spears failed to check whether any other utility followed a similar go-slow recovery strategy. (It is interesting to observe how frequently John Spears provides exclusive communication service for Toronto Hydro’s corporate spin. Here is one example. Here is another. Here is another.)

The on-line version of the Toronto Star story above contains a hyperlink on one word in the body of the article that connects to this site, although not to content addressing Toronto Hydro’s inactions around Sandy recovery. The print version appearing on November 1 is presented in a way that suggests that the Toronto Star discovered evidence that Toronto Hydro was not prepared for the storm, unambiguously plagiarizing research on this web site.

The Toronto Star story confirmed the key information first reported on this website early on October 30 — that Toronto Hydro did not declare its top level emergency until after the storm had passed, that only five to seven crews were deployed during the storm.

Neighbouring utilities took a very different approach. Enersource Hydro Mississauga, for example, was staffed up and was ready with extra line crews before the storm hit. Mississauga customers were being actively reconnected during the storm.

Toronto Hydro appears to have had to slowest storm recovery of any urban utility in Ontario hit by the storm.

Why did Toronto Hydro plan to not follow good utility practice and instead decide to go slow with the storm recovery effort, knowing it would be leaving its customers in the dark?

The answer is all about money and the utility’s regulatory strategy.

In planning for the storm recovery, the management at Toronto Hydro had their bonuses to consider. During the David Miller era at Toronto City Hall, the incentive plan for management was rebalanced. Reliability was once important at Toronto Hydro. Now, the incentive payments to management are six times higher for spending aggressively on CAPEX than for rapid recovery from customer service interruptions. Cutting operating costs are also a high priority.

Another thing that management focused on was getting leverage on its rate regulator, the Ontario Energy Board (OEB). Toronto Hydro is in front of the OEB right now seeking another big rate increase.

Toronto Hydro has the highest rates of any urban utility in Ontario by a substantial margin. Of Ontario’s ten largest urban utilities, Toronto Hydro also has had the fastest rising rates since 2006. Notwithstanding its high rates, the utility is currently seeking a further 8.4% increase for its core rates for 2012. This amount would have been substantially higher had it not been for an accounting change across the sector and unrelated to management decisions. The rate of CAPEX Toronto Hydro has proposed for recovery in 2012 is 375% of the actual CAPEX in 2006 and more than triple the CAPEX for 2012 proposed by the utility itself in 2007.

Since March 1, 2011 when the OEB issued a letter titled Electricity Distributor Schedule to Apply for Rebasing for 2012 Rates, Toronto Hydro has been locked in a battle with the Board. The utility’s regulatory strategy is laser focused on maintaining its historic fast pace of rate increases.

A key moment in this battle was January 5, 2012, when the OEB issued a decision refusing to allow Toronto Hydro to proceed with an application out of compliance with the Board’s rules. The Board’s decision ordered instead compliance with the established rules applicable to all Ontario electricity distributors. The utility immediately issued a statement claiming that public safety would be impacted by the decision. Soon after that decision, I began reporting on this conflict in this series.

The first posting for the series “Ontario Electricity Regulation Crisis Report”on was January 12, 2012. After reviewing then recent decisions of Toronto Hydro’s management, I concluded: “Taken together, these factors indicate that Toronto Hydro is in a crisis directly threatening its capacity to serve its customers in a safe and responsible fashion.”

Part of the Board’s reasoning in its January 5th decision was that Toronto Hydro’s reliability performance showed no evidence of the system deterioration that the utility alleged. This element of the decision created an incentive to Toronto Hydro to allow reliability to decline.

Toronto Hydro’s current rate application focuses on three topics: a proposed upward adjustment in rate base for 2011, and approvals for high rates of capital spending for 2012 and 2013. The scope of the current review proceeding, as defined by the Board’s decision of August 16, 2012 on the issues to be decided in the case, does not allow for an investigation of Toronto Hydro’s go-slow strategy for reconnecting customers cut off by Sandy.

In setting up its go-slow strategy for Sandy, the timing was perfect. Toronto Hydro knew it was a position to use the customer blackouts as a pressure point without the risk of having to explain under oath in this application its management decisions that kept those customers in the dark.

Some regulatory experts with detailed knowledge of the OEB have forcefully disagreed my comments in September about conflicts of interest when Paul Sommerville moved directly from being a full time Board member to being Toronto Hydro’s VP, Regulatory Affairs and General Counsel. The argument against me was that Sommerville’s reputation for fairness and good judgement while on the Board signalled a new approach toward responsible behaviour by the utility. Although I agree with this characterization of Sommerville’s record as a regulator, I remain concerned about conflicts of interest. The utility’s deliberate go-slow strategy for Sandy response contradicts the theory that Sommerville’s move to Toronto Hydro might be move toward more responsible behaviour.

One of the reasons we have regulated public utilities is to provide emergency services. Cost for this element of service are built into rates. Toronto Hydro customers blacked out by Hurricane Sandy paid for service that they did not receive.

Anyone with information on Toronto Hydro’s response to Sandy or the experience of affected customers is invited to contact me using the contact button above.

What will happen when the next storm blows in?

 

9 Comments

    • If you are interested in the reliability of the power system in Toronto, your other option is to find the right pieces, put them together in the right order, and save the $50. Only someone not paying attention would wait for the Star or the Globe&Mail to figure this out.

  1. Interesting new “business model”, TA. Good luck with it. As soon as I sit at a computer screen I seem to become ~10x cheaper/stingier… What, $0.99 for an app?!? Naaaaah! (Where’s an economist when you need one?)

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