Power Extortion Part 1

Ontario Ombudsman Andre Marin has found Hydro One guilty of “extortion” for threatening to disconnect residential power customers in arrears. He convened a Queen’s Park press conference March 11 to demand:

“Hydro One needs to come clean and say once and for all to the public ‘we won’t disconnect you’ and stop playing these mind games with the public.”

Marin masterfully served up sound bites to the eager QP Press Gallery:

“I’ve shared the big secret with you about the threats being a bluff. I count on you to repeat it to everybody that you encounter in your newscasts so that people can chill and realize that they won’t freeze to death by the electricity being cut out.”

From every corner of the province, Marin is being hailed as a hero.

Or not.

Marin has instead further destabilized Ontario’s already chaotic power system and jacked up power rates even more.

Marin’s press conference appears to have been strategically timed. To sustain his charge that Hydro One is “lying” about customers being at risk of disconnection for non-payment, he couldn’t wait until his investigation completes at least a few month hence.

Starting April 1 in the south and May 1 in the north, Hydro One residential customers in arrears who are not responding to alternative payment plans can, like all gas and electricity customers across the province, be cut off by the utility pursuant to the utility’s collection policy.

Hydro One has said that customers who experienced a billing disruption as a consequence of the troublesome changes in the utility’s billing system last May — a process that generated faulty bills for about 6% of the utility’s customers — have been excluded from its normal collections process for a year.

While Marin is right to criticize Hydro One for false threats of disconnection during winter — like most gas and electric utilities across the province, Hydro One has a general policy against cutting off residents in winter — that wasn’t the limit of Marin’s comments.

Why Pay?

Marin’s repeated headliner that “no one will be cut off” signals to all who hear it that consumers can keep consuming without having to pay.

Does Marin think bad debts just disappear?

Marin’s bombast will seriously harm both those customers who do pay and those who don’t. The former will get higher rates and the later group will face ramped up arrears penalties as well.

Bad debt due to nonpayment is a regrettable but normal fact of business life and properly part of regulated rate recovery for gas and electricity distribution utilities everywhere, including in Ontario. Disconnection is a regrettably necessary collection tool for properly operated gas and electric utilities.

Consumers who don’t pay might think they are sticking it to the big bad utility but instead they are sticking it to their neighbours. An allowance for bad debt is tacked onto rates.

Even before the Ombudsman broadcast his misinformation that paying utility bills is optional, Hydro One was facing a bad debt cost crisis. In 2012, bad debt cost the utility $19 million. In 2013, it surged to $33 million. Hydro One’s provision for bad debt at the end of 2014 per company filings was a shocking $66 million. That’s more than $47 per paying customer.

Electricity affordability is a building crisis, worsened by Marin’s intervention.

Marin is building a fan club based in part on delinquent consumers who associate their delinquency with complaints about Hydro One’s costs. Popular complaints in the mountains of on-line commentary supporting Marin include the usual — executive compensation, the Debt Reduction Charge, and line losses to name but a few.

Those justifying their delinquency with cost complaints are simply changing the subject. Yes there are many good reasons to be concerned about Ontario electricity costs in general and Hydro One specifically, but Marin’s endorsement for dine-and-dash moves Ontario another step toward a Third World power future.

Marin’s use of the term “extortion” in reference to Hydro One’s effort to encourage delinquent accounts is inappropriate. If you are in arrears to a supplier, it hardly constitutes extortion if that supplier refuses you further delivery until your account is cleared.

Campaigning for expanded jurisdiction, Marin has made grand claims about the capabilities of his office. In commenting on legislation passed in December expanding his oversight into municipalities, universities and school boards, Marin bragged “Luckily, making sense of complex bureaucratic issues is what we do.”

There is no sign that Marin is alert to the encouragement he has provided to those teetering toward non-payment or the added burden they will face when these delinquent customers finally face up to their bills.

Neither have I noticed any recognition in the media coverage of Marin’s bloviating that he is laying a big blind side hit on consumers.

Better Consumer Protection: Responsible Regulation

Marin’s stated fear of the possible privatization of Hydro One is that he might lose some of his jurisdiction. On the contrary, if privatization can get Marin off the backs of consumers, that would be another solid reason to pursue it.

Marin has taken over a job properly within the ambit of Ontario’s public utility regulator, the Ontario Energy Board (OEB).

A proactive public utility regulatory agency might be responding to Marin’s ignorant misinformation, alerting the public to the impact on consumers arising from bad debt. However, the OEB is as dysfunctional as the rest of Ontario’s chaotic electricity situation.

The OEB might be reluctant to promote a properly balanced view of bad debt for fear that Ombudsman Marin or other observers might notice that the OEB is ignoring key governance elements of its mandating legislation. The OEB’s noncompliance includes a lack of a statutorily required Chief Operating Officer, only one vice chair where the law requires two, and an illegally constituted management committee to govern the business of the board. Neither is the OEB interested in preventing conflicts of interest at the highest level within the regulator or issuing timely Market Surveillance Panel reports.

Drip, Drip, Drip

When Marin launched his investigation, he announced he “will conduct a systemic investigation into complaints about serious problems with billing and customer service at Hydro One.” Instead, Marin maintains a steady trickle of anecdotal information on billing errors out of context from data on the frequency of such problems or the effectiveness of corrective action taken by the utility when problems do crop up.

Marin’s trickle of press bait over the course of his long running investigation of Hydro One billing practices — 13 month and counting — suggests he using the investigation as a platform to promote the powers and budget of his office.

Shoot the Messenger

Marin’s sweeping assertions that customer payment problems are caused by Hydro One overlooks the fact that even with its high distribution costs — partly due to its low customer density and also strongly influenced by its productivity and legacy of sky-high employee compensation (Hydro One’s executive compensation is generally below market) — its overall residential power rate increases are driven mostly by factors other than distribution cost.

In general, distribution utilities are the bearers of Ontario’s bad electricity news, not its main cause.

Marin is on a roll, now extending his attack to Hydro Ottawa. Here are two tweets he published March 21:

Welcome to “rulitis” at its best! @HydroOttawa’s dumb disconnect policy. Worse than @HydroOne http://www.ottawasun.com/2015/03/20/hydro-disconnect-policies-fair-says-harder?token=685134d322d7bb9adfe7088caa581bda …

We’re @HydroOttawa & we don’t care if you freeze to death. #rulitis http://www.ottawasun.com/2015/03/20/hydro-disconnect-policies-fair-says-harder?token=685134d322d7bb9adfe7088caa581bda …

The referenced article reports that Hydro Ottawa’s disconnection policy allows disconnection after March 15. By referring to Hydro Ottawa’s policy as “worse than Hydro One”, Marin appears to be referencing the March 15 vs. April 1 policy difference, cleaving to his opinion that disconnections should never be used.

Marin’s libellous attribution of intent to Hydro One, that the utility doesn’t “care if you freeze to death” is backwards. More consumers are sure to freeze in the dark if delinquent consumers can’t be disconnected.

The referenced article provides little background on the particular delinquency case. Sometimes context is relevant.

The sad fact is that some irresponsible consumers — which may not be the issue in this case — are repeat offenders. Some will game the policies of both gas and electricity utilities around seasonal no-disconnection, stopping payments in November.

Root Cause

In his March 11 press conference, Marin suggested in response to a question from the press that he will be exploring in his upcoming final report whether excessive capitalism is a root cause of customer problems at the Crown corporation.

“Q: Do you think there is a possibility that Hydro One is just under so much pressure to make money that they went to tactics that are not usually seen in the public sector?

OO: That is a very interesting point that we will be exploring the final report.”

Before he opines on the merits or otherwise of having utilities run as businesses, hopefully Mr. Marin will have an opportunity to investigate more deeply how utilities actually function. For example, why is it that Ontario’s monopolistic, greed-based, profit-maximizing, shareholder-driven gas distribution utilities are comprehensively outperforming Ontario’s government owned and operated power sector?

7 Comments

  1. Sounds like a pissing contest between you and Andre Marin. Quite annoying to read. As for bad debt, i wouldnt call it such as most of the bills that have gone through Ombudsman office are actual billing errors. i read today one person who received bill for $11k+ reduced to $10k once MPP looked into it and after Ombudsman reviewed and worked with Hydro One, correct bill was $123.00 Please use your wonderful writing skills for proper investigating and reporting, because we Hydro One ratepayers could use some assistance.

  2. Tom’s views are balanced and he highlights the mess of the whole electricity system in the province. As the expression goes: “the fish stinks from the head”! Many of the problems that Hydro One finds itself in started many years ago. Some of those problems were driven by politicians listening to the wrong people and some were brought about by Hydro One’s management. On the political side Dwight Duncan mandated smart meters, which Hydro One has proven were anything but smart! They totally messed that up as the AG pointed out, but they were simply doing what they were told by the politicians. Time frames set by the politicos were unrealistic and Hydro One customers have paid the price They were mandated to spend billions on transmission facilities to accommodate wind and solar developments, told to give wind and solar FIT and MIcroFIT contracted parties “first” priority, etc. etc. When you are forced to rush things, mistakes are bound to happen and Hydro One’s management were up to that! Had they pushed back they might have done a better job but it is too late for that now.

    Now on the issue of a new billing system that has failed miserably the blame can be clearly laid at their feet. Launching that without proper testing was a complete screw-up so that should be the focus of the Ombudsman, not the apparent grandstanding that has been evident. People should pay their bills when they are what they should be and the Ombudsman’s job is to work to sort that out and present his report! Report on the screw-ups and make management commit to getting it fixed.

    Better oversight from the OEB would have helped but they too had their powers removed by the ruling party and they have turned into a laughing stock as overseers doing nothing to prevent ratepayer abuse. The British comedy, Yes Minister, comes to mind.

    From my perspective I hope the Ombudsman points fingers at Hydro One and points them up the ladder to those who have occupied the Energy Minister’s chair under the Liberal Party. The fish stinks from the head and Ontario’s electricity sector today is evidence of that.

  3. Pingback: Power Extortion Part 2: Ombudsman Marin’s Review of Part 1 | Tom Adams Energy - ideas for a smarter grid

  4. Pingback: Response to Ontario Ombudsman's disconnection replies | Tom Adams Energy - ideas for a smarter grid

  5. “Consumers who don’t pay might think they are sticking it to the big bad utility but instead they are sticking it to their neighbours. An allowance for bad debt is tacked onto to rates.” I suspect that the reason many of those consumers who do not pay is because they are experiencing a crisis. As for tacking bad debt into rates, good. This help from those who are not experiencing such a crisis will protect those who are. Not as though we need a Mohamed Bouazizi, right?

  6. Most people don’t pay their bills because they simply can’t afford to pay their Hydro One bills and live their lives.

    Yes, there those that do not pay their bills on purpose attempting to make a statement or to simply get away with not paying, and I’d like to think they don’t realize that the company will collect that lost revenue from the other customers…their neighbors etc. Perhaps they don’t understand that a businesses will never lose… They will just charge more…collect more from their customers.

    The biggest problem is the energy poor that this government has created. There are numerous people in this province under Hydro One whose bills are equal to or more than their rent/mortgage. This is what I wish was being investigated… The other half of our bill that’s basically a money grab… a hidden tax

    If we simply paid our electric usage and a bit more like most others do in North America for the maintenance of wires etc. it would be affordable.

    It’s a utility… It’s a necessity… there are people who are losing their homes and walking away from businesses and that simply is it the tragedy in Ontario.

    This liberal government will eventually be known as the ones who ruined Ontario

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