(prescript note as of 6 am Feb. 17: Several press reports published following this original post indicate that 460 workers have been offered severance but that the utility expects 280 to accept. This significant element of the utility’s plan is not reported below but has material impact. Note as of 6:45 am: The severance packages seem to have been limited to non-trade staff, which lessens my concern for the immediate operability of the utility.)
This post updates Part 34 of this series where I reported on the latest premeditated wreckage going on inside Tony’s Hydro, this time by way of more unplanned downsizing.
Certain facts in the previous post were wrong. I had reported that 450 workers were targeted for downsizing. Updated information indicates 460 workers are being cut, all of whom are CUPE Local One members. To put this into context, CUPE Local One has approximately 1250 members. The unplanned staff cut is approximately 37% of this element of the work force. If the cut goes through, the ratio of management staff to unionized workers will be approximately 5:8.
I previously indicated that severances offered were 18 months, however it now appears that workers with more seniority are being offered 24 months severance offers. Given the state of the job market for worker with these skills, many will be working for new employers within weeks and many will leave the province.
The severance offers apparently close on February 24th, which means that the utility’s functional capacity to serve consumers is in immediate jeopardy.
The only good news I have been able to collect is that it appears that apprenticeship programs are being protected from Tony’s wrecking bar.
The unplanned downsizing of unionized workers and others now going on will generate a large one time expense for the utility. The best estimate I have for the cost of the unionized worker severance is $60-$70 million but these figures should be treated as speculative. When added to the cost of executive and management downsizing, the cost of downsizing in total is likely to be approximately equal to what would otherwise have been the utility’s expected net income in 2012. Additional costs such as settling contractor law suits, extra borrowing costs in future, additional legal expenses, premiums on future contractor services, and rehiring costs will also be substantial, although some of these costs will not be immediate.
There is no reason to believe that the ongoing loss in work force capacity is sustainable, that the staffing losses will not have to be made up in the near future, or that there will be off-setting benefits for the downsizing expense. The utility has presented no plans that justify its drastic actions.
The staff cuts now underway at Tony’s Hydro directly imperil necessary utility work. I have discussed some examples in previous posts like getting ready to host the Pan Am Games in 2015, storm recovery preparedness, new customer attachments, and coordination of capital work with other utilities sharing underground infrastructure. Without in-house staff to do this work, the utility will be using contractors at approximately the same cost before taking into consideration the severance costs.
I believe the executive team at the utility is deliberately attempting to harm the utility. The Ontario Energy Board must immediately order the utility to report on how it intends to comply with its license.
I may not know all the finer points of the Toronto Hydro-OEB spat but there is one thing I know. Don’t mess with storm restoration. Tony Haines should give a call to Thierry Vandal at Hydro-Québec and ask him how lucky he was to be able to send more than 50 bucket trucks to fix the extensive damage caused by a freak ice storm on the Magdalen Islands in 4 only days, including a 10 hour drive to Souris, PEI and a 5 hour ferry ride.
The 200 workers had to remove and replace 250 poles over a stretch of 55 km under high winds and -17°C temperatures on Monday and Tuesday. This picture tells you how they did it. Shock and awe.
In this business, you never know when the next freak weather event will hit you. And with this round of cuts, Toronto Hydro is really playing fire with the safety of their customers, the people of Toronto. That’s unacceptable.
The actions of Toronto Hydro’s management team are all about union busting. The OEB crisis is just a ploy to conceal this heinous agenda. Make no mistake, “bought out” unionized workers will be replaced with external contractors at lower pay very soon. As Toronto Hydro’s key stakeholder, where is the city in all of this? Noticeably silent. One cannot help but susepect that there is tactit support from Rob Ford. City councillors, MPPs and the public are urged to speak up and demand accountability from Toronto Hydro’s management team. They must not be permitted to tear apart Toronto Hydro’s dedicated workforce.
I don’t get it! From the LDC 2010 filings with the OEB I surmise that: 1. TH has reported capital of $893 million which is 16.3% of the collective LDC totals. 2. Total customers of 700,386 for 14.7% of the collective total. 3. Had capital expenditures of $421 million which represents 23.3% of total capital expenditures for all LDCs and 4. Income of $65 million or 13.7% of all LDCs. TH also had 17% of property, plant and equipment. Oh and profits for the first 9 months of 2011 were $79 million and up $23 million from 2010!
It all seems to line up as if TH are getting their fair share of everything! Why does Tony think the wheels are falling off?
Tony’s capital expenditure budget of $400MM+ per year was rejected, without prejudice to a better application, by the OEB. Capital expenditures, by definition, involve the purchase or construction of new assets, or the replacement of old assets. This budget excludes all normal operating expenditures including repairs and maintenance to facilities. Existing rates, in theory, cover all operating expenses plus depreciation, interest on debt and a reasonable return on capital. As the operating budget supposedly covers the salaries and wages of the existing workforce (with the exception of wages and salaries capitalized in LAST year’s capital budget), I am having trouble understanding how reacting to a lower than expected capital budget (which is likely mostly contracted services, materials, incremental hourly labour and other costs unrelated to the operating budget) requires such sharp reductions to Tony’s workforce.I haven’t reviewed prior year financial statements but it looks like Tony was planning to bury perhaps 20% of his existing workforce salaries (and probably large amounts of other overhead costs) in his capital budget. The OEB would be wise to look back over previous year’s TH filings and see what all they bury in the capital budget. Expenditures on assets should be truly incremental and extend the life of an asset significantly to qualify as capital. Utilities have an incentive to capitalize everything because instead of just passing through a cost, they get to earn a return on their “investment”. If anyone has any insight on this please comment.
Mike, from page 48 of TH’s application EB-2011-0144 here:
http://www.rds.ontarioenergyboard.ca/webdrawer/webdrawer.dll/webdrawer/rec/293851/view/
“Total 2011 Bridge year compensation is forecast to be $242.1 million, with $141.1 million charged to OM&A and $101.0 million capitalized.”
That is 42% of of salary costs capitalized not 20% as you guessed. Bury it and; profits are higher, Tony gets a bigger bonus and the City of Toronto get bigger dividends and the Provincial Treasury gets a higher PIL. It’s a win, win, win for everyone except for the ratepayer. This is what is generally referred to as “creative accounting”!
I have seen this type of accounting before but for different reasons. I’ve seen replacement tires and batteries capitalized and depreciated, staplers and hole punches capitalized (and borrowed against) and normal maintenance intentionally deferred until the expenditures rise to a “threshold” capital item. It doesn’t seem plausible that 42% of salaries and wages should be properly capitalized. The OEB, and ratepayer advocates, should be scrutinizing these allocations carefully, even if it means a hit in the first year. Thank you Parker.
It’s time for refunds
and credits when there are power outages. We’ve had two that infringed on the
so-called ‘off-peak’ period. That robbed us of the ability to use this time for
essential activities around the house. And why are we paying these high rates to
subsidize Toronto’s ‘green initiatives’ with such things as coupons for
discounts on clotheslines, power cables, bulbs, cold water detergent. Then
there’s the software app they want you to use to monitor your daily use online
and the promotional material mailed several times to customers going on to
time-of-use metering. How much money was spent on that? My usage costs are below
the ‘add-ons’ on the bill. Then, on top of it is HST.
Toronto Hydro Corp. Has Lost All The Trust From Their Customers (what a shame)
Toronto Hydro Corp, Needs to Fire All The Current VP’s and CEO, and look into cutting at least 25% of the current CUPE Local One Clowns! and the New Toronto Hydro Corp, will need to start farming out work to Private Contractors do get the job done right and at a lower cost
Santers,
I have admired several interesting posts that you have put up on the Toronto Star site regarding the Toronto Hydro soap opera, but this isn’t one of your better posts. Toronto Hydro is not responsible for the HST or time of use (TOU) pricing nor does it bear major responsibility for most of its wasteful conservation program spending. Your argument that TOU deprives you of time to do essential activities around the house doesn’t lend credibility to this post.
Tom
How much discretion / latitude is there in allocating the portion of salary costs to be capitalized?
Are utilities under less scrutiny in terms of ‘creative accounting’ versus say a public company?
Julian,
It has become more difficult for companies in general to capitalize costs than it used to be. The general principle is that the expenditure is most properly allocated over future years AND that future profits will be sufficient to recover the costs. Auditors normally have to apply these criteria strictly in determining expenses that a company may capitalize. Regulated utilities can be more aggressive. Why ? Unfortunately, the regulator lets the company (and the auditor) off the hook when it approves a capital budget. By agreeing that an expense can be capitalized and recovered (plus a healthy rate of return), the regulator is assuring the auditor of the recoverability of the expense against future profits. Therefore, there is much less risk that an inappropriately capitalized expense will have to be written off prematurely. That’s how Tony can capitalize 42% of his workforce.
I had a look at Hydro Ottawa for 2010 and they claim capital expenditures of $89.5 million and $15.9 million of compensation was capatilized. That $15.9 million was 30% of total compensation much less then TH. Maybe there are rules but it isn’t clear to me what those rules are.
Tom,
Please forgive me, i just brought a thought here and i really hoped that you would of liked it and agreed
There should be a plan or mechanizm put in place right across the electrical distribution system across the board when a black out goes down, in the form of how long the outage is in affect and how long it took before to switch out and switch in everything, Exemptions for weather and act of God, or a car or truck taking out a pole thats also Exempt
If the outage was caused by equipment failure or perhaps staff member knock out a feeder, these funds should be returned back to the rate player by credit
For an example, Tom if your cell phone or cable service gets interrupted and you have an out of service, you can call Rogers and they will credit your account for the interruption and delay, and i think this is a great system and plan, this really helps the company be more honest and care about their networks and also invest in their netowrks to be updated at all times and use top of the line hardware so they can control and minimize any type of outage and delays
Again, Tom thank you for the heads up, and respect, i just want to help make things better for Toronto Hydro and for the tax payer
My Regards,
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