In the regulatory conflict between Tony’s Hydro (formerly Toronto Hydro) and the Ontario Energy Board, one the strategies rogue CEO Anthony Haines is using to inflame the conflict is to harm the utility with unplanned downsizing.

Here are the job descriptions that I have found Tony whacking so far:

– mechanics with specialized skills who work on highly regulated man-lift equipment
– cable pullers experienced with Toronto Hydro’s restricted access underground systems
– mobile crane operators
– work dispatchers

Corrections and additions to this list would be most welcome.

This list makes me very concerned about the operational capacity of the utility.

I believe that the current situation is causing significant stress on employees inside the company.

Why would the utility’s board of directors allow management to go ahead with this unplanned downsizing?

The directors must have  been convinced by management that, at minimum, the utility’s regulatory strategy will recover the associated costs.

What is the most utility’s likely regulatory strategy?

I speculate that Toronto Hydro is about to file an incentive regulation application with the OEB containing two main components: a “Z Factor” to recover what the utility will refer to euphemistically as “restructuring costs” and an Incremental Capital Module containing a large fraction, or all, of the capital budget requested in the utility’s original application for rates based on a cost of service approach for the period 2012-2014.

In Part 3 of this series, I commented on the credibility problem the utility has justifying its bloated capital request given that only a couple of years ago, the utility’s long term capital plan proposed hundreds of millions of dollars of less spending.

A “Z Factor” is a regulatory mechanism designed to allow utilities subject to incentive regulation to raise rates to recover one-time, unexpected expenses beyond management’s control. The largest component of the “Z Factor” application I expect will be severance costs. In contrast to the chaos in THESL’s capital planning since 2007, the utility has maintained a straight, sensible story on labour force planning. Key features of the utility’s evidence over a period of years on work force planning are that a rush of retirements of skilled workers is coming due to demographics, skill replacement requirements are acute, successful apprenticeship programs require planning and several years lead time, and Toronto Hydro needs to build its reputation to attract new hires. The OEB has allowed substantial budget increases to fund work force renewal.

Years of the utility’s sworn evidence directly contradicts the ongoing radical, unplanned downsizing.

If the regulator was to deem downsizing as an accepted “Z Factor” in the face of impending mass retirements and contradicting years of recruitment initiatives, that would create a regulatory precedent where utilities would feel indemnified for self-inflicted wounds. The moral hazard implications of such a ruling would have sweeping negative impacts on the public interest.

Tony’s Hydro (formerly Toronto Hydro) has little realistic prospect of being able to recover all the costs of management’s hissy fit from ratepayers. Instead, Toronto taxpayers are going to take a large financial hit.

The careless irresponsibility of Toronto City Council snoring soundly while rogue CEO Anthony Haines, with the support of the utility’s board of directors under the leadership of Clare Copeland, throws away yet uncounted but vast taxpayer value illustrates one of the risks peculiar to government-owned utilities.