Niagara-on-the-Lake Hydro Demands Rate Rethink, Chiarelli Blows Smoke Back (Fire Bob)

This morning, the board of directors of Niagara-on-the-Lake (NOTL) Hydro launched a point-by-point rebuttal to the official Ontario government view that power rates are not yet high enough, specifically calling on Energy Minister Chiarelli to debate with them the province’s electricity situation.

Those directors are:

“¢ Lord Mayor Pat Darte
“¢ Councillor Jamie King
“¢ Mike Galloway, CAO (Staff Representative)
“¢ G. Robert Cheriton
“¢ Jim Huntingdon
“¢ Nicholas Miller
“¢ Jim Ryan (Chair)

Ontario’s battered power consumers — about three weeks away from a worse-than-usual rate increase — should give these seven people and president Tim Curtis a standing ovation. Given the hyper-politicized state of power governance, these individuals will know they have probably got themselves all removed from consideration for the scads of juicy appointments and special favours Wynne’s team showers on those willing to sing the government’s praises.

This afternoon, Minister Chiarelli fired back at the dissident utility.

NOTL Hydro’s rebuttal is sweeping, falling one polite step short of calling for the Minister’s resignation. Referencing the Auditor General’s findings of his government’s gross mismanagement, the utility calls for “immediate and drastic actions”. Every word of their statement deserves careful consideration. Here is that statement verbatim (although formatting might be slightly different):

NOTL Hydro Board challenges Minister of Energy to debate

By, NOTL Hydro – December 9th 2015
The Board of Niagara-on-the-Lake Hydro would like to invite and challenge the Minister of Energy to a public debate on the historical, present and future plans on how to get the cost of electricity down and more manageable for the average consumer. Discussions and input from all interested parties are welcome.

The recently released Report of the Ontario Auditor General (AG report) has highlighted significant mismanagement of the electricity industry in Ontario that has substantially increased the cost of electricity to our customers. To reduce the current and future cost of electricity, it is clear that immediate and drastic actions are required.

As a local electricity distribution company, Niagara-on-the-Lake Hydro deals directly with the electricity consumer and sees the challenges the high prices are causing. Niagara-on-the-Lake Hydro therefore recommends the following immediate actions to assist our customers.

1. Immediately cancel the FIT and MicroFIT programs and immediately cease signing any new contracts. We cannot afford any more above market costs to be built into future pricing
2. Calculate and transfer the present value of the excess pricing in the existing FIT and MicroFIT contracts to the Ontario Electricity Financial Corporation (OEFC) in a manner similar to that done with Ontario Hydro and the Non-Utility Generation contracts at the time of the market opening. This would remove these costs from the current pricing.
3. Re-instate the Debt Retirement Charge for residential customers. It was never right just to eliminate this for residential and not business customers. This charge will be needed to pay down the above excess pricing cost (Recommendation #2) for years and decades to come. Annual transparent reporting from the OEFC will be required to show how this new debt is being paid down.
4. Stop all provincial Conservation and Demand Management (CDM) programs. This will save $300 million per year per the AG report. CDM Is not needed in a surplus environment and consumers will undertake their own CDM activities based on market prices.
5. Review the pricing of exports. While we have no experience in this area other experts have suggested that better prices could be obtained on the excess generation we are forced to export through more pro-active management of this activity.
6. Eliminate the Meter Data Management and Repository (MDM/R). This is a redundant service whose cost is part of the Wholesale Market Service Rate on the customer bill. Local distribution companies get the needed information elsewhere.
7. Eliminate the Ontario Electricity Support Program (OESP). This is a tax designed to fund a social program; support to low income customers. Providing refundable income tax credits would be more progressive and more efficient.
8. Separate the transmission and distribution businesses of Hydro One as proposed in the initial report by Ed Clark. The transmission business would remain publicly traded with private investors and the Government of Ontario could sell additional ownership for infrastructure funding.
9. Break-up the Hydro One distribution business into multiple smaller local distribution companies with local governance. Parts of this business could also be sold to local distribution companies. It is clear from the AG report that management of the Hydro One distribution business needs to be brought closer to its customers. We believe significant cost savings and improved customer service can be achieved by this action.
10. Tender the sale of Hydro One Brampton. We have no objection to the proposed LDC merger but as a taxpayer we wonder if the Government of Ontario is getting the best price for this asset.
11. Restore OEB oversight over all aspects of the electricity industry. A truly independent regulator is needed to protect Ontario electricity consumers. Bill 135 should be amended to provide this.

The cost of electricity for the Ontario consumer has risen by around 50% over the last ten years. Electricity costs are largely made up of generation, transmission and distribution costs. Transmission and distribution costs (for most distribution companies though Hydro One is a notable exception) have largely gone up at around the rate of inflation which has been around 18% (over 10 years). The cost of generation has risen by over 110% during this time. More details as to why the generation costs have risen so high can be found in the Auditor General’s report.

I agree with all of these points, although I have a few relatively minor reservations. #5 asks for a review of export pricing. I see little potential for changes in the way Ontario markets exports to yield better prices. I don’t have an opinion on how to reorganize the Smart Meter data system. I am extremely skeptical that there will be any net proceeds from the sale of Hydro One that can be put to infrastructure. As discussed on this site elsewhere, I continue to think the entire Hydro One sale is a shell game designed to create the appearance of a windfall where none actually exists.

The NOTL Hydro statement leaves off one ingredient I believe will be necessary for the long term stabilization of the province’s power system — something called Ramsay Pricing, that is prices indexed to the elasticity of different consumer’s power demand. Making such a pricing system publicly acceptable would require a regulatory agency with integrity, professionalism, and public standing.

NOTL Hydro’s initiative has got the minister’s attention. Indeed, Minister Chiarelli appears to be in full damage control mode. This report in Niagara This Week (NTW) includes remarks from the minister, apparently issued this afternoon.

NTW reports the minister as “questioning why (NOTL Hydro) wouldn’t have raised any of these issues in person with him when they met in August.” The minister fails to recognize NOTL Hydro’s reference to the findings of the Auditor General, issued only last week. The minister also failed to notice NOTL Hydro’s concerns with legislation only now before the legislature.

NTW reports Minister Chiarelli as “shocked” by the criticism. It appears that the minister is particularly shocked that NOTL Hydro has criticized his rate tricks — selective removal of the Debt Reduction Charge and his new low income subsidy paid for by other consumers. Both of those rate tricks simply transfer costs between consumer groups. Neither does anything to slow the rising overall revenue requirement of the power system. Nothing in the Minister’s response as reported by NTW indicates any intention of the minister to control the system’s ever growing revenue requirement.

I have previously argued that the residential Debt Reduction Charge will soon have to be replaced by a larger tax to fill the hole the government has created in Ontario Electricity Financial’s income with the sale of Hydro One.

One element of the Jan. 1 rates increases + low-income-subsidy story that is so far getting zero attention is that the low income and aboriginal consumers eligible for the low income program are more likely to live in rural areas served by Hydro One than urban areas. Hydro One’s rural distribution rates are way higher than urban utilities charge. Rural consumers are also less likely to have access to natural gas, so they tend to be heavier users of things like electric hot water. For many of these rural consumers, the low income program (if they were registered) would grant back to them less than the Jan 1 increase will take away.

Folks all around the province are asking why Minister Chiarelli hasn’t taken responsibility for the AG’s findings and resigned. Examples of calls for Chiarelli’s replacement include comments in the legislature from Opposition Leader Patrick Brown as well as this, this and this.


  1. We need more LDCs like the this to speak up. They’ve done an incredibly brave thing. It’s always far too easy for sector participants to salute and fall into step. Minister Chiarelli needs to go and fast. The ideas here are refreshing and deserve proper debate.

  2. Brave local LDCs should consider self-generation. N-O-T-L could save its residents considerable money going off the grid !

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