Government of Ontario should Break-up Hydro One

July 4, 2017

Latest Rate Application Clear Indicator Current approach Not Working

July 3, 2017, Niagara-on-the-Lake – The Board of Niagara-on-the-Lake Hydro (NOTL Hydro) urges the Provincial Government to break-up Hydro One with the goal of reducing distribution costs for Hydro One’s 1.4 million customers.  Hydro One should be split between its transmission and distribution business and the distribution business should be subsequently broken up into regional local distribution companies (LDCs).

“Given the proposed distribution rate increases, it is clear the current model is not working for Hydro One customers.” stated NOTL Hydro Chair Jim Ryan, “Something has to change.”

Hydro One Networks Inc. recently filed its distribution rate application in which it is looking for a 23% increase in distribution rates (based on a typical residential customer) over the next five years.  This rate increase would be more than double the expected rate of inflation and would be in addition to the already substantial rate increases Hydro One has implemented over the past ten years (see chart below).

The proposal to break up Hydro One is supported by the following:

  • Breaking up Hydro One between transmission and distribution was originally supported by the Premiers Advisory Council on Government Assets (the Ed Clark Council).  It was only when the goal became to sell Hydro One that their recommendation changed.
  • Transmission costs have been consistently better managed by Hydro One than distribution costs and transmission is a natural provincial-wide activity.
  • The issue is not that Hydro One’s rates are higher than municipally owned LDCs.  That is to be expected given the nature of the respective service territories.  The issue is that their rates are rising so much faster.  That is controllable and is an issue of management and governance.
  • Hydro One has purchased close to 100 Ontario LDCs over the past 18 years.  The resulting operational savings should have resulted in lower Hydro One rates.  Instead, many of these former LDC customers have seen rates more than double.
  • The experience of municipally owned LDCs, and their lower rate increases, shows that regionally focused LDCs, with a governance that balances profitability and rates, is better for customers.

An analysis would be required to determine the number of regional Hydro One LDCs and their locations.  The determining factors would be the structure of the distribution system and natural boundaries rather than political boundaries.

The recent sale of Hydro One shares would not be an obstacle to this course of action.  A share swap would allow the private investors to own almost all of Hydro One Transmission (this should be less of an issue as is more easily regulated) while the Government would own all of Hydro One Distribution allowing it to make the necessary changes.

The Board of NOTL Hydro has previously urged the Minister and the Premier to take steps to reduce the high cost of electricity in Ontario and has provided concrete suggestions.