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Frequent contributor to the Financial Post, energy commentator Parker Gallant noticed the story in the Ottawa Citizen on Hydro Ottawa and its struggle with “smart” meters, and sent this along.

Smart Meters not smart enough to suit Hydro Ottawa

The people who run Hydro Ottawa exhibit the same traits as our teens when Apple or Samsung announce the launch of a new i Pad or smart phone–they want the latest gadget. So, Hydro Ottawa trotted off to the Ontario Energy Board (OEB) with a request that they be allowed to accumulate the costs associated with replacing 96,000 smart meters because the newer models had a few new apps.

Once they completed the conversion they would then seek a rate increase.

The OEB declined to approve the conversion concept however, so any of those costs will have to be absorbed by Hydro Ottawa or by their only shareholder, the City of Ottawa. That may result in reduced dividends ($18.6 million in 2012) being paid to the city, and in a mill rate increase depending on how well Hydro Ottawa manage their costs.

The OEB did grant a rate increase of 1.4% which will add an average of $8.28 annually to the delivery line of Hydro Ottawa’s bills or, as Energy Minister Bob Chiarelli might say, the cost of five Tim Horton’s coffees.

It is disconcerting to learn however that, while the OEB declined the smart grid upgrade, the OEB did allow Hydro Ottawa the right to collect 50% of legislated tax changes (capital tax related) from ratepayers as noted from the OEB’s decision on that issue:

EB-2013-0143 In its Supplemental Report of the Board on 3rd Generation Incentive Regulation for Ontario’s Electricity Distributors, issued September 17, 2008, the Board determined that a 50/50 sharing of the impact of legislated tax changes between shareholders and ratepayers is appropriate.

The Application identified a total tax change of $142,451, resulting in a shared amount of $71,225 to be collected from rate payers. Hydro Ottawa requested the Board authorize the recording of this amount in Account 1595 for disposition in a future application given that the associated rate riders are negligible. The Board agrees with Hydro Ottawa’s request and directs Hydro Ottawa to record the tax sharing debit of $71,225 in variance Account 1595 by March 31, 2014 for disposition at a future date.

While the cost of the tax sharing will be negligible, it is worth remembering back to when the province lowered the corporate tax rate. That considerably reduced the tax allocations, referred to as “Payment in Lieu of Taxes” (PIL), that the local distribution companies (LDC) were directing to repayment of the “Stranded Debt”. What happened then was the extension of the time required to pay out the “residual stranded debt” via the Debt Retirement Charge (DRC) we find on our electricity bills. The drop in PIL payments did not reflect itself in reduced distribution charges or reduced electricity charges at that time. 

Now, with local distribution companies (LDCs) suddenly facing new or increased taxes, the poor ratepayers are expected to simply cough up more money. The people running the LDCs and the OEB must believe the Ontario ratepayers have bottomless wallets.

Parker Gallant,

January 7, 2013

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