Hydro One ordered to cut administrative budget by $30M over 2 years

TORONTO -- Ontario's electricity customers shouldn't foot the bill for "unreasonably high" compensation for Hydro One's senior staff, the province's energy regulator said as it ordered the company to cut its administrative budget by $30 million over two years.

In a recent ruling, the Ontario Energy Board rejected a Hydro One request to increase its administrative costs and spend more on capital projects. The OEB decision comes as part of a review of a 2016 rate hike request from Hydro One which, if approved, would see rates jump by 0.5 per cent in 2017 and 4.8 per cent in 2018. The regulator will set the rates later this fall.

Hydro One said in a statement that it will review the OEB orders and "determine appropriate next steps".

Natalie Poole-Moffatt, the company's vice-president of corporate affairs, defended the utility's management team.

"Hydro One recruited a leadership team with the necessary experience to deliver on the promises we made to our customers: improve customer service and increase productivity while maintaining reliability," she said in a statement.

In 2015, the government announced it would sell 60 per cent of Hydro One to raise billions it would put towards infrastructure projects.

In the decision, the OEB said hydro customers gain little from the jump in executive salaries that were largely generated by the IPO. The total corporate management costs for Hydro One in 2014 of about $5.5 million are set to increase to $22.1 million in 2018, the regulator said.

"The OEB shares the concerns of ... (those) who question whether Hydro One has adequately demonstrated that the significant increases in compensation costs associated with the parent company's transformation will produce outcomes that utility customers value," the OEB decision said.

It also expressed concern that Hydro One has stopped making progress toward bringing executive compensation levels down to the market median and those efforts have "now reversed." The regulator also said the company's total compensation amounts are likely understated because not all items of Hydro One compensation were included in its rate hike request.

"After considering all of the evidence related to the amounts for compensation that Hydro One seeks to recover from transmission services ratepayers, the OEB finds that compensation amounts in the total (administrative budget) for 2017 and 2018 of $412.7 million and $409.3 million are unreasonably high by an amount of approximately $15 million in each year," the decision said.

The OEB also rejected a proposal to give all of the tax savings generated by the 2015 IPO of the partially privatized company to shareholders. The regulator instead mandated shareholders receive 71 per cent of the savings while ratepayers receive the remaining 29 per cent.

That would drop Hydro One's shareholders portion of tax savings from $81.9 million to $58.1 in 2017 and from $89.6 million to $63.6 million in 2018.

The OEB also ordered Hydro One to reduce its budget for capital expenditures by $126.1 million in 2017 and $122.2 million in 2018.

A spokesman for Ontario Energy Minister Glenn Thibeault said Tuesday that the government's plan to cut hydro bills by 25 per cent will not be impacted by any rate application approved by the OEB. Colin Nekolaichuk said the OEB rate application process has resulted in $278 million in reduced administrative and capital costs.

"This is yet another example of the OEB's strong record of denying hydro companies all that they ask for, and reviewing rate applications with the consumer in mind first," he said in a statement.

But NDP energy critic Peter Tabuns said the OEB didn't go far enough to limit executive compensation or give ratepayers a bigger piece of future tax savings.

"Legally, they could have assigned 100 per cent of (the tax savings) to customers," Tabuns said. "There are billions of dollars that are now going to shareholders that could have kept bills down."

Progressive Conservative energy critic Todd Smith said the OEB decision shows that Hydro One's executive compensation is out of line with other jurisdictions. Smith noted that the OEB report also provides an increasingly rare look into the financial status of Hydro One, which was removed from the purview of several legislative watchdogs after the IPO.

"It takes an OEB report to actually see now what executive compensation has grown to at Hydro One," he said. "No longer are the executives and the total cost to ratepayers known because only the top five executives are required ... to declare what their compensation is."