Enwin Rates

7/29/2019 Enwin Rates

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Id like to start of this evening by reading to you excerpts from the

first section of the Ontario Energy Board Act, which deals with the

responsibilities of the Ontario Energy Board.

The Board shall be guided by the following objectives. To protect the

interests of consumers with respect to prices and to promote costeffectiveness in the distribution of electricity.

In other words, one of the main reasons for the existence of the

Ontario Energy Board is to represent Ontario electricity consumers vis

vis local distribution companies when they are setting rates for the

delivery of electricity.

I think that by the end of this evening you will agree that they

definitely deserve a failing grade regarding the accomplishment of

these legislated objectives.

Because of the nature of this exercise some of the figures presented

here are estimates and sometimes even the figures that are exact are

estimates. However, they present generally the situation as it exists

and certainly can be taken as accurate enough to illustrate the points I

am trying to make and magnitude of the situation.

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Here we see that delivery rates are approved every four years by the

OEB. Ordinarily, the next COS application for Enwin would have been

submitted and the rates established to come into effect on May 1,

2013.

However, in July 2012 EnWin applied to forego that application in

favour of another Incentive Rate Mechanism adjustment to rates.

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Your hydro bills at home probably look something like this. You have

the cost of electricity which is produced by Ontario Power Generation

and the Bruce nuclear station. The power is then delivered by Hydro

One, who own most of the transmission lines in the Province, to local

distribution companies like Enwin Utilities. The price paid for power is

the cost passed on to Windsor ratepayers.You also have regulatory charges which are charges made by the

Independent Energy System Operator (IESO) to monitor the price and

flow of electricity from the generators to the transmitters who send it

across the Province to distributors like Enwin.

You have the Debt Retirement Charges which were originally added to

bills to help pay down the stranded debt leftover from the former

Ontario Hydro. This debt has been paid off for several years but the

Province continues to collect the money. The Auditor General

indicated in his 2012 report on the governments green energy

strategy that they have already collected about $1 billion more than

the original and that they are basically collecting this amount under

false pretenses.

Then you have the HST and the Ontario Green Energy Benefit

amounts. This is where the government takes your money with one

hand and gives it back with the other. Basically, a shell game.

So that leaves the Delivery Charge portion of the bill which is the

section we are going to deal with here since it is the only section

totally within the control of EnWin Utilities

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To begin lets start with an explanation of what is included in that

delivery charge by looking at the amounts included in rates which

began on May 1, 2009 and will continued on until April 30, 2014.

We have expenses in the amount of $39.5 million including deemed

interest which we will explain further in detail later.

Enwin adds a return on equity of $6.4 million and an amount to coverthe estimated income taxes on that amount of $1.3 million.

The amount of $47.3 million to be collected from customers is broken

down into two portions, one being a fixed monthly charge and the

other is based on the amount of electricity that is used by the

customer during the month.

After deducting the expenses shown above, we get an excess of

revenue over expenses of approximately $7.7 million and if we add

the estimated HST on that amount, we arrive at an over payment for

2009 of approximately $8.0 million. Of course, $1.7 million of this

amount is taxes and provides no benefit whatsoever to ratepayers or

EnWin Utilities.

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So taking this one step further, here is the total cost to ratepayers for theyears 2009 2012 that results from adding a return on equity to hydro bills.In the real world, a return on equity is meant to reward investors for theirinvestment in a company. Those returns come from what investors hope willbe the profitable operations of the company. But when the owners of thecompany and the investors in the company are the same people, as is thecase here, this scenario does not work and makes no economic sense.

In other words ...charging yourself for a return on equity not only takesmoney out of your pockets but also creates taxable income which requires aportion of those funds to the Government.

In 2009, Enwin collected an excess of $8 million which created an excess ofrevenue over expenses $6.4 million profit. Similarly in 2010 and 2011 and inthe current year.

So we have a total for the four years of $32 million in charges and have hadto send $11.8 million directly to the Ontario government for taxes.

Now we take a look at where the money went. You have to pay the taxesfirst and then the dividends come out of the remaining amount.

In 2009, $6 million went to the Province as taxes and $4.0 million went tothe City as a dividend. In 2010 it was $2.1 million and $2.25 million. In 2011,it was $1.8 million and $3.75 million and in 2012, I am showing estimates of$1.8 million and $4.0 million.

(Conclusions)

If the City tried to find a more expensive way to raise funds they would behard pressed.

Tax figures taken from financial statements.

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I mentioned the deemed interest when discussing the 2009 cost

estimate.

Here is that deemed interest figure and the actual interest figures

which were taken from the EnWin financial statements for the years

2009 2012.

What we have is Enwin charging over $15 million in excess interest to

ratepayers over the last four years. This is just a fictitious

expense......pure and simple.

This excess goes right to the bottom line and incurs tax and HST

liabilities.

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Here is another item added to bills during this period that earns the title of fictitiousexpenses.

What I intended to have here was a comparison of the taxes paid during the period2002 and 2006 by EnWin and the taxes collected. I had originally constructed thisslide to illustrate the situation in North Bay where I had access to all the tax returnsfor that period. However, I could only find the Federal return for 2008 for Enwin.

However, I think the chart can serve to illustrate a point

What the chart indicates is the amount collected for taxes during the 2002-2006period was approx $32 million. That amount was almost certainly more than Enwinpaid during those years.

Subsequently the OEB got the idea that LDCs compare what they had collected intaxes for those years and what they had estimated for those years and allowdistributors to collect the difference.In addition, the OEB suggested that interest could be charged on the balances.

So beginning in 2012, Enwin added approx $4.4 million to customers bills for thisfictitious expense. There was no liability for these taxes, these taxes are not owingnor will they ever be paid. These amounts are nothing but a fictitious expense andwill go right to the bottom line further increasing revenues over expenses and ofcourse attracting tax and HST liability which will be sent to the Government ofOntario.In addition they charged approximately $835 thousand in interest on these fictitiousincome tax liabilities.What other organization have you ever heard of that charges its customers forfictitious interest on a fictitious cost that deals with items that are ten years old!

As we can see the total over charge for the taxes for 2002 2005 will amount toover $5.2 million dollars and is included in your bills as a rate rider until April 30,

2015.

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The calculation of a rate base is done to attempt to determine

financing would be required to start a company like EnWin Utilities if

it were a company in the real world.

The working capital that the OEB calculates would be required is 15%

of the sum of controllable expenses which is all expenses lessamortization and interest plus the cost or power.

We can see that this figure comes to approx $28 million.

The rate base is calculated by adding that figure to the average book

value of the fixed assets (average of figures at the beginning of the

year and the end of the year).

This $200 million figure represents what would be required to start up

Enwin from scratch. The financing would come from lenders at 60%

and investors at 40%.

The OEB using bank interest rates, long term bond rates and risk

factors comes up with the various interest rates to be applied to the

portions of the rate base in each category.

This gives the deemed interest and return on equity figures that

EnWin charges ratepayers for the year.

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