Much needed reforms could focus on Hydro One employees’ pensions

Hydro One’s distribution arm ranks among the worst in North America.

This article first appeared in the Financial Post.

The employee unions at Hydro One – the Ontario-government-owned electricity distribution and transmission company – oppose any privatization, claiming rates would skyrocket as the private sector puts profit before customers. They don’t mention that they stand to be the biggest losers, if the much needed reforms that might come include cutting the employees’ overly rich pensions.

Between 2010 and 2019, Hydro One’s pension bill will amount to at least $1.64 billion, an amount based on an employee’s three highest-earning years. Most of that tab is picked up by ratepayers – Hydro One employees only put up 28 per cent of their pension contribution. Other public pension plans, such as Ontario teachers, require their members to cover 50 per cent of their earnings. The recent Leech Report of electricity sector pensions called them “generous, expensive and inflexible” and “far from sustainable.”

It’s nearly impossible in the current environment for the situation to change. Hydro One admits that any attempt to achieve “significant” reductions in pension costs – but also wages and benefits – will result in a strike. In the past, the impact of a strike on customers could be mitigated by placing management in staff positions, but Hydro One says management no longer has the “skills or experience” to fill the gap. It admits that it would be unable to keep the lights on in an event of strike. To keep peace and the lights on, pension costs are off-limits in negotiations.

Wages at Hydro One, particularly for its union members (management is not unionized), are also generous. A recent study showed that Hydro One pays its employees about 10 per cent more than its industry peers. In particular, the Power Workers Union employees, which account for about 70 per cent of Hydro One’s total work force, receive wages that are about 12 per cent above the market median.

The Ontario Energy Board (OEB), which reviews and approves Hydro One’s rate applications, recently noted that the company didn’t provide “sufficient evidence” for why it must pay its employees more than its industry peers, adding that high wages mean customers are being asked to “pay too much” for the services they receive.

It could be argued that those costs are necessary – or justified – to ensure that Hydro One is one of the best utilities in North America. Unfortunately, it’s far from it. The distribution arm of the company – which oversees the local wires that deliver electricity to ratepayers’ homes and apartments – currently ranks among the worst in North America, sitting in the fourth quartile – the lowest level – for reliability among North American distributors.

When pressed in its recent rate application on whether it planned to improve its performance, the company said it would be too “costly” and, furthermore, its low ranking is “appropriate” compared to the cost it would take to improve reliability. The OEB called that mentality misplaced, saying it’s the company’s job to look for inexpensive ways to improve its services.

While regulators in countries with privatized distribution companies have created a series of penalties and incentives to ensure the companies are accountable to their customers, no such policies exist for Hydro One. In Victoria, Australia, for example, when a distributor shows up more than 15 minutes late for an appointment, it must pay the customer $15. In the UK, if a customer’s power goes out for more than three hours on four different occasions in a calendar year, the distributor will pay the customer $102. Those are just a few of many such policies in place.

Hydro One suffers no penalty when it fails to show up for scheduled appointments. It has instead argued against penalties. In fact, Hydro One wanted the OEB to exempt it from a guideline that the company contact customers of missed appointments 100 per cent of the time, arguing it should be lowered to 90 per cent – meaning one out of every ten customers would be left out in the cold when it comes to their scheduled appointments with Hydro One.

As for the unions claims that Hydro One should stay in public hands to prevent rates from soaring, the company recently asked the OEB to increase rates by an average of 6 per cent per year over the next five years.

Brady Yauch is executive director of Consumer Policy Institute, a division of Energy Probe Research Foundation.

This article first appeared in the Financial Post.

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