Why Hydro customers must pay for power they don't use
Kingston Whig-Standard - Wednesday, July 02, 2003
Hydro One's 1.2 million customers may be paying an estimated $70 million annually for electricity they've never used, thanks to a mysterious figure on their monthly bills.
Last June, just after the opening of the electricity market to competition, Thomas Weir noticed that he's being billed for 1.092 times the power that flows through his meter.
Weir, who is retired but has a background in power generation and worked on Air Canada's aircraft fleet for almost a decade, doesn't like to pay a bill with unexplained charges, so he began investigating.
Weir has tried to find someone who could give him a straight answer about the mystery multiplier.
"I was in business for 30 years," said the Tamworth resident. "I would never, ever, pay an invoice like that."
Al Manchee, spokesman for Hydro One, says the multiplier is a total loss factor.
A pamphlet produced for the opening of the electricity market explains the multiplier as a factor compensating for electricity that is lost in the distribution network before it reaches the customer.
The pamphlet, which Weir obtained, was available only by request via Hydro One's open market questions hotline and the Hydro One Web site.
Hydro One has never mailed the explanatory pamphlet to all its customers.
The pamphlet does not explain why the loss reaches nearly 10 per cent.
"As you may or may not know, when electricity is transmitted over distances and passes through lines and transformers, a small percentage is lost naturally," the pamphlet explains.
Weir has been careful to save every piece of literature he has received since August 2001, just in case there was a public explanation lurking. To date, he hasn't found anything.
"If they can bring out all this fancy stuff," he said as he pointed to a sea of pamphlets spread out on a desk, "why can't they make something to explain this charge?"
The Hydro One invoice was redesigned in August 2001, and included the multiplier. Because line loss rates were then included in the bulk cost of electricity, the multiplier was listed as 1.000.
After the electricity market was opened in June 2002, the multiplier changed to 1.092 in accordance with government regulations requiring electricity distributors to separate bundled charges.
When Weir began making inquiries last year, customer service representatives directed him to various Hydro One and government officials.
Weir wrote to officials and received some replies but still does not have an answer that satisfies him.
John Baird, Ontario's minister of energy, implied in a letter to Weir in April that the line loss was mostly due to physical factors.
"When electricity is transported through electrical equipment, resistance causes some energy to be converted to heat, which is then lost to the environment ... as a result, an electricity supplier has to buy more electricity than its customers use," Baird wrote.
While he acknowledges some electricity will be lost due to physical factors, Weir doesn't believe the explanation is adequate.
"Baird can't say anything publicly because every electrical engineer would be jumping all over the place," Weir said.
Glen Wright, chairman of Hydro One, gave Weir a slightly different explanation than Baird. According to Wright, theft of electricity is also included in the loss multiplier on the invoice.
Weir was uncomfortable with the notion of paying for stolen electricity, especially when much of it is used for illegal purposes such as cultivating marijuana.
He also took issue with paying for losses he believed were caused by poor system maintenance " especially line interference from tree branches " and a lack of vigilance where theft was concerned.
Chalking up the entire line loss multiplier to resistance would mean 92 kilowatt hours of electricity is lost for every 1,000 kilowatt hours that reaches a customer.
That represents a loss of 9.2 per cent. Weir says that's too high.
"In all my electrical training any electrical loss over two to three per cent was totally inefficient and unacceptable," Weir wrote in correspondence with Hydro One.
Ted Cowan was the Ontario Federation of Agriculture's representative during Hydro One's distribution rate hearings at the Ontario Energy Board.
The federation, which represents the interests of farmers, took an interest in Hydro One's application because their electricity network serves a largely rural population.
Cowan said electricity line loss is costing the users of Hydro One's distribution system $70 million annually, according to Hydro One figures Cowan has seen.
He also believes that Hydro One's estimates of line loss factors are off, but does not see the same margin of error that Weir sees.
"We feel that nine per cent is high, and we said so," Cowan said. "I think it used to be closer to seven per cent, which would be more acceptable."
Manchee countered that the loss factors were reasonable.
"Our rates were reviewed and approved by the Ontario Energy Board in a public forum," Manchee said.
All electricity rates concerning transmission and distribution are still regulated by the Ontario Energy Board, and are subject to review before approval.
Hydro One's distribution rates were approved on June 12, 2002, the same month Weir noticed the change.
Hydro One justified its higher loss factors as an inherent problem with the lower rural densities its distribution network serves.
The board accepted the proposed rates, but asked Hydro One to look into refining its loss factors so customers could be charged a rate more specific to their situation rather than an average rate charged to the entire residential consumer base.
Manchee said Hydro One is working on satisfying the board's recommendations, and a technical consultant has been brought in to look into the issue.
Hydro One had argued to the board that exact line loss figures for customers would be hard to calculate due to a lack of data.
Major studies of the problem had been avoided because of the "considerable and as yet undetermined expense: involved, according to a decision based on a Hydro One submission to the province's energy regulator.
In contrast, the Retail Council of Canada conducts yearly studies to measure losses in the retail sector and has vigorously pursued the problem of preventable loss.
These losses include customer and employee theft as well as retailer errors and fraud, and are collectively referred to as shrinkage.
In 2001, shrinkage accounted for $3.1 billion in inventory losses, or 1.8 per cent of sales.
Retailers can be quite aggressive in lowering shrinkage, said Gerry Davenport, project manager of the council's resources protection network.
Shrinkage does result in higher costs for the consumer, Davenport said, but because the market is open, competition creates an incentive for retailers to reduce prices by reducing shrinkage.
"The difference is that hydro is a monopoly and retail is not," he said.
Retailers spent 0.6 per cent of their gross sales on direct loss prevention strategies last year, according to Davenport.
In comparison, Cowan believes Hydro One doesn't do enough to counter losses due to theft and physical factors.
"Our major position on line loss has been and still is that companies should not be allowed to pass on 100 per cent of line loss to customers, because there's no incentive to reduce them."
Cowan identified three main contributors to loss factors, including line resistance and theft of electricity. Lowering physical line resistance, however, would give only marginal returns.
"It seems to me that the part that is easiest to get are the thieves," he said. "They are point source losses."
Cowan stressed that on the whole, the federation was satisfied with Hydro One's service.
"We don't think they're doing anything wrong," he said. "Our complaints are around the edges."
Weir has not been the only one to notice the line loss factor on his bill.
Anne Creighton, director of corporate communications for Hydro One, said that confusion about line losses was one of the factors that prompted the provincial government to look into improving billing practices.
The report, prepared by Salvatore Badali of Deloitte Consulting and delivered in March, makes a number of recommendations regarding bill simplification and consistency.
"When Badali was working on the report, the utilities said, `We get so many calls on [line loss factors], and it's so hard to explain,'" Creighton said.
The Badali report suggests incorporating line loss charges back into the bulk cost of electricity.
"Individual consumers have no control over line losses occurring in the distribution systems," the report noted. "Moreover, few people have either the time or the inclination to understand the physics of electricity transmission."
The report also suggests that a mechanism be put into place to encourage electricity distributors to reduce line losses.
"All customers of [electricity distributors] must pay for the line losses of their [distributor], and effectively have no option for alternative service provision, with the exception of moving to a different service area," the report noted.
Creighton said Hydro One would follow the recommendations of the report, but was waiting on Hamilton Hydro's testing of the new bill changes before proceeding.
An unexplained figure on Hydro One bills isn't Weir's only beef concerning electricity. He's also noticed a discrepancy in the provincial government's electricity rebate announced late last year.
Rebates were promised for the period between May 1 and Dec. 1, 2002, assuming a retroactive rate of 4.3 cents per kilowatt hour.
Weir noticed that for months where the electricity bulk rate was below 4.3 cents, the government has actually taken away money from the promised rebate.
"Maybe it's an obsession," Weir concedes, "but companies are pushing the envelope, even though it goes beyond the law, because there's nobody pushing back."
"Somebody has to push back."