Every year I prepare a comparison of the delivery rates across the electricity distributors in Niagara (LDCs). The comparison for 2025 for the three primary rate classes (residential, small business and large business) is provided. The rates for Welland are not final as they are nearing the end of their cost of service application. As this comparison uses the latest rates from that hearing, any additional changes will not affect the arguments in this blog.
I perform this analysis to see if NOTL Hydro’s rates are still the lowest in the Region. This year they are but they are not every year. What does not change from year to year is that the three lowest rates are always in NOTL, Welland and Grimsby. There is a reason for this.
I have talked to the Presidents of both Welland Hydro and Grimsby Power and they have the same mandates from their Boards as I have. That is to earn a fair return on equity, which is set by the Ontario Energy Board at around 9%, and to have a long-term objective to strike the right balance between low rates and investing for system reliability and performance.
It is this last bit that is important. This is not the long-term objective of all LDCs. CNP (part of Fortis) and Hydro One are both parts of large publicly-traded companies. Their long-term objective is, most appropriately, to maximize the long-term return to shareholders. As investors we would not have it any other way. However, the impact is that this also leads to the highest rates.
This rate impact is not created by anything devious: both CNP and Hydro One earn the same return on equity and are subject to the same regulations and oversight of the OEB. Rather, if the goal is to maximize the long-term return then it is also to maximize the long-term level of equity on which the OEB set return on equity is earned. This is accomplished by a variety of decisions that have a cumulative effect. For instance, NOTL Hydro may sometime make decisions that do not create a return for NOTL Hydro but do for NOTL Hydro ratepayers. Our actions to reduce the impact of double peak transmission billing are an example of this. Similarly, if a decision is between investing in assets, which increase fixed assets and therefore equity for rate setting purposes, and incurring operating costs then the differing long-term objectives may lead to different decisions. Individually, these decisions are not significant but, as stated, over time they accumulate.
Around 20 years ago, Thorold made the decision to sell their LDC while NOTL opted to keep theirs. The difference between the Hydro One Urban rates used in Thorold and the NOTL Hydro rates is $3 million a year. This is the annual incremental cost that NOTL Hydro customers would have to pay if they were instead supplied by Hydro One. This difference would be even higher if Hydro One’s rural rates were to be applied in NOTL which would likely be the case.
The conclusion is that if you are fortunate to be in a municipality that owns their LDC, you want to keep it that way. A municipally-owned LDC with proper governance, and that is the key, should over time lead to lower rates like has been the case in Welland, Grimsby and NOTL.