Hydro One billing: “creative accounting”?…..OR…”highway robbery”????

Posted: September 19, 2012 in Uncategorized

It just keeps getting better and better. Gone are the old days of gun-toting bank robbers and gangsters shooting it out on the streets in front of the bank they just robbed.

The new “banksters”  go to school for 20 years and take financial courses and computer training and when released on the world of finances they create scams that are so complicated and intricate that most people without higher learnin’ usually have their eyes glaze over after a few sentences describing how so much money was stolen from the people’s pockets aka. 2008 Financial Crisis (robbery)

Here is a report on how Hydro One has created a new way to hide it’s liabilities, increase it’s profits and free up more $$$ for administration and probably “bonuses” for the “overseers” of the operation.

Hiding expenses in their annual report will of course eventually show up once again on consumers bills but what the HE”……it’s all good for now!

Wouldn’t want to force management to take a haircut like the “common Bozo on the Street” has to because of the financial  grifters that have basically ruined the world!

To do this, Hydro One got the Ontario Energy Board to approve a new accounting practice that is used in the Unites States of America instead of the old tried and true GAAP according to Canadian best practices!

How is that working out for the U.S.A…………..not too good eh?

If Hydro One releases it’s Quarterly Report does Anyone Notice?

Hydro One put out their press release August 9, 2012 and the media barely noticed. The press release announced “net income of $169 million and revenues of $1,359 million” for the quarter ended June 30, 2012. This was $27 million (19%) ahead of the 2011 Quarter and for the six months was $25 million (7%) over the comparable 2011 period.

Hydro One’s distribution of electricity fell by 2% or 300 million kWh (kilowatt hours) in the first 6 months of 2012 and in a competitive private sesctor business one would have expected operating costs to fall. For Hydro One they increased by $18 million. The reduction in distributed kWh should have caused a drop of $45 million in gross revenue but Hydro One, granted rate increases by the Ontario Energy Board (OEB) in their two businesses, showed a revenue increase of $99 million.

Hydro One also embarked on an accounting change allowing them to claim an additional $11 million in net income.

Looking at this accounting change is noteworthy because it means Hydro One pulled a fast one on the Ontario Energy Board when they received approval for “a rate increase of approximately 9.3%” for their distribution business and on page 14 of their 2011 Management Discussion & Analysis report said the following in respect to the reason the rate increase was blessed:

“Our 2011 revenue requirement was adjusted to reflect the OEB’s decision to decrease OM&A by $40 million and was also adjusted to reflect a $44 million capital program reduction. “

Hydro One subsequently submitted another application to the OEB asking for a change in their accounting system. They applied to the OEB to change from Canada’s version of GAAP (Generally Accepted Accounting Principles) to US GAAP and received the OEB’s blessing which basically allows them to bury OMA increases in fixed assets. That was the “fast one” they pulled off. In the past Hydro One was able to capitalize about 39% of their pension allocations but US GAAP allows this to increase to 53% (Note 9, page 41 of their MDA for the 6 months ended June 30, 2012). The switch from C GAAP to US GAAP, allowed Hydro One to allocate an additional $11 million (6 months to June 30, 2012) of “pension costs” to “Fixed Assets” decreasing their expenses by a like amount. The change to US GAPP also impacts monies allocated from Hydro One’s Operations, Maintenance & Administration (OMA) costs (capitalized at the same rates as the pension allocations).  For 2012 they estimated capitalized labour at $152 million on budgeted fixed asset expenditures of $1,178 million).  The extent of capitalized labour and pension costs in Hydro One’s “fixed assets” (reported value in excess of $25 billion; pre-depreciation as of June 30, 2012) is unknown but one must assume it represents billions.

Hydro One is the only publicly owned distribution or transmission company in Ontario granted the right to use US GAPP.  Their application before the OEB; received objections from several interveners due to the future implication on rate increases for the distribution and transmission (market share 25% and 96% respectively) businesses.

The conversion allows Hydro One to defer rate increases for capital expenditures to build transmission and distribution capacity to connect renewables to the grid and alleviate immediate “billing increases” and push consumer backlash to the future, while growing debt (+$662 million year over year), maintain credit rating scores, allow salaries to grow, pensions to remain indexed and the Liberals to continue the push for upstream dividend payments (+$227 million year over year).

Future governments will face similar circumstances to those that have surfaced in the education sector where they will need to confront the lack of oversight on spending.

The lack of oversight of Hydro One is indicative of the way the Ontario Liberal Government has managed the energy portfolio for the past 9 years. Instead of creating accountability within the public energy sector they have busily tried to plan our energy future by handing out overpriced contracts for wind and solar generators then caused the publicly owned entities to spend billions to connect them to the grid. Never ending meddling via Ministry of Energy directives is playing second fiddle to creative accounting and the current government simply ignores it while ratepayer bills climb!

Parker Gallant
September 18, 2012

 

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