Implementation of the OEB Decision to eliminate the Hydro One Seasonal Rate Class

Hydro One Networks Inc.
EB-2020-0246, EB-2019-0234, EB-2016-0315

OEB is moving forward with the elimination of Hydro One’s seasonal rate class.

The OEB has found that the distribution rates currently charged to Hydro One’s seasonal customers do not appropriately reflect the cost to serve them. In other words, some seasonal customers are paying less than they should be and others are paying more than they should be. A little more than half of customers will see an increase and the remaining customers will see a bill decrease.

To assist seasonal customers in understanding the potential impact of this case on their bills, the OEB directed Hydro One to provide, and seasonal customers should now have received, a Notice that includes a range of possible estimated bill impacts as a result of moving to a different residential rate class. 

The OEB also directed Hydro One to provide plain language answers to a series of questions dealing with many of the matters most frequently raised in the letters of comment and calls from customers which the OEB had received. 

Hydro One provides information on its website that explains how it assigns residential customers to one of three different rate classes: Urban Density, Medium Density and Low Density. These residential rate classes are defined based on (a) how many customers are located in a particular area and (b) how many customers share each kilometre of power line used to deliver the power to them. Assignment to these rate classes is not based on how much electricity a customer uses.

Status of the Proceeding

In September 2020, the OEB issued public notice that it would hold a hearing to review and question Hydro One’s October 15, 2020 Report on Elimination of the Seasonal Class, and Hydro One’s proposed implementation. 

In Procedural Order No. 2, issued May 26, 2021, the OEB determined that further process steps in this public hearing will be in writing. This means:

  • OEB staff and approved intervenors will pose written questions to Hydro One, followed by written replies from Hydro One.
  • Approved intervenors are only permitted to ask questions of Hydro One, the applicant in this proceeding, and may not ask questions of either the OEB or OEB staff.
  • The OEB recognizes that there may be approved intervenors who are new to the adjudicative process. If you have any questions regarding the hearing process, please email christine.long@oeb.ca.

At the end of this hearing, the OEB will decide when and how the remaining steps in eliminating Hydro One’s Seasonal Rate Class will be implemented, including whether rate mitigation is required and, if so, what that rate mitigation should be. The OEB has stated that it will not reconsider the decision to eliminate the Seasonal Rate Class in this hearing.

Background

Hydro One Networks Inc. (Hydro One) has a customer distribution rate class known as the seasonal class. These are residential customers that receive electrical service at dwellings that they do not occupy long enough during the year to meet the requirements for the year-round residential customer distribution rate class.* The dwellings in question can include cottages, chalets and camps.

* Among other things, a customer will be in the seasonal class if they do not live in the dwelling in question for at least 4 days of the week for 8 months of the year. Further details about the seasonal class are available from Hydro One’s website.

 

Determining costs to serve customers

Hydro One, like all utilities, incurs costs to install and maintain the assets that are needed to provide service to all their customers. Once the revenue required to cover those costs is determined, the next step is to divide the costs among all of their different classes of customers based on what it costs to serve each class. This is referred to as "cost causality".

A key factor in determining cost causality is density. It costs less for Hydro One to provide service to their customers who live in more populated areas than it does for those who live in rural or remote areas that require more infrastructure per customer, like poles, wires and transformers, to serve them. For example, if there are 10 customers attached to a series of lines, poles and related transformers, rather than three customers, the costs are shared by more customers and therefore each customer pays less.

In its March 12, 2015 Decision on Hydro One’s distribution rates application, the OEB decided to eliminate the seasonal class and to move seasonal customers into one of Hydro One’s other residential customer classes based on density.

The OEB’s concern was that the distribution rates charged to seasonal customers are not reflective of the cost to serve them.

The OEB was aware that eliminating the seasonal class would cause bill impacts for Hydro One’s seasonal customers, and particularly would cause bills to increase for lower-use seasonal customers. The OEB directed Hydro One to bring forward a bill mitigation plan to address bill impacts for customers whose bills would increase by more than 10% as a result of moving to another rate class. Bill mitigation is a tool used by the OEB to protect consumers from having large bill increases at one time - for example by phasing in the increase over a number of years. 

Hydro One filed its report in August 2015.
 
This follow-up proceeding started in late 2016 in order to consider the remaining steps for the elimination of the seasonal class. At that time, the OEB directed Hydro One to file an update to its August 2015 report, which it did December 1, 2016.

The proceeding was paused in September 2018, pending the outcome of another major Hydro One distribution rates case before the OEB. Hydro One was notified that it would need to file an updated report after the rates case decision was issued. The updated report was filed July 19, 2019.

According to Hydro One’s updated report, a little more than half of seasonal customers would see their bills go up, and a little less than half would see them go down, as a result of the elimination of the seasonal rate class. The report also included a proposed alternative that would maintain the seasonal rate class.

How does the OEB consider motions to review?
The OEB has Rules of Practice and Procedure that utilities are expected to follow. In this way, all interested parties are aware of how the OEB typically deals with different procedural matters. The OEB’s Rules of Practice and Procedure reflect the OEB's goal of ensuring the most just, expeditious and efficient decisions on the merits of every proceeding before the OEB.

  • Under the OEB’s Rules of Practice and Procedure, a review of an earlier decision can take place in two stages. In the first stage, the OEB considers whether there is a question as to the correctness of the earlier decision. This is referred to as the "threshold question". If the answer to the "threshold question" is that there is such a question, the second stage will look at whether the earlier decision should be changed. This is referred to as a "review on the merits".

Recent history of the Case

In Procedural Order No. 3, issued September 17, 2019, the OEB determined that it would consider Hydro One’s proposal to maintain the seasonal rate class as a request to reconsider the 2015 OEB decision. Procedurally, as set out in the OEB’s Rules of Practice and Procedure, requests to reconsider earlier OEB decisions are made as a Motion to Review.

Although Hydro One did not follow the proper procedure to seek a review of the OEB’s 2015 Decision to eliminate the seasonal class, the OEB decided that it would allow Hydro One the opportunity to make its case that the Decision should be reconsidered.

On October 1, Hydro One filed additional materials in support of the motion as well as its submission on the threshold question of whether the March 2015 Decision to eliminate the seasonal rate class should be reviewed.

A separate panel established to determine the threshold question reviewed that aspect of Hydro One’s submission. On March 12, 2020, under file number EB-2019-0234, the OEB issued a Decision and Order that found that Hydro One had cited grounds that have led the OEB to determine that the 2015 Decision to eliminate the Hydro One seasonal rate class should be reviewed.

In Procedural Order No. 2, issued May 1, 2020, the OEB determined that the seasonal rates elimination proceeding would be combined with the motion threshold proceeding, (EB-2019-0234/EB-2016-0315), and would only deal with the merits of the motion. The OEB asked for any additional submissions parties might have on the merits be limited to:

  1. The Board’s "Subsequent Decision to Move to All Fixed Residential Rates."
  2. The ground cited by Hydro One in its submission under the change in circumstances category as "The Subsequent Introduction of Distribution Rate Protection."

The most recent proceeding was to examine whether these two changes should cause the OEB to take a different approach to the elimination of the seasonal rate class. 

On September 17, 2020, the OEB issued its decision. It found that neither of these two changes in circumstances cause the OEB to conclude that the 2015 decision was incorrect. The OEB has confirmed that the 2015 decision to eliminate the seasonal rate class should stand, and that seasonal customers should be placed into the same classes as other Hydro One customers with similar use of distribution assets.

Having confirmed that Hydro One’s seasonal rate class will be eliminated, Hydro One was directed to file an updated report that includes proposed mitigation measures to smooth the bill impacts for seasonal customers. Hydro One filed its updated report October 15, 2020.

More Information

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Rates

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Ontario Energy Board
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