Ont. high hydro cost

[Topaz]

Just finish reading in the Financial Post that one of the reasons for high cost to hydro in Ontario is the pension funds for Ont.Power Generation and Hydro One. Apparently, together they are about 4.8 Billion in the red on their pensions. To get the 16,651 workers up to retirement, each worker would have to lay out $8200.00 to ensure their retirement but since these are public, WE, the taxpayers are paying about 50% of that thorough our hydro bills, especially under delivery charges. During the Ontario election, an expert said that Ontario hydro bills were higher than the US citizens because of all the ADD-ONS that hydro puts. I guess this is what he meant. Thoughts? What about other provinces??

[scribblet]

Do you have a link to that article please.

They do have a pretty lucrative pension plan but as long as it’s the usual 50/50 what’s the problem? Is their pension different from other defined plans e.g. based on age and years of service factor so 35 years would get you 70% of the average of your best 5 years at age 55 (depending on years of service). I’m pretty sure CPP is built into it also, it's not stacked.

Sure Hydro customers pay for it really, but hydro is an employer and the union has bargained for the benefits. I don’t begrudge decent pensions to people as long as the employees pay their share.

The same goes for the teachers’ pension plan that we the taxpayers pay for. Back in ‘89 the Liberals bought into an auditors report that the teachers pension plan had an 'unfunded liability' and if I remember there was no another independent audit to confirm the findings.

So, 1989, the Ontario provincial government identified that the pension plan had a large initial unfunded liability which they estimated to be $4 billion. At the time, the plan was solely sponsored by the government, and so the Liberal government of the day agreed to pay off this debt through a schedule of payments over 40 years from 1990 to 2030. In 1990, the plan's actuary determined that the debt was actually $7.8 billion.

In 1992, the NDP government entered into a pension partnership agreement with the Ontario Teachers' Federation. Under the terms of the agreement, plan sponsorship was shared. However, the government remained responsible for the initial unfunded liability and continued to make both matching contributions and the special payments to pay off the plan's debt.

By 1998, the PC government was determined to eliminate the initial unfunded liability which, by then, stood at $8.4 billion, through the use of actuarial gains in the teachers' plan. This was negotiated successfully with the OTF, and the last special payment was made on April 1, 1999. So… what about the teachers plan and the taxpayer funding that one… same thing really.

Edited June 26, 2014 by scribblet

[Bob Macadoo]

Couldn't find any recent Post articles on this, you must be just trawling for data. I do see the Post likes to talk about this via zero regulation mouthpiece Catherine Swift of Canadian Federation of Independent Business.

Hydro production viability has been destroyed by the segregation & privatization of services (generation, transmission and distribution). Public pensions are not in the distress the financial gurus would have you believe. They are making the same and in most cases better investments than your RSP has.....returns are great. I actually talked to people who believed that the gov't was paying pension cheques to retirees, literally 100% right from their taxes. They never thought it was from returns. The rhetoric must be really compelling to the sheeple.

[scribblet]

Are you talking to me? I didn't need to 'trawl for data' I had an interest in pensions so kept the info. Teachers' pensions are also paid by the taxpayers per se and every public organization that has a pension plan. Are the employees not entitled to a pension ?

The Green Energy act and the Liberal gov'ts actions are part of the reason Hydro One is experiencing a loss of revenue .http://opinion.financialpost.com/2013/07/09/ontarios-power-trip-retirement-deficit-coming-to-your-hydro-bill/

In the case of OPG and as a consequence of the Green Energy Act, the addition of wind, solar and gas generation via private contracts executed by the Ontario Power Authority has created a huge surplus of base-load power in the province. To deal with this surplus, OPG is often forced (without compensation) to spill cheap clean hydro power and lose the associated revenue. That has driven down OPG’s revenue and profit, meaning it is less able to fund its pension obligations. It has also been directed by the Liberal energy ministers to spend $4.2-billion on major projects which will add marginal additional hydroelectric generation capacity that may wind up “spilled” as more wind and solar are added to the grid. The profitability of OPG is also hampered by the vagaries of the stock market, due to the nuclear decommissioning fund which amounts to almost $13-billion on its balance sheet.

The foregoing will result in increased electricity and delivery costs for years to come as both OPG and Hydro One cover off their future pension liabilities on the backs of the ratepayers.

[Bob Macadoo]

Are you talking to me? I didn't need to 'trawl for data' I had an interest in pensions so kept the info. Teachers' pensions are also paid by the taxpayers per se and every public organization that has a pension plan. Are the employees not entitled to a pension?

Sorry no to Topaz. I certainly agree with you. I was pointing out the level of rhetoric on this topic and the chaos that results. So much that rational thought is lost. Pension plans are a collective negotiative benefit for both the employer and employee.

The union busters however want you to believe your hydro bills are due to unions and not the mismanagement (political and bureacratic) of direction for our hydro grid.

[scribblet]

Okay... thanks

[Topaz]

Okay people. when I posted the article I did "cut" the link but for some reason IE doesn't do it. So I had to use another browser today and find the article and hopefully it with link. http://opinion.financialpost.com/2013/07/09/ontarios-power-trip-retirement-deficit-coming-to-your-hydro-bill/

[Moonbox]

They do have a pretty lucrative pension plan but as long as it’s the usual 50/50 what’s the problem? Is their pension different from other defined plans e.g. based on age and years of service factor so 35 years would get you 70% of the average of your best 5 years at age 55 (depending on years of service). I’m pretty sure CPP is built into it also, it's not stacked.

It's an insanely lucrative pension plan, one that private sector employees can usually only dream of. The fact that they pay 50% into it doesn't change this basic fact. Paying 50% into a crummy pension is not the same thing as paying 50% into a golden ticket that ensures you never need to save for retirement.

Sure Hydro customers pay for it really, but hydro is an employer and the union has bargained for the benefits. I don’t begrudge decent pensions to people as long as the employees pay their share.

The union bargained for those benefits in a monopolistic market that enables them to hold the public sector hostage. It's a situation where the environment gives them way more bargaining power than they should have, and it's to the detriment of the public. In a private sector setting, companies that offer pensions like this go out of business. GM and Chrysler went bankrupt because something like 33% of the cost of each of their cars were due to paying bloated pension plans that their militant unions bargained for. For a long time this worked, because the Big Three didn't have much outside competition. When Toyota and Honda etc entered the market seriously, however, and were able to offer similar or even better cars for less money (and still have thousands of people line up for jobs at their factories), the gig was up. Unfortunately, we as consumers can't choose not to buy hydro, nor can we choose another provider.

Edited June 27, 2014 by Moonbox

[Bob Macadoo]

It's an insanely lucrative pension plan, one that private sector employees can usually only dream of. The fact that they pay 50% into it doesn't change this basic fact. Paying 50% into a crummy pension is not the same thing as paying 50% into a golden ticket that ensures you never need to save for retirement.

Sorry please explain to me how your pension fund is different from their pension fund? Yes its a defined benefit plan but only so long as there are sufficient employees to make it solvent. Same funding formula you put in X, employer puts in X, the market investment grows it/shrinks it, and there is enough dough for solvency or there isn't. The difference is having the employer borrow against your fund, not make up negative cashflows on their part or other chicanery that robs the fund. These employees have decided to pool their risk, you wish to rise and fall on the market wave by yourself......good luck with that.

[scribblet]

I agree that high paid executives are insanely high, which is what you are probably looking at, but the average Hydro One worker's pension in 2010 was $33,122. a year, hardly insane. Their benefits are bargained for in the same manner other unions such as CUPE bargain for them, and I've seen complaints here about conservatives wanting to lower wages and so on, but here some people seem to agree with it. Part of the reason they have a liability is due to decreased revenue, e.g. selling off hydro cheap

Hydro one is in line with other defined benefit plans and other municipalities who have pensions under OMERS, it is a 50/50 contribution ratio and is integrated with CPP. They also have the ‘bridge’ benefit for people retiring between 60 and 65. The bridge benefits ceases at age 65. I don’t believe it is any better than the teachers’ pension plan, the firefighters and police, are they insanely outrageous too. Would anyone dare speak out against the teachers' pension and the billions paid into that.

It is possible Hydro % is 2.5 rather than 2% which is better than the average, but I'm not clear on that one.

I believe their factor is 80, age + years of service, so someone age 60 could retire on full pension after 20 years of service. Full pension being 40% of the average of the last 5 years earnings. Someone with an average salary of $60,000 and 20 years of service would get around $24,000, 30 years would around $36,000.

http://www.thestar.com/news/gta/2010/06/04/exhydro_one_head_fights_to_increase_25000_monthly_pension.html

I think people are looking at executive salaries/pensions which would be much higher. However the gov’t capped executive pensions in 2013.

A teacher making $85,000 a year would get a pension of $51,000 with 30 years service

2% x 30 x $85,000 = $51,000

[scribblet]

I admit I'm not clear on what this means from the article - I'm no accountant.

What both entities have done for many years is capitalize a large portion of their pension obligations. This is allowed by the Ontario Energy Board (OEB), meaning that ratepayers wind up picking up the pension deficits. In fact it is not unusual for both OPG and Hydro One to capitalize as much as 50% of their required pension contributions along with actual labour costs associated with their build-out of infrastructure. Those capital expenditures allow them to apply for a rate hike from the OEB and it eventually shows up on ratepayers electricity bills as either electricity or delivery costs.

If I understand it correctly, Hydro is taking 50% of their pension contributions out of the pension fund to use for other purposes e.g. infrastructure. Maybe it's just on paper, either way it seems to me they are are raiding the pension plan then applying for rate increases to cover the pension shortfall they have created.

[Bob Macadoo]

I admit I'm not clear on what this means from the article - I'm no accountant.

If I understand it correctly, Hydro is taking 50% of their pension contributions out of the pension fund to use for other purposes e.g. infrastructure. Maybe it's just on paper, either way it seems to me they are are raiding the pension plan then applying for rate increases to cover the pension shortfall they have created.

It's just what it did, it leveraged on their contributions to play the market/fund a capitalization. The same thing the Big 3 would do with their workers and what debted their fund to result in the rhetoric that Moonbox speaks of. Edited June 27, 2014 by Bob Macadoo

[Topaz]

Yeah but the differences are , we NEED hydro, I can give or take on a auto and I think WE should be paying for 100% pure hydro used and not anything the company is doing in the background and adding on cost to us. Am I wrong??

[scribblet]

I don't think we should have to pay for Hydro appropriating pension funds thereby not meeting their pension obligations, in fact I'm surprised that a public utility can do that. There are other problems too,as the article said

To deal with this surplus, OPG is often forced (without compensation) to spill cheap clean hydro power and lose the associated revenue. That has driven down OPG’s revenue and profit, meaning it is less able to fund its pension obligations.

The worker bees aren't getting insane pensions at all and from what I read they are on a par with other pensions such as teachers, I don't see anyone suggesting that teachers should get smaller pensions or smaller salaries, they wouldn't dare or our kids will be held hostage again.

CEO salaries and pensions are high but I'm not sure that capping CEO salaries would work - would less competitive mean they don't attract the best people for the job? Hydro could try re-negotiating some benefits, if the pension is 2.5% per year then they should lower it to 2% for new employees.

Good luck to the Liberals when they try to lower pensions for public workers.. Nobody liked it when the feds lowered for new employees at Canada Post and Air Canada, Harper was bad and evil for doing that yet it would be okay for the Liberals to do the same thing to utility workers ?

http://news.nationalpost.com/2013/12/09/ontario-liberals-plan-bill-will-cap-public-sector-executive-salaries-as-ndp-push-for-top-compensation-of-418000/

[Shady]

We need to move away from defined benefit pension plans. They're not sensible and are bankrupting municipalities, provinces and states. They're essentially a pension Ponzi scheme where the taxpayer is left picking up the tab. It's got to stop.

[GostHacked]

If I understand it correctly, Hydro is taking 50% of their pension contributions out of the pension fund to use for other purposes e.g. infrastructure. Maybe it's just on paper, either way it seems to me they are are raiding the pension plan then applying for rate increases to cover the pension shortfall they have created.

That's just really dirty of them. Companies raping pension plans for continuation of business operations while increasing prices. That's getting it in the rear for sure.

[scribblet]

It sure is, I'm surprised we haven't heard more about this particular act, the gov't could stop that I think, maybe they don't want to. Nobody liked it when Black raided the pension plan, although was not a defined plan, it was totally funded by the company.

Shady: Not so, OMERS consists of municipal employers/utilities and the plan pays for itself, the Ontario gov't kicks nothing in. (Hydro one is not part of OMERS) Back in the Harris days there was quite a surplus, so much so that the Harris decreed the surplus belonged to the employees so must be distributed among them. This was done by various means, the most lucrative being the premium holiday given to employees. Eventually they had to stop this earlier than intended because of the downfall in the market. OMERS is managed very well and has not needed an infusion of money/

I think there is a lot of pension envy here, but if you look at the average worker bee it's not too much. Maybe the CEOs pensions are and consultants who agree upon the terms, but that is something Hydro et al have to deal with if they can't get top CEOs without paying that much. Are they worth it, I don't know, maybe Hydro et al could tell us.

Premiums are based on facts and actuarial figures, if the benefits were lowered then the premiums would be also. I can understand a company bargaining for lesser benefits for new employees. What I don't understand is why people who complain bitterly about low wages and benefits want to lower pensions.

[Bob Macadoo]

We need to move away from defined benefit pension plans. They're not sensible and are bankrupting municipalities, provinces and states. They're essentially a pension Ponzi scheme where the taxpayer is left picking up the tab. It's got to stop.

It's not a ponzi scheme its called shared collective risk.......the group rides the highs/lows together.......flattening the both out.......you know that pesky commun-ity aspect to society.

[Moonbox]

Sorry please explain to me how your pension fund is different from their pension fund?

My pension plan (and most private sector pension plans) are not things that you can retire on, or dream of it. Private sector pension plans are often either non-existent or just a token plans where 10 years of service would net out to the equivalent of perhaps 2-3 pay cheques annually. I left an employer after 8 years of service and cashed out my pension which equated to about 1/5th of ONE year's salary. After 40 years of service that would end up being ONE full year of income for me. That's normal. A pension you can retire on is simply not an option or reality for most people in the private sector.

These employees have decided to pool their risk, you wish to rise and fall on the market wave by yourself......good luck with that.

They've decided to take advantage of taxpayers and force them to match their savings contributions. Pooled or not, any plan that matches your personal contributions and practices basic diversification criteria works out to be virtually risk free. Even if the stock market tanks 25%, the fact that your employer (in this context the taxpayers) contributed half of what you put in means that you still netted a 25% basic RoI. That's a deal anything but an idiot would sign up for. The illusion that you're clearly operating under is that the average employee in the private sector even has the option of a pension plan as robust as the private sector does. They don't. Their pension plans are lousy, generally have extremely low contribution limits, and will NEVER, EVER get them to retirement.

Edited June 29, 2014 by Moonbox

[Bob Macadoo]

My pension plan (and most private sector pension plans) are not things that you can retire on, or dream of it. Private sector pension plans are often either non-existent or just a token plans where 10 years of service would net out to the equivalent of perhaps 2-3 pay cheques annually.

You i) aren't contributing enough, ii) making bad investments, or iii) registered with a firm with high fees. You should find a pooled plan.....they have their own investors on salary, lower than transaction fees, and they care about returns.

They've decided to take advantage of taxpayers and force them to match their savings contributions. Pooled or not, any plan that matches your personal contributions and practices basic diversification criteria works out to be virtually risk free.

I would suggest in this free market you negotiate such an arrangement with your employer....what, you don't have that power....hmmm. I wonder what sort of leverage you could obtain to negotiate with your employer.......hmmmm? Edited June 29, 2014 by Bob Macadoo

[scribblet]

I agree that it is becoming more difficult to maintain these plans but there are things they can do. One of the problems with pensions is the lower retirement age as people are living and collecting longer. It wouldn’t be a lot to lose if they raised the age factor to at least 60 or higher, rather than 55.

Another benefit that should have been taken away years ago is the ‘bridge benefit’. Originally CPP could not be taken early but in most defined plans CPP is integrated (included in the calculations). Therefore people who retired at age 60 had no CPP for 5 years which resulted in a lower pension.

This was when the ‘bridge benefit’ or the calculated CPP offset was agreed upon to cover the shortfall until age 65.. At age 65 the bridge benefit stops and CPP comes in from the gov’t. by separate payment.

When CPP became available at age 60 the bridge benefit continued, therefore retirees were double dipping for 5 years (if they retired at 60). I seem to remember a big stink about this ‘clawback’ from veterans’ pensions but it was the same thing. People think they are losing something they have a right to but they are not, they seriously misunderstand what happens. If the bridge benefit had been stopped when CPP was available at age 60, no one would be missing the money now or complaining.

I don't see anyone daring to complain about the teachers/university professors pensions which are pretty lucrative. These people are some of the the highest paid in the world so from high wages come higher pensions.

[Bob Macadoo]

I agree that it is becoming more difficult to maintain these plans but there are things they can do. One of the problems with pensions is the lower retirement age as people are living and collecting longer. It wouldn’t be a lot to lose if they raised the age factor to at least 60 or higher, rather than 55.

Pensions are acknowledging this and are raising their eligibility requirements to Age+Service to 90 rather than 80.

When CPP became available at age 60 the bridge benefit continued, therefore retirees were double dipping for 5 years (if they retired at 60).

What happened was people retiring before 60, if they had enough service in, as the bridge would artificially get you along. You can't double dip. To me it that should've been eliminated immediately however the raise in eligibility should correct that soon perhaps except for those who started working <= 19.

[Moonbox]

You i) aren't contributing enough, ii) making bad investments, or iii) registered with a firm with high fees. You should find a pooled plan.....they have their own investors on salary, lower than transaction fees, and they care about returns.

None of those things have anything to do with actual pension plans. That's all just basic investment terminology you can get from a RSP brochure or from Finance 101. As for MY investments, I'm sophisticated enough to trade aggressively through my own brokerage account, for $7/trade, and have done extremely well over the last 10 years doing so. Thanks for the advice though. Pooled funds...*yawn*

I would suggest in this free market you negotiate such an arrangement with your employer....what, you don't have that power....hmmm. I wonder what sort of leverage you could obtain to negotiate with your employer.......hmmmm?

You don't seem to have a clue how the free market operates. I brought up GM and Chrysler a few quotes back to illustrate what happens when militant unions 'negotiate' for benefits that similarly qualified workers outside of unions don't get. They put their companies out of business.

The ONLY circumstances where these ludicrous pension plans can be reality is in public sector services or in heavily regulated closed markets. You think they were fairly bargained for, but they weren't. They were done so on the back of taxpayers and consumers who don't have alternatives to turn to. Public sector unions are not operating on the free market. The free market depends on competition and public sector services don't have to compete with anyone.

[Bob Macadoo]

As for MY investments, I'm sophisticated enough to trade aggressively through my own brokerage account, for $7/trade, and have done extremely well over the last 10 years doing so.

So which is it? Are you a wall street whiz or will you be living off cat food? Story changes suddenly on circumstance, you fit in well here. ....and yes Finance 101 is what you need. You do insider trading do you?

You don't seem to have a clue how the free market operates. I brought up GM and Chrysler a few quotes back to illustrate what happens when militant unions 'negotiate' for benefits that similarly qualified workers outside of unions don't get. They put their companies out of business.

And I told you what really kills them, companies that don't live up to obligations during good times, thinking there will be time later to make it up. Then the bottom drops out and those obligations compound the problem they're in and the unions now don't trust them and only look out for themselves unfortunately. That's why current adversarial negotiations only exacerbate the problem as it increases distrust.

You think they were fairly bargained for, but they weren't.

How do you propose they be "fairly" bargained for, if that does not occur now?

[scribblet]

Pensions are acknowledging this and are raising their eligibility requirements to Age+Service to 90 rather than 80.

What happened was people retiring before 60, if they had enough service in, as the bridge would artificially get you along. You can't double dip. To me it that should've been eliminated immediately however the raise in eligibility should correct that soon perhaps except for those who started working <= 19.

Sorry not so. Most defined pensions are integrated with CPP so if you retired at age 60 there was a gap in pension income as there was no CPP until 65. The bridge benefit was brought in as a temporary bridge between age 60 and 65 but was never discontinued when CPP became available early. There is a huge misunderstanding about this and as to why it stops at age 65. I suspect that maybe the reason nothing is done about, it seems impossible to explain to people they are not entitled to it after 65.

While the origins of the bridge benefit (originally called calculated CPP offset) may be misunderstood or not known, the fact is that it confuses a lot of people who firmly believe they are losing something that is rightly theirs forever. It is not, if they retired at 60 they double dipped for 5 years )

This offset amount used to be fixed until the Martin Liberals indexed it, thus causing it to increase each year. This results in a larger offset amount at age 65. I hope I’m clear on this because the bridge benefit is double dipping (until 65) and should be cancelled ASAP. If you retire at 65 then you would never see the bridge benefit.

The smart thing to do would be to put aside that bridge amount as it is extra, save it in a TFSA or something.

http://www.caw4304.ca/informer/200704/04-OMERS-Part2.htm

What is the purpose of the bridge benefit?

An information booklet from OMERS states, “This temporary benefit helps smooth (‘bridge’) your OMERS pension until you reach the age of 65, when it is expected your Canada Pension Plan (CPP) pension will start.” The key word in that explanation is “temporary.”

Who receives the bridge benefit?

The bridge benefit is paid only to those who retire before the age of 65. At the age of 65, the bridge benefit ceases to be paid.

Retirement at 65 or later

If a member retires from their municipal employer at the age of 65 or later, they will never receive the bridge benefit.

Bridge Benefit and CPP

If a member is retired between the ages of 60 and 65, and chooses to begin collecting the Canada Pension Plan before the age of 65, then they will continue to receive the OMERS bridge benefit until 65. A member who is retired between the ages of 60 and 65 is eligible to collect three payments: the CPP, the bridge benefit and the OMERS lifetime pension.