Get ready to pay billions for hydro pensions
Think hydro rates are outrageous now?
By Catherine Swift and Bill Tufts
Wonder why Ontario hydro rates are so high? There are many reasons for soaring electricity rates, but one that hasn’t received anywhere near enough attention is the very lavish pay and benefits of the hydro utilities’ staff.
Recently, there has been quite a ruckus over a number of pensions in the extended public sector. In British Columbia, it was revealed that a senior executive at BC Ferries was eligible to receive a lifetime pension valued at $315,000 after only nine years of employment there. In Quebec, Hydro-Québec claimed that its pension costs last year were only $21-million, but its financial reports showed that taxpayers had pumped $646-million into the pension plan. Stay tuned — we will hear many more such horror stories as a result of decades of pension underfunding, early retirements and rich pensions of public sector workers and those in the extended public sector.
As a result of some of these outrageous recent examples, we decided to investigate the Ontario electricity situation. A recent executive compensation report from Ontario Power Generation (OPG) shows it is on track to pay its CEO a lifetime pension of $720,000 annually or $60,000 per month or $2,000 per day starting at age 65. Assuming an average lifespan, the CEO will collect total pension payments valued at about $17.6-million. Various other executives at OPG are shown to be eligible to receive pensions of $490,000, $330,000 and $310,000 per year according to the OPG report.
This seems to be part of a government trend in Ontario. Last year, the Sunshine List showed more than 11,000 workers making more than $100,000 a year at Hydro One and OPG. When fully eligible, they will receive a pension of at least $70,000 (as public-sector workers typically receive a pension valued at 70% of final salary), including CPP. Current data show that, for a person retiring today at age 55, their life expectancy is now 84. This means that the numerous Sunshine List employees will each collect a pension of at least $2-million.
Defenders of these very generous pensions always claim that these employees contribute their fair share into the pension plans, and so deserve them. As taxpayers, we would normally think a 50-50 split of contributions would be fair, with employees contributing 50% and taxpayers matching it. But over the past five years alone, taxpayers have pumped $1.3-billion into the plan, while employees have contributed only $368-million. Not so fair and sure to create serious pension tensions when taxpayers find out what is really happening in these pension Ponzi schemes.
With all this money having gone into the plan recently, one would think that these pension contributions would mean the plan is solvent. Not so. OPG still had an estimated pension deficiency on a wind-up basis of $2.8-billion with the last valuation that was due on Jan. 1, 2011. Since the report has not yet been released, it is likely the shortfall is even worse than the $2.8-billion reported.
Unfortunately, the story does not stop here. Both Hydro and OPG pay for generous benefits for its retired employees — benefits that are rarely if ever seen in the private sector. Called Other Post-Employment Benefits (OPEBs) in the lingo of pension experts, these allowances are primarily for enhanced health care for employees after they retire. OPG owes a debt to its future retired employees of $1.9-billion in OPEBs, and Hydro One owes almost $1-billion. Given expectations that healthcare costs will skyrocket in the next few years, the real costs faced will very likely be much higher than even these significant amounts.
This is only one narrative regarding the hydro utilities in one province. Multiply this times so many other arm’s-length government agencies at all levels of government, across all the provinces, and you start to get an idea of the massive obligations that will soon fall on private-sector taxpayers and ratepayers for utilities like hydro. Think hydro rates are outrageous now? You ain’t seen nothin’ yet.
Financial Post http://opinion.financialpost.com/2011/08/31/get-ready-to-pay-billions-for-hydro-pensions/
Catherine Swift is president of the Canadian Federation of Independent Business. Bill Tufts is an employee benefits specialist at WB Benefit Solutions and author of the upcoming book, Pension Ponzi.