The “Lives” Series – Every Person is Interesting

The other day I was talking to someone about a recent article in my Lives series.  She is a person I know pretty well in a business context, yet she expressed surprise – in a somewhat backhanded but complimentary way – that I had the sensitivity to portray the real feelings of the people in the article.

“You come across so aggressive and hard-nosed in the energy world.  It’s refreshing to see the empathy you show in your writing.”

Literally the same day – I am not making any of this up – another person, also discussing an article in that series, said “This is really fiction, right?  I mean, how does one person know so many interesting people?  Not just interesting, but different.  They can’t all be real people.  You must be making them up.”

He was not really intending to be insulting, just pragmatic.  He really didn’t understand how one person can end up meeting a broadly diverse group of people with interesting stories.

My initial response to him was defensive.  Of course the people are real.  The only “fiction” is changes to some of the facts to prevent the people from being identified.  Their fundamental stories are not changed.

The real response to both of them, though, is more basic than that.

People are interesting.

To the first person, shocked that I might actually have empathy, I said “Look around this room [a hearing room full of 50 people].  We both know these people.  For most of them, though, we know little about them except the narrow persona they show in this room.

“In virtually every case, their lives are more complicated and subtle than that.  Everyone has a backstory.  That backstory is usually interesting.”

The truth is that we see people as caricatures – “weird”, “bully”, “nice”, “smart”, etc. – but rarely get beyond that and see them as real people.  In doing so, we miss a lot.

What we do is put people in boxes.  This middle-aged man is a little short, and a little aggressive.  Let’s label him as Napoleonic.  This woman is very good-looking, and works in a bar.  Sounds like a typical “cocktail waitress” type, probably not very smart.  This young man sells marijuana to his friends for a living.  He must be lazy, and maybe a bit of a gang-banger.  This guy has muscles on his muscles, so he must be a dumb jock.

These are all shortcuts, and they are rarely the real truth.

When I started to write this article, I looked at the list of “Lives” articles I want to write in the future: dozens of individuals on my “to write list”, a very diverse group.  Every single one of them is a person who is more complex, more nuanced, more interesting than anyone around them thinks.

Some of them are people I know well, so I know the real truth about their lives.

Some of them, on the other hand, are casual acquaintances.  I only suspect their truths are more than first appear, but I don’t actually know yet.  It is just intuitive on my part, which then makes me want to know more.  I want to see behind the caricature.

One day I will write a story about Mac, a middle manager at a utility.  He has spent his whole life depressed, from as far back as he remembers.  As a kid, even.  His relationships with his ex-wife, and with his kids, are essentially non-existent.  He lives alone.  No-one wants to be his friend.

And yet Mac has a hobby at which he is one of the best in the world.

No-one around him knows this.

In the rarified world of his hobby, his name is one everyone knows.  They talk about him, sometimes in awe.  To those outside that world, he is nothing.  Within that world, Mac is a star.

He is still depressed.  Despite his success within his hobby world, and his solid, respectable job, he has no life.

At some point I’m going to write the story of a good friend of mine, Barry, who for many years ran a successful business on behalf of its absentee owners.  The business is completely mundane, one of those jobs that “someone has to do”, but interesting to no-one outside of his industry.  The job, however, was still important, and Barry did it well.  Everyone respected him.

Barry’s life has been focused on his career in some respects, but deep down he never really gave a shit.  Barry was the cool kid in high school, and he married the cool girl.  They have built a good life, but about what?

What Barry always cared about – aside from the cool girl by his side for the last 40 years –  is rock music, and fast cars.  Most of the people who knew Barry over the last few decades would not have associated him with a drum set, or with a GTO.  They missed the central parts of his personality, the things he cared about.  Barry and his “cool girl” are in fact still all about the same things as in 1973.  They are still those same cool kids.  Just older.

Also on my “Lives” list is a woman I first met when she worked as a secretary for an insurance company that briefly employed my legal services.

Marilyn has been in the same job for twenty years.  Everyone sees her as a cog in the machine, who trudges through her workday, then goes home to her husband and two teenagers, and is entirely unremarkable.  She is Eleanor Rigby with a family.

Then her office-mates saw her raise money in the office for a charity by running a marathon, which raised some eyebrows, but they still don’t know the whole story, and they haven’t tried to find out.

If you dig deeper, you find her history:  high school and university athletics at an elite level, cut short when she got pregnant and “had to get married”.

She and her husband made a happy life of it anyway, but the richness of her life, and the strength of personality that she offers to her kids, is often lost on the people around her.  They simply don’t know.

One more: Alex.  Alex is now almost 60.  If he were a young person today, he would have been diagnosed with autism spectrum disorder, relatively serious in severity, and would have been given support and treatment.  When he was growing up, that wasn’t the norm, and he was expected to conform and find a way to live within society as a “weird person”.

Alex works for the federal government, where there is more tolerance for “weirdness” than would be the case at the average employer.  They value him for his asocial but highly focused attention to the details of issues.

But I know two things about Alex that are not generally known.

First, when the federal government was about to implement a major policy change in the Middle East several years ago, it was Alex who insisted – in his very understated but stubborn, autistic way – that they were making a mistake.  He was persistent, to the point of being extremely annoying.

He was right, and they eventually realized it.  Had they proceeded unchecked, people would have died.

Second, when a colleague of his at work had to go through several rounds of chemotherapy, and ultimately died from cancer, it was Alex who was there every day for more than two years, helping, supporting, and empathizing.  Alex, who had literally no social skills whatsoever (as everyone knew), was the person who cared enough to be there from start to finish.

These are all people we put in boxes, carefully labelled and “completely understood” by way of those labels.  In one sense, we should be ashamed of ourselves.  We put blinders on, and as a result we don’t see people as they really are.

And frankly, it’s worse than that.  We don’t just put people in boxes.  Then we “judge” them.  We decide that Alex can’t have empathy, or indeed any feelings for other people.  We decide that Marilyn is boring, because what we see of her life is so relentlessly normal.    We make decisions about who should be our friends, and who is worthy of our respect, all based on these judgments, and the labels that generated them.

Should we be ashamed?

The answer is probably that we shouldn’t be too hard on ourselves.  We label people because each of us has only so much mindshare that we can invest in engaging with other people.  We would like to engage more, and really understand the people around us.  When we do, we really enjoy the emotional connections we can make.

But we have many human interactions, and each one requires an investment of our persona and our heart and our brain.  We invest the most in family, and close friends.  We would like to do the same with everyone else.

We can’t.

Of the hundred people you know right this minute, can you invest the same amount of your soul in all of them as you invest in trying to understand your spouse, or your children, or your best friend?   Clearly not.

So we create shortcuts.  We generalize people into boxes, and label those boxes in ways that, for the most part, allow us to deal with them without a huge personal investment.

In days past, people labelled using racial or ethnic or religious identifiers, but our society rightly made those shortcuts unacceptable.  It was a simplified way to deal with the people around us.  It was wrong.

That doesn’t change the problem, though.  We still have to put people in boxes, because we simply can’t handle all of the complexities of all of the individual human beings around us.  So, we have developed new and more “reasonable” boxes and labels.

Those new boxes and labels are still not the truth, of course, a fact we often forget.

Here’s an interesting twist, though.  If you want to be a writer, you have to understand people at a “non-label” level.  If you have characters that are just the generalizations that support the boxes, those characters are not believable, and your writing – no matter how well you put the words together – is not good enough.  I learned that the hard way 45 years ago, when I had the technical skill, but I didn’t yet understand enough about the richness in peoples’ characters.

The “Lives” series started – or so I thought – as a bit of an exercise for me, stretching my writing muscles and seeing if I could do today what I couldn’t do so long ago.  Have I learned enough about people over half a century to actually be a writer?

In truth, though, its real goal is more than that.  The central point of the “Lives” series is to expose the real people behind the boxes and labels we use so often in our lives.  All of us should be looking for those real people more than we do.

It is hard.  We can’t really do it all the time.

We can, however, be sensitized to it.

Each time we see the bureaucrat – or lawyer, or customer service representative, or engineer, or plumber, or economist, or secretary – sitting across the table from us, it is worthwhile to pause just for a minute and remember that we don’t know their whole story.

Even if we will never be able to learn who they really are, just reminding ourselves that the boxes and labels are not really the truth is a step in the right direction.

  –  Jay Shepherd, July 4, 2017

Posted in Life Lessons, Lives | Tagged , | 1 Comment

Energy #17 – Death Spiral

Ontario Power Generation is going to go bankrupt.

No, I am not speaking metaphorically.  Just as its predecessor Ontario Hydro did in 1999, so too OPG will reach the point of insolvency when it is no longer a viable commercial entity – i.e. bankruptcy – and it will have to be saved.

Rivers of Thought Coming Together

I came upon this stunningly obvious revelation through – as is so often the case – a confluence of events.

On Sunday, my colleague and I completed our final argument in OPG’s five year rate case;  fifty thousand words of scintillating, edge-of-the-seat prose that will certainly change the world.

There were lots of interesting tidbits that came up, but two stand out.

First, nuclear power, currently about 6 cents per kilowatt-hour, is forecast to go to more than 16¢/kwh over the next ten years, and that is understated by not including all of the cost components.  If rate riders are included, it will be more than 20¢/kwh.  And that’s without any cost overruns.

Second, the Darlington Refurbishment Project, which was absolutely guaranteed not to cost more than $12.8 billion (at a 90% probability), is already over budget by 14% ($14.55 billion), and that is not even including many cost overruns that are known, but don’t have final numbers yet.

They just started the project.  It takes serious skill to be able to go over budget right out of the starting blocks.

So, then, on Monday, the Mowat Centre, a public policy think tank affiliated with University of Toronto, had an all-day session on how distributed energy resources (DER) will affect wires companies.  To my surprise, the many utilities there seemed, for the most part, to be largely unconcerned that these significant changes in the electricity market will prompt a “death spiral” for wires companies, as some have predicted.

At the Mowat event, I shared a conversation I had with the manager of energy for a medium-sized electricity customer.  He said that, in the next ten years, the delivered price of centrally-generated electricity will be more than 30¢/kwh (about a 65% increase).  With that forecast in mind, his primary job is to reduce his employer’s exposure to grid-supplied electricity, preferably to the point where they can exit the grid.

Finally, on Tuesday I attended a public forum at the Energy Probe-owned Green Beanery in Toronto.  Energy critic and blogger Parker Gallant was speaking on his favourite subjects, increasing electricity prices and the evils of renewable energy projects.  A fun time was had by all.

Amidst all the wailing and gnashing of teeth about wind turbines, and extolling the virtues of burning fossil fuels instead (more on that later), Parker made an interesting side comment.  In part tongue in cheek, but in part serious, he said that one solution to our rocketing electricity prices is to use more electricity.

This is not as crazy as it seems.

How Can a Death Spiral Happen?

Sit back and look at these three events, and think of the concept of the “death spiral”.

Start with accepting the fact that large nuclear projects always go massively over budget, and OPG has proved to be a master at achieving that goal.  It even exported that skill to hydroelectric, going more than 60% over budget on the Niagara Tunnel.

In the case of nuclear, OPG is just following the pack.  Recently, Westinghouse (yes, THAT Westinghouse), the world’s biggest supplier of nuclear generating facilities, went bankrupt from constant problems with cost control.  Its Vogtle project, for the Southern Company, is delayed and over budget, with the U.S. federal government on the hook for the problems that result.  The Westinghouse problems may even undermine the strength of its parent company, Toshiba, although that is still speculative at this point.

So how much will the Darlington Refurbishment Project actually cost?  Assume it is only $25 billion, i.e. better cost control than any previous OPG nuclear project.  If the eventual cost of Darlington is $25 billion, the cost of that power is at least 35¢/kwh, and the delivered cost of that electricity is about 50¢/kwh.  Plus inflation in operating costs.

Add to that the recently announced Fair Hydro plan.  Basically, certain customers will pay less today, but that money will be treated as a debt to be paid in the future.  We will be paying part of our electricity bills on the credit card, effectively.  What will actually happen under the Fair Hydro Act is that OPG will bundle those future customer debts together and sell them as investment instruments to financiers.  In effect, OPG will become a factoring agent for receivables from customers down the line.  (They don’t have enough to do?)

And what happens when those future debts have to be repaid.  Ah.  The price of electricity goes up even more.

Now let’s look at the situation from a customer’s point of view.  For any business customer, there is an ongoing build-or-buy decision for each of its costs.  Call centre?  Is it cheaper to outsource, or to hire, manage and house your own people?  Legal department?  How much does Bay Street have to charge before it is better to have your lawyers in-house, on salary?  Do you build your own factory, or do you lease premises from someone else?  Every aspect of your costs has to be optimized, and in many cases the question is, do I outsource, or do I do this myself?

At the top price today, about 18¢/kwh., it is already cheaper for many of the largest customers to generate and consume their own electricity, and some are doing just that.  While few have gone completely off the grid, their load is declining.  Eventually, as prices rise further, some or all will exit entirely (or leave the province, which is even worse).

If you move the cost up to 30¢/kwh., suddenly there are a whole lot more electricity customers who would save money by moving energy production in-house.  Certainly at that price, fossil fuel production in house will be cheaper than grid delivery.  There is a risk of the impact of carbon pricing, which will limit that, but the savings are substantial enough to at least take a look.

But now move the cost from the grid up to 50¢/kwh.  At that price, even a local homeowner can save money by combining solar and storage, perhaps with a small fossil fuel backup generator.  That is especially true if the homeowner can flatten their load, for example by shifting their space and water heating from gas to geothermal, and by using an electric car.  The more your load is constant, day and night, winter and summer, the cheaper it is to self-generate.

The point here is not the individual prices;  it is the conceptual progression.  As the delivered price of centrally-generated electricity goes up, the number of customers who would save money by reducing their use of that electricity, whether through conservation or through self-generation, increases.

Move back to the utility point of view.  If more and more customers are reducing their electricity consumption from the grid, what does that mean for the utility?  Most utility costs are fixed.  If there are fewer customers to serve, the price each remaining customer pays must increase to cover the fixed costs.

This is not rocket science.

For a wires company, some protection can be achieved by moving to a single monthly charge for each customer.  That doesn’t help you with the customers who just disconnect, but it does help with those who reduce their load, without eliminating it.  Everyone pays $150 a month, whether you use 1 kwh or 1000.   Prices will still have to go up, though, particularly since the big customers, who pay most of your bills, will have the greatest incentive to disconnect.

For OPG, though, the problem is more dire.  What do you do when the cost to produce your product, nuclear energy, is so high that no-one wants to buy it?  What do you do when that high cost creates ripple effects in the industry, driving up the unit costs of transmission and delivery and so making customers even less likely to want to buy your product?  What do you do when, as a result of lack of interest in your product, you have too much of it, but you have already spent the high capital costs to produce it?

Luckily for OPG, they have experience with this.  In the 90s, again because of Darlington cost overruns (you know what they say, “fool me once….”, well, you know the rest), they faced capital costs that were too high to include in the cost of electricity.  Seeing the writing on the wall, they went to their friendly neighbourhood provincial government, who were only too happy to oblige with a bailout.  Don’t you worry your pretty little heads over this $20 billion of debt, they told Ontario Hydro.  Just hand it over to us, and we’ll find a place to hide it.

Now, OPG will go bankrupt again.  Cost overruns at Darlington, even small ones, will be sufficient to make their product too expensive for people to buy.  Customers will vote with their feet, and OPG will be left with debt, and insufficient revenues to cover that debt.

Here’s the kicker.  They could bring the rest of the sector down with them.  Under the current system, customers can’t decide to buy power from someone else.  If you are connected to the grid, you have to buy a certain percentage of your electricity from OPG (via the global adjustment).  As that cost goes up, your need to avoid it also goes up, but your only option to avoid the GA is to exit the grid.

The “death spiral”, indeed.

Are We All Just Screwed?

The answer is, probably not, but let’s be really clear.  We can’t solve this problem ten or twenty years from now.  When the exodus begins, it is already too late.  We have to act now.

Fat chance, of course, but let’s just pretend.  Treat it as a hypothetical.

There are basically four policy steps that could, in theory, reduce the risk of the death spiral:

Conserve, conserve, conserve. The environmental groups have been saying this for years, and they’ve been right for years.  Using energy more efficiently is the cheapest and most immediate way to reduce energy costs.  Not only does it reduce your own bill, as an individual customer (the “I’m all right, Jack” response to the problem), but in the long run it reduces the need to build new, more expensive generation.

The government can make us all more successful at increasing efficiency by reducing the “handouts” approach to conservation planning.  Instead, increase the role of regulations, technical standards, building codes, and the like.  Or, just wait for the price to go up more, forcing people to take action to conserve in self-defence.

Electrification.  As Parker Gallant correctly noted yesterday, using more electricity could help us with electricity costs. We have to be smart about it, though.  Using more electricity doesn’t mean using it less efficiently.  What it means is that some energy needs that are currently served by fossil fuels can be shifted to electric, and the whole electricity system can work better.

Space and water heating, as well as transportation, are the key sectors that rely heavily on fossil fuel burning, but can be served by electricity from a decarbonized grid, or by local generation.  In the case of space heating, this would balance the load between winter and summer.  With geothermal as the delivery mechanism, it would reduce air conditioning load in the summer, and increase load for heating in the winter.  In the case of transportation, electric vehicles can be designed to charge when other loads on the system are lightest, thus balancing loads between times of the day or days of the week.  This allows greater use of the inflexible generation from nuclear, most hydroelectric, wind, and solar.

Betting on the Winners. The cost to generate electricity from nuclear is only going to go up, and at a rapid rate.  The cost to generate electricity from fossil fuels is only going to go up, because of the cost of carbon.  (It doesn’t matter whether you believe in climate change or not.  Carbon is going to be priced, around the world.  That is inevitable.)

On the other side, the cost of wind, and the cost of solar, and even the cost of newer renewable technologies, is going down.  Existing contracts are fixed, and the cost risk has been offloaded to the developers/owners.  Technology improvements are reducing the cost for new projects.  Further, when the contracts expire, the assets are still generally useful, but they are fully paid for.  Once you’ve paid off the mortgage on the house, how much does it cost to live there?  The same is true for solar and wind.

So, what is the best bet for the future:  nuclear and fossil fuels, whose costs are rising; or, wind and solar, whose costs are falling?   Seems like a no-brainer.

Storage.  Many of our cost increases are driven by the inherent inflexibility of most of our current generating technologies.  While electrification will reduce that, the near term solution is to develop greater ability to store the electricity we don’t need right this minute, so that we can use it when we do need it tomorrow morning, or next week.

This is nothing more than a problem of technology.  We know how to push technologies towards commercial viability.  Time to do that.

Problem Solved, Right?

Well, you know better than that.  Just because we know what we should do, doesn’t mean we’ll do it.

We’ll continue throwing good money after bad on nuclear power, if for no other reason than – as everyone in the energy sector knows – the Power Workers’ Union is more powerful than the Ontario Energy Board and the provincial government combined.  We will be tentative about electrification, and about storage.  We will hope that, as time unfolds, more solutions will emerge.

In fact, all that will happen is that it will more and more be too late to do anything about it.

All of which goes to show that I should stop thinking about this, and go play golf.

      –  Jay Shepherd, May 31, 2017

Posted in Energy, Technology | Tagged | Leave a comment

Trump Redux: Us Against the Swamp

Here it comes, the triumph of good over evil.  Trump will fall.  There is unrestrained glee throughout the land (well, until they get a little more of Mike Pence, perhaps).

So that’s it, right?

Not so fast, you liberal tree-huggers.

Yes, it’s true that Trump has been revealed as shallow, and narcissistic, and maybe even evil (in a “child holding a gun” kind of way).  Yes, the appointment of a special counsel – and one with ironclad integrity and intellect credentials – means that the facts will likely come out, and it seems clear that they will not be pretty.  Yes, members of both houses of Congress are going to start to fear for their political futures.  You can already see the softening of their support for the President.

Is the end of this inevitable?  Not really.  Oh, no question the good guys are winning right now.  If you can accept a basketball analogy, it’s 72-44 at half-time.

But as Yogi Berra famously said, “it ain’t over ‘til it’s over”.

We know what the Washington bureaucracy has done to respond to the excesses and missteps of this presidency.  No surprise that they responded carefully, by keeping their eye on the constitutional ball.  The U.S. system is one of checks and balances.  So far, those checks and balances appear to be working, or at least going in that direction.

The other side of the game, though, is:  What will Trump do?

Of course, he could become a hero by a smashing success in his upcoming trip to Saudi Arabia, Israel, the Vatican, and NATO.  He could convince Bibi Netanyahu to “let my people go”, i.e. the Palestinians.  There is a deal there to be had, and certainly Trump supporters would be happy to trade New York City for Middle East peace.  (Good riddance, perhaps.)

Or, maybe the Donald finds he has a lot in common with the Saudi princes: just another rich kid who treats women as chattels.

And as for Pope Francis?  Imagine what Trump could convince the Pope to do.

Best of all, there is the possibility that Trump will deliver a boatload of money or troops to NATO to beef up defences against Russian aggression in eastern Europe.

(Spoiler alert:  I thought the interesting thing here was going to be the Trump vs. Putin matchup, but that appears to be all but over.  Putin is already winning the tactical battle with the US.  Just ask yourself whether anyone in the Ukraine – or Estonia, Latvia, or Lithuania – still thinks that the US is going to have their back against Russian expansion.)

But, in the alternative (as lawyers say), what is Trump’s strategy if he doesn’t return from Europe to Washington as a conquering hero?  Further, just to make it interesting, let’s just assume that Trump is smart.  (It’s a hypothetical.)

If you’re being dragged down into the narrative of the “Washington establishment”, what do you do?  The obvious answer is, you get ahead of that narrative by creating your own.

Remember the Trump voter base, who just very recently elected him to be the one person in Washington who would understand their needs, and get shit done.  They haven’t changed their view that someone needs to drain the swamp, and they haven’t changed their view that Donald Trump is the only person they really think can achieve that.

If you’re Trump, you stop trying to play the Washington game, which is a game in which the other players are professionals, and you are a complete amateur.  If your game is badminton, get off the football field.  It may not be the best place for you.

On the other hand, there is a game in which you have recently demonstrated some expertise.  It doesn’t have a name, but you can call it “demagoguery” for short.  Catchy, eh?

The obvious Trump strategy is, get out of Washington, and organize the biggest rallies you can in places around the country where you still have strong support.  Go back to talk to the people who elected you, and are still dying to lock someone up.  Not just one rally.  A couple of times a week.  Tens of thousands of people.  Make the presidency an election campaign.

And your pitch?  “I told you draining the swamp was not going to be easy.  Those guys in Washington, they’re very good at protecting their own interests.  They have now again shown that they’ll do anything – lie, cheat, even hang all you guys out to dry – to prevent real change from happening.”

He needs to get his base riled up.  He needs to get them upset once more over Washington insiders.

To what end, you say?

The immediate thought is that he wants them energized for the mid-term elections, protecting the Republican majorities in the House and Senate.

Ah, but that would be to underestimate President Trump.  He doesn’t give a rat’s ass about Congress, or Republicans generally.  He’s made that abundantly clear.  They are, in fact, part of the swamp, and they need a bit of draining too.

He does need to get Republicans onside, however, if he wants to actually be President.  To do that, he has to instill in the members of Congress not gratitude for his political support, but fear of the Trump voters, and therefore fear of Trump.  Much like true demagogues everywhere.  Govern by fear.

The Donald’s pitch to his rallies around the country, therefore, should be one of holding all members of Congress to account.  It should be one of seeking the support of the masses for his fight against the Establishment.

This has to become Us against Them.  The theme has to be “We’re taking back our country”, the same theme that won the election.  He has to appeal to his supporters to back him actively, to personally stand up to the evil politicians in their midst.

It has to have drama, too.  Trump thrives on drama, so this should be right in his wheelhouse.

Just take one example.  In Raleigh, North Carolina, Trump gets 15,000 supporters into a football stadium to hear him fulminate about Washington, and also about what’s going on right up the street in the North Carolina state legislature.  Open the concessions.  A little beer won’t hurt the mood.  He rails on about the new governor, who is doing all the wrong things.  As if spontaneously, he suggests to the crowd that they follow him to march on State House and demand that the politicians listen.  “Right here, right now, let’s do this.”  The video of 15,000 people, led by the President, marching on the North Carolina legislature, will be the biggest news in years.

Here’s another example.  Trump threatens to resign.  He tells the crowd “I am trying to fight the corrupt Washington insiders, but they are closing ranks, making up fake stories to discredit me.  I need your support to do this.  I need you to stand up and be counted.  Otherwise, I might as well resign and go back to being a successful businessman.”  (And you can hear the cries – “No, no, don’t go” – prompted by shills in the crowd.)

And what does he ask them to do?  Well, maybe he asks them to come to Washington, generate a huge rally that will show the politicians just who is standing up for change.  He goes for the crowd on the Mall that he says he got at the inauguration.

In short, his tactic, and perhaps the only one that can salvage a win out of his presidency, is to rile up his supporters.

The problem is that if you actually get enough people truly upset, this is not a situation anyone can control.

On the one hand, the USA has some fundamental divides, whether socio-economic, religious, racial, or geographical.   A demagogue is starting with fertile ground.  The Trump supporters will be susceptible to lighting the fire.

On the other hand, the Americans who lost the last election despite winning the popular vote are not going to roll over and say “tickle my tummy”.  Not this time.  They were too nice last time, and they lost.  They’re itching for a do-over, and this time, they’ll fight back.

Imagine Trump’s big rally in Washington, a million strong Trump supporters packing the Mall.  Now, imagine thousands of busloads of Trump opponents, from New York, Philadelphia, Boston, even California – also a million strong – showing up to oppose the destruction of their democracy.

In a previous article, I downplayed the possibility of civil unrest in the US as a result of the Trump presidency.  Maybe I was too hasty.  Maybe, in fact, Trump’s only viable strategy for winning his battle with the Washington establishment that has never liked him anyway is to risk a violent confrontation between Americans.

Trump is a narcissist because no-one likes him, so he has to like himself.  He has always been shunned by the very people he so desperately wants to impress, people in power who are in his subconscious mind just surrogates for his own father (who also apparently never liked him).

He can’t keep trying to play their game.  He’ll lose, and they still won’t like him.  He can’t walk away, because then he is admitting his own failings.  He has to fight, but it turns out the power of the office doesn’t give him enough strength to win that fight.  The only real weapon he has, in fact, is his support base.

There is a lot left to happen, much of it still pretty unpredictable.

Sadly, though, the possibility of violent conflict, pitting American against American, is more real than ever.

  –  Jay Shepherd, May 18, 2017

Posted in International Affairs, Politics | Tagged , | 1 Comment

Lives #11 – A Potemkin Marriage

[This is the eleventh in a series of stories about interesting people I’ve known, called “Lives”.  I don’t know whether you would call it non-fiction, or fiction.  I’ve changed the names, and some of the details, so that the individuals are not identifiable.  That is particularly true here, since I am revealing secrets hidden until now.  If you think you can guess who this is about, you are certainly wrong.  However, I think I’ve stayed true to the essence of what really happened.  The point is what can be drawn from the story, and at least that part is 100% true.]

I’ve known Peter and Judy for more than forty years.  I worked for Peter at a bank, before I went to law school.  Judy later gave me pointers on how to handle a colicky child.  I went to their wedding.

Twenty years ago, when their kids were in university, Peter and Judy realized that their marriage was dead.  They had to make a decision:  separation and divorce, vs. staying together for the kids.  But, it was more complicated for them, because at the same time Peter had to find a new job, and it turned out that new job was not in Toronto.

Their response was to create a fake marriage: a relationship that was entirely fictional, but was presented to the entire world, including their kids, as real.  They did it consciously, through a negotiation that reflected their quite unique personalities.

I call it a “Potemkin marriage”, after the Potemkin villages that were created in Crimea to fool Russian Empress Catherine II in the 18th Century.  Like those villages, which were literally fake constructs to be taken down after the Empress passed, Peter and Judy created a marriage that only existed for the rest of the world to see.  No part of it was rooted in reality.

Peter was a banker at a time when bankers didn’t make a lot of money.  Starting in the 60s, he progressed up the ladder slowly, and never reached a level higher than manager of a small local branch.  It was a solid middle class job; nothing more, nothing less.  Many people thought of him as a “plodder”, getting the job done but never surprising anyone with his brilliance or initiative.  He was not stupid.  He just wasn’t invested in his career.  It was a job, period.  He made sure he got the paperwork right.

Peter’s main interests were starting a family and coaching his kids’ hockey teams.  Perhaps because he grew up in a small town in Northern Ontario, Peter lived for hockey:  playing it, watching it, and later teaching it to his kids.

Judy was from the same small town, and was Peter’s girlfriend starting in Grade 10.  Unlike Peter, Judy was a real “go-getter”, as they used to say.  She was a cheerleader, and in the school band, and a prefect.  For a while, it looked like she might even be the class valedictorian.

She was also “an assertive young woman”.  If you had asked people to describe her back then, they would have said “Judy gets what she wants.”  Judy wanted Peter, the centre on the school’s hockey team, and a good-looking guy as well.  His down to earth approach to life, and his obvious love of family, made him, in her eyes, perfect for the future she wanted.

No-one was surprised when, right after their high school graduation, they announced that Peter had landed a job with a bank, so they were getting married and moving to Toronto.  The wedding was a big local event.  Then they were gone.  It all seemed pre-ordained.

The 70s unfolded exactly as expected for the young couple.  Judy got a job as a property manager for rental apartments.  She was in and out of the job, though, because they had four kids, literally one a year until they decided they had enough.  Each time, Judy would stay at home for six months, then go back to work for six months, then leave to have another child.   As if planned, they alternated boys and girls.

They were smart enough to buy a new house right at the far reaches of the city, in nearby Mississauga, scraping their money together for the down payment, living house poor as their family grew.  Peter – with Judy’s active help – spent every weekend improving their house, so that when it got too small for them, they were able to sell at a good price and buy a much bigger house further out of the city, in Oakville.   With a big backyard.

By the late 70s, they seemed set.  Their combined salaries were enough to cover their now-small mortgage.  Their kids were at various levels of elementary school, and went after school to daycare.  They got a dog, then a second, and then a third.  (No cats.  Judy didn’t like cats.)

Behind the scenes, they had slipped into rigid and largely predictable roles.  Judy was in charge.  She essentially made all of the decisions in the family, with little resistance from Peter.  He, on the other hand, was the family’s athletic director.  When his oldest was just three, he flooded a rink in the backyard, and taught her to skate.  By the time the youngest was three, they had a much bigger house, and skating in the backyard was a daily thing.  Kids from all around the neighbourhood learned to skate and play hockey at Peter’s house.

No surprise that each of their kids ended up on a hockey team by the time they were in Grade 2.  One of the boys never really took to it, but the other three kids played hockey every winter until they were teenagers.  Most of the time, Peter was one of their coaches.

And it wasn’t just hockey.  Summers were taken up initially with baseball, but later all four kids gravitated toward soccer, a growing sport in Canada.  Although they had varying skill levels, their hockey-based fitness made them all pretty good.  One of the daughters ended up on the local rep team, and travelled to tournaments all over North America.  Peter was always one of the parents that went with the team.

Aside from his responsibility for sports, Peter basically worked under Judy’s direction when he wasn’t at the office.  She provided an endless list of projects for Peter to do around the house.  Peter didn’t object.  He loved it.  As the kids got older, they got involved as well:  a deck, a dog run, a finished basement, a pool table (built from scratch), an extensive garden (that Peter built but Judy maintained).

To anyone looking on, this seemed to be the perfect life.  If you asked the kids, they would tell you their friends were jealous of their wonderful family.  Peter appeared to have endless energy.  Judy exhibited unlimited drive.  Everyone was always smiling at their house.  Happy, happy, happy.

All of that was true, none of it a lie.

But then, three things happened.

First, their youngest graduated from high school in 1996, and was about to leave for University of British Columbia.  He would be the last to leave, and only Peter and Judy would be left in their big house in Oakville.

Second, Peter, in his late forties, lost his job.  It wasn’t anything he had done.  He was just getting a little older, and was part of the previous generation of bankers with no degree and little formal training.  The new breed – highly trained MBAs and economists – were taking over.  The existing paradigm was being pushed aside, and Peter along with it.  Perhaps if Peter had spent his evenings and weekends going to school, upgrading his qualifications, he would have survived the round of layoffs.  Coaching hockey teams was not going to save him, and it didn’t.

Third, Peter’s younger brother Carl, who also lived in the Toronto area, and also had a solid and happy middle class life, announced that he was getting a divorce.  He told Peter that he had never been happy, and now that his only son was grown and launched, it was time to start a new life.  He was 44.

Either of the first two events – a newly empty house, and no job – could have pushed Peter to a radical rethinking of his life.  However, if you ask him today, Peter will tell you that it was Carl’s announcement that made him ask the question “Am I really happy?”  He was so shocked that his brother – the “smart one” – was going to head off in a new direction in his life, that he looked inward at his own life, and his future.  Was he happy?  Peter’s answer, to his astonishment, was “No”.

The reasons for that were complicated.  Over the twenty-eight years of their marriage, Judy and Peter’s focus had moved from the excitement and intimacy of starting and raising a family, to a financial and practical relationship that had little excitement, and no intimacy.  The shift had been slow, and from Peter’s point of view it had been masked by the day to day pleasure of his relationships with his kids.  He didn’t really notice his relationship with Judy turning into the sterile and empty thing it had become.  He was busy with the other parts of his life.

It later came as a surprise to Peter, though, to find out that at the same time Judy was having doubts about her future with Peter.  Unlike Peter, she would never have actually considered splitting up.  She had built a successful family unit, and she wouldn’t do anything to jeopardize that record of success.  On the other hand, she knew that, without the kids around, she could look forward to living in a big, silent house with an unhappy – and in her mind, somewhat boring – husband.

With little chance of changing any of that.

It took a fourth event, a few months later, to trigger the new life they decided to create.  Peter was able to land a job – a very good job – but it was in London.  As in, England.

They were driving back from University of Western Ontario, where their oldest daughter had just entered graduate school, when Peter got the call.  Judy’s response was immediate, and blunt:  “You can’t take it, Peter.  There is no way I’m moving to England.  No chance.  It isn’t going to happen.”

Judy could be abrupt when she knew what she wanted.

But to Peter, this was the most exciting thing that had happened to him in years.  A customer he worked for on foreign exchange transactions at the bank needed a Canadian banker in their forex unit in London.

They wanted him.

The job paid very well, even with the cost of living difference, and was a step up in responsibility and prestige.  No-one can afford to actually live in London, of course, but they could live in Essex or Surrey or Kent, and commute, like everyone else in the City.  He would be nominated to a good private club.  His colleagues would be bankers, like him, from all over the world.  He would travel, and attend conferences, and maybe even go to school to get the degree he had never even started.

Peter was not used to going against Judy’s wishes, so he stayed quiet for a week, stalling the prospective employer.  Judy asked him every day “Did you call them?  Did you turn down the job?”  He avoided the questions.

If you ask Peter today, he can tell you the time and place, describe the circumstances in detail.  They were on the back deck, the sun shining on a hot June day.  He had primed himself to talk.  It was like he was giving a speech, well prepared but a little nervous.  Predictably, as soon as he said that he had decided he wanted to take the job in England, Judy pounced.  She wasn’t going to move to England.  Period.  She was putting her foot down on this one.

There was no more than one minute of talk about moving to England, Peter says, before the whole discussion was about their life, and their marriage, and what went wrong.  They got a bottle of wine from the fridge, and then another one, and over the course of more than four hours they hammered away at the subject, alternately angry, hurt, and strangely rational.  In some respects, the discussion was a relief for both of them.

It took five minutes for Judy to understand that Peter was going to move to England.  It took another five minutes for Peter to understand that Judy wasn’t coming with him.  As the realization, and acceptance, kicked in, they were a bit stunned, but then they tried to understand why this was going to happen.

They had lost the ability to communicate with each other about their feelings, so it was tough going.  (Of course, that was part of the problem.)

Peter accepted the new job the next morning, with a start ninety days later. Faced with a deadline, Peter and Judy tried to figure out what was going to happen to their lives.  They were not going to be the same.  Their lives were going to be separate, one way or the other.  They had to make some decisions.  They talked to each other more in that three months than in the previous three years of marriage, but they were not really uplifting discussions.  Emotional, even constructive sometimes, but relentlessly sad.

Once they decided that their lives were going to be separate, they had to figure out how that would work.  The most obvious option was divorce.  The kids were grown.  They had a mortgage free house, and each of them had a good income.  Judy, though, was adamant that she would never get divorced.  Marriage is for life.  What kind of example is it to your kids if you show them that marriage is temporary?

Furthermore, since neither of them was really intending to start a new relationship, or a new family, there was no apparent reason to divorce.  They could live apart, and work out how to do it.  Divorce added nothing.  If things changed later, they could deal with that then.

The bigger problem was what to tell the world, including the kids.  Do you tell everyone that you are not really like a married couple anymore?  What will people think?  How will the kids adapt to that change?  Isn’t it just as bad as divorce in the message it sends to the kids?

On the other hand, if you decide that the details of your relationship are just between the two of you, and no-one else’s business, how do you keep the truth a secret?  Surely your kids, and your close friends, and even co-workers, will find out sooner or later.

Peter and Judy decided that they would remain a married couple, not just legally, but in the eyes of everyone else, and keep the real nature of their relationship a secret just between the two of them.

It was harder than they thought.

As they worked through the details, they realized slowly that they had to have a plan.  Not just ideas, but a real plan, with the specifics worked out for many aspects of the fictional relationship they were going to show to the world.  What about visiting back and forth?  Were they going to have two houses?  Would they own both jointly?  What about vacations?  Visits with grandchildren?  Family events?  Life insurance beneficiaries?


They even talked about what to say to their kids if they were asked about their sex life.  (“We haven’t had any sex life for ten years,” said Peter.  “Why would they suddenly ask now?”)  But, it turned out to be a good thing to get straight.  The kids did ask, and Judy, who was the one who got the initial question from her oldest daughter, had a pre-agreed answer.

Many times they wondered whether this octopus of a deception was worthwhile.  Or even morally acceptable.

By the time Peter had packed his belongings into a container for shipment to England, Peter and Judy had created a totally imaginary relationship, with all the i’s dotted and t’s crossed.  Much of it was written out, some of it longhand, and some of it on Peter’s new computer.

The details?  Well, for the most part they don’t really matter.  Until she retired a few years ago, Judy got four weeks’ vacation from her employer, and if she wasn’t visiting her kids she would spend the time in Guildford, Surrey, where Peter lived.  Except, she didn’t actually go there.  She would often spend the time in Paris, or on a beach in Spain.  If she wanted to share photos, she claimed Peter was there with her.  He wasn’t.  Peter spent his vacations in Canada, mostly visiting his kids, but sometimes notionally with Judy in Oakville.  He didn’t actually spend much time in Oakville.

Christmas alternated between Guildford and Oakville for a few years, until one of the kids bought a house and became the de facto host of family gatherings.  Both Judy and Peter always attended.

Sometimes the kids, and then grandchildren, visited Peter in England, and sometimes Judy would join them.  She was able to hide the fact that Peter’s house was really quite unfamiliar to her.  (“Peter, you appear to have moved the wine glasses.  Where are they now?”)

For six months last year, Peter hosted one of his grandchildren who had a scholarship to attend University of London.  Judy visited for one day, but then suddenly had to be somewhere else.

Peter and Judy are now approaching seventy.  Judy has retired, and Peter is thinking about it.  Their lives have moved on from each other, and now they only share their children, and their Potemkin marriage.

Peter is not going to move back to Canada.  He is happy where he is, and will continue to be there even when his job doesn’t require it.  He will spend more time at the university, where he finally got his degree at age 64.

Judy has an active social life in Oakville, centred around her church and the local seniors’ centre, where she volunteers.  She is happy where she is, as well.

I don’t know Judy’s views about what has transpired over the last twenty years.  (She doesn’t like me much these days.)  Peter, on the other hand, has no doubt that what happened, and how they handled it, was the best thing for everyone.

He put it to me this way the other day.  “My youngest son just turned forty.  I think he knows Judy and I are not really married any more, and haven’t been for many years.  But I think he’s decided to let us have our “little secret”.  It hurts no-one.  As for the other three, they just think their parents’ lifestyle is weird.  That’s OK with me.  I probably am a little weird.”

It never ceases to amaze me how people can make the strangest, most improbable, decisions about how to live their lives.

And yet, still end up making it work.

   –   Jay Shepherd, April 22, 2017



Posted in Lives | Tagged | 2 Comments

Lives #10 – A Happy Life

[This is the tenth in a series of stories about interesting people I’ve known, called “Lives”.  I don’t know whether you would call it non-fiction, or fiction.  I’ve changed the names, and some of the details, so that the individuals are not identifiable.  That is particularly true here, since I am revealing secrets hidden until now.  If you think you can guess who this is about, you are certainly wrong.  However, I think I’ve stayed true to the essence of what really happened.  The point is what can be drawn from the story, and at least that part is 100% true.]

Every so often someone you don’t know well decides to open up to you a bit.  It can often even become a teachable moment.

That happened to me the other day.  A casual acquaintance told me, smiling happily, that she and her husband, both around thirty, are expecting their first child.  As a result they’ll be moving back up north to their hometown to start their family.

I like news like that.  Having kids is, for many people, the best thing that will ever happen in their lives.  It is not only as good as people tell you it is.  It is usually even better than that.  As Tony the Tiger used to say, “It’s not just good; it’s great.”

I admit I probably gushed a bit.  Becoming a parent is worth an especially sincere “mazel tov”.

She told me that there are twins everywhere in her family, and her husband’s, so she was petrified she would be having twins.  Now she’s had the first ultrasound, and knows it’s only one.

“But,” I said, “you’re going to have more kids?”

“Oh, yes,” she replied.

“Well,” I smiled,  “you’ll still have another opportunity to have twins.”

She grimaced, but was not necessarily unhappy at the prospect.  “Once I have some experience with the first one, maybe having twins won’t be so hard.”

Then she talked about searching for a house around Toronto, and the ridiculous prices they had seen.  Even in Oshawa, or Bowmanville, or further east, and with years of savings, they would have a mortgage of $3000 or $4000 a month, plus the property taxes, all a crushing burden for a young family.  Since they both came from a small town in northern Ontario, and their families are still there, they decided to move back home.

They would have lots of people around, as well as a much smaller financial load.  And, her kids could eventually go back to the high school she and her husband attended.

She joked about how tall her kids are going to be.  She is almost six feet, and her husband is six four.  All four of their parents are also tall, and her siblings as well.

I said the local high school might become a basketball powerhouse.  “Yes,” she said, “for the first time since we were there.”  You could see in her eyes the vision of attending her kids’ games.

I inquired about work.  Even if your debt load is low, you still have to have some money coming in.  She is trained as a speech therapist, and perhaps there will be little work for her in a small town, but for the first few years she is thinking of staying home with her family.

Her husband?  He works at Darlington Nuclear Station, in a specialized and essential tool in hand job.  With the refurbishment, he is pretty well guaranteed high paying work for the next ten years at least, probably much longer.

She doesn’t know I’m an energy lawyer.

“Small world”, I said. “I’ve just spent the last few months literally consumed by the Ontario Energy Board case involving the Darlington Refurbishment Project.”  But I did express surprise that they would live six to eight hours away from Darlington.

She explained that her husband’s shifts will mean four days on, four days off, and when he’s working its very long days anyway.  For the four days he’s working, she’d rather have family around, and be in familiar surroundings, rather than be basically alone with her kids.  And, for the four days he’s not working, they would both prefer to be back home, bringing up their family in the best possible environment.  With the reasonable cost of living in a small town, and his solid, well-paying (if stressful) job, it would work out very well.  She’ll go back to work eventually, but meanwhile they can live on his income.

We chit-chatted a little more, talking about small town Ontario, and about working hard to look after your family, and about her dreams for the future.

Yes, she was glowing.

To a person steeped in Toronto urban culture, it could all sound very traditional, almost fifties, like an episode of Father Knows Best (look it up).  She has no desire to live in a condo in Liberty Village, or bring up children in the city.  She and her husband don’t go to clubs.  Their life is about having a family, or, more precisely, about expanding the families they both already came from.  It seems a bit stereotypical and old school, but also idyllic.

Some excessively cool urbanites might even scoff.

Yet really, is this very different from what most people want out of life?  Sure, we get jaded, and sometimes we feel like life is too complicated or difficult.  Certainly we sometimes despair about whether we can ever have such a life.  We think about it cynically, sometimes.  We look at people who are divorced, or whose families have imploded from drugs and alcohol and other stresses.  Maybe sometimes we even think this kind of happy life is just no longer available, to us or to anyone.

But a lot of people, in their heart of hearts, want exactly this.  A simple life, where you work hard, you save, you make responsible, adult decisions, you love your kids, and you make every day a happy one by spending it with your family and friends.

Of course, it comes with risks – injury or illness, family dysfunction, economic setbacks, natural disasters.  Her life is unlikely to be completely without challenges.  No-one ever gets the perfect version of this paradigm.  But the life she pictures in her mind, the dreams she has, they are largely achievable, and they can make her happy, day after day.

I’m one who likes to think about, and debate about, and write about, the problems of the world.  In my own way, I try to be part of solving some of those problems.   I can do charts and graphs and spreadsheets that illuminate the problems, and even show potential solutions.

Many people I know are like that as well.  They aspire to “make a difference”.  They see their jobs, or their other activities, as “important”, impactful.  How they spend their lives matters to the rest of the world, they hope.  That is their aim.

Someone once said to me, quite seriously, that he would consider his life a failure if his obituary didn’t read “The world is a better place because he was in it.”

There is nothing wrong with that, and I would never downplay the value of someone living their life to make a difference.

It is just as true, though, that people like this young woman and her husband make a difference, and their lives are just as important to the rest of us.  They may never become famous.  No buildings will be named after them.  They will not discover the cure for a disease, or invent a new technology.

But the life in her dreams expresses the essence of the values we share as a society.  Their commitment to family and community – to the people around them – has huge intrinsic value, not just to them, and not just to their families, but to all of us.  Our society needs Little League coaches every bit as much as it needs venture capitalists, and politicians, and astronauts.  It needs strong families just as much as it needs a cure for cancer.

I admit to being a little envious as I heard her talk.  I am not likely to move to a small town, of course, whether now or thirty years ago.  That’s not me.  I don’t think I would ever really envy small town life as a lifestyle.

Yet when I look back on my life so far, the things that were and are really important, and the things that made me the happiest – my kids, my family, my friends – are all the things that she already knows are the most important to her.  Her dreams – the things that are driving her life and her decisions – are focused on the parts of her life that will, in the end, matter the most.

Right now I’m working on a novel.  If I work hard, and I’m lucky, and I persevere, maybe that novel will become an international hit, and I’ll jet from country to country, hobnobbing with J.K. Rowling and John Grisham.  Professors will teach my work in CanLit classes.  The Man Booker Prize will be within my grasp.

And even when that happens, there’s no doubt in my mind that it will be those other aspects of my life – kids, family, friends – that remain the most important to me.  My value to the world, and the biggest, most enduring reason I was on this planet in the first place, will still be represented by those fundamentals.  The Man Booker Prize will be merely a “nice to have”.

Perspective matters.

See what happens when a casual acquaintance opens up to you about her life?

    – Jay Shepherd, March 25, 2017

Posted in Life Lessons, Lives | Tagged , | 1 Comment

Energy #16 – The Big Build

A friend of mine is married to an engineer.  The other day I told her that, lacking any other evidence on capital needs, the Ontario Energy Board said in 2011 that the engineers in the electricity distribution companies should simply go out, look at their system, and see what work needed to be done.  That would be the basis for their new capital budgets.

She laughed.

“I love my husband, but engineers are the best people in the world at finding legitimate ways to spend money.”

The result was the Big Build.  Egged on by the OEB, distributors have gone on a spending spree.  Electricity distribution infrastructure – assets that are supposed to last for 40 years or more – have almost doubled in ten years.  11% more customers; 96% more assets.

The numbers don’t lie.  From 2005 to 2015, $17.8 billion in capital spending has resulted in $8.8 billion in assets (net of depreciation) being added to the distribution grid.  That doesn’t count transmission infrastructure, or private investments.

Because of changes in accounting rules, and declines in market interest rates down to record low levels, the impact of that Big Build on rates has been hidden so far.  That is about to change.

What’s worse, there’s more to come.  Seeing no stop sign from their regulator or their shareholders, the distributors plan to keep pouring more money into capital assets.  In the next six years, 2016-2021, their forecast is that they will spend another $12.8 billion, adding after depreciation another $7.2 billion to net distribution infrastructure.

The neat thing about capital spending, you see, is that the company doesn’t have to pay for it right away.  They pay for it over the life of the asset, like a mortgage.  (It’s a mortgage with an interest rate of about 7%, but it’s still like a mortgage.  Just an expensive one.)

Oh, wait.  Did I say “they”.  My mistake.  That should be “you”.  The distributors aren’t going to have to pay for those assets for the next forty years.  No, no, no.

The customers have to pay.

(Just in case you wondered, yes, the customers ALWAYS have to pay.)


Electricity distributors have to spend money on capital.  It is the nature of their business:  they run the capital infrastructure that gets electricity from the transmission grid to the end user.  Maintaining, replacing and building capital assets is the essence of what they do.

There are basically four types of capital assets to be purchased:

  • Expansion: the infrastructure needed to connect new customers to the grid.
  • Sustainment: the infrastructure to replace old or broken assets, i.e. spending needed to maintain the same service.
  • Service: new assets required because existing assets have to be moved or replaced for non-distribution reasons (like a road widening).
  • Toys (sometimes referred to as General Plant): buildings, fleet, furniture and computers, central equipment, and new technologies.

In theory, the costs of Expansion capital are an investment that pays for itself, either with immediate reimbursement from developers, or with additional revenues from new customers.  Service capital is also often wholly or partially reimbursed by other levels of government.  Good Toys – ones that have been chosen based on a solid business case – will pay for themselves through increased revenues or decreased costs.  They are the cheapest way to solve a problem, or improve efficiency, so they are by definition cost-effective.  (Other Toys – also sometimes referred to as “Shiny Baubles” – have to be justified in other ways.  There is a course in engineering school on that.)

The rest of capital is just an additional cost, but it doesn’t have to increase prices.  If a utility is replacing an old building, or an old bucket truck, or old wires and transformers, the original costs have declined over time due to depreciation, so, adjusted for inflation, the new spending – if it’s done correctly – is just to bring costs up to where they were in the first place.  In many cases, there is the potential for increased efficiency with the new assets, so it should be a win-win.

In fact, if a distributor’s customer growth rate is 1% (the Ontario average), it can replace older assets at a rate equal to about 130% of its annual depreciation, and still keep rate increases at or below inflation.  If depreciation is $10 million this year, the distributor can spend $13 million on replacement assets, and customers will be fine.  This can be done year after year.

This is not rocket science.

What Is Actually Happening?

All electric utilities have been increasing their capital spending for the last ten years, with the express encouragement of the Ontario Energy Board.  Not only that, but they plan to continue to do so for the next several years, again with prodding from the regulator.

This effect is found in all parts of the industry, but it is most obvious in electricity distribution.  As noted earlier, distributors have increased their net capital assets (called “net PP&E”) by $8.8 billion since 2005.  In new plans provided to the OEB, distributors are forecasting similar increases over the next five years, likely another $7.2 billion added to net PP&E.  Based on the current trajectory, net capital assets of distributors will be $25.1 billion by 2021.  That’s about 2.6 times the level in 2005, for about 15% more customers.

What does that mean?

Well, the $8.8 billion of additional capital, on top of operating cost increases of more than $700 million, should have resulted in rate increases over the last ten years of 48%, a compound annual growth rate of more than 4% per year.  In dollar terms, the distribution bill for the average Ontario customer should have increased from $548 per year in 2005 to $810 per year in 2015.  Within the next five years, that should increase to about $1050 per year.

But wait.  The OEB is going around telling people that they have kept distribution rates to the level of inflation for the last few years.  How can that be?  Are they lying?

No, they aren’t.

The answer is that, except for Hydro One (which marches to the beat of its own, unique, 4% per year drummer), distribution revenue per customer (a rough proxy for rates) has increased an average of 1.73% per year from 2005 to 2015, which is almost exactly the rate of inflation.

However, once you remove Hydro One from the data, two other things also become apparent.

First, over the last ten years, distributors have seen their interest costs drop by about $310 million per year due to lower market interest rates.  Interest rates are at their lowest levels in memory, although they are not likely to remain there forever.  This has generated an underlying decrease in rates of more than 10%.

Second, in the 2011-2015 period external changes to the accounting rules for distributors meant that their depreciation rates and other accounting “costs” had to change.  This didn’t affect Hydro One at all, but for most of the rest of the distributors the effect was to reduce their costs, through an accounting change, by about $230 million each year.  The still spent the same money, at the same time, for the same things.  New accounting rules spread the cost over a longer period of time, making it look like their annual costs are lower.  This has generated a further hidden rate decrease, about 7%.

These are savings that should have reduced rates, benefitting the customers.  Between them, these two effects were like winning the lottery.  The distributors didn’t do anything to save money;  they simply lucked into reductions in their annual costs.  These decreases were enough that rates could have stayed at almost the same level, with no increases, for that full ten years.

But no.

Instead of passing those savings on to customers, the distributors have used the money to fund capital costs, not just annually, but for many years to come.  In effect, they said “With this extra $540 million a year, we can afford a much bigger mortgage.  Let’s get an $8 billion new house.”

If you back out just these two fortuitous changes (there are others), the rate of increase of distribution costs over the last ten years – and therefore bills before these decreases – is about 4%, the same as Hydro One, and mostly driven by high capital spending.  What has happened, in fact, is that distributors have been pumping money into capital assets, but the financial pain to customers that should have resulted has been masked by these other cost changes.

Interest rates are not going to go down any more, and there are no major accounting changes on the horizon.  Now there will be nowhere to hide.  The capital spending over the last decade is already starting to hurt, and ratepayers have to continue to pay for it for many more years.  Continued capital spending at these record high levels is going to make it hurt even more.

And what is the regulator, the OEB, protector of the customerTM, saying about this?

“Don’t stop now.  Keep spending.”

The Initial Problem

Some smartass (who may in fact have been one of my kids) once said that I never saw a spreadsheet I didn’t like.  Certainly I have an unnatural need to put data into spreadsheets, so much so that I was once called a “closet economist”.

I deny that, but I do admit that it was a set of spreadsheet models that drove me to reach this sad conclusion: we have allowed capital spending to get out of control.

I am not a fan of bald opinions.  I like to see facts, data, evidence.  My experience is that you can find the truth better that way.  We have data.  We can see what it says.

In 2005, the electricity distributors spent a total of $869 million on new capital assets, which was about 137% of their depreciation that year, pretty close to a reasonable replacement rate.  However, many distributors complained that, since they had just gone through a three-year rate freeze, they needed to spend more on capital.  In 2006, they increased their capital spending by about 25%, and then in 2007 they increased it by another 25%.  By that time, their capital spending was up to $1.347 billion, which was 190% of depreciation.

Over the next couple of years, Hydro One kept increasing its capital spending up to 227% of depreciation, but the rest of the distributors cut back a bit, to about 174%.  Still high, but better.

Then, in 2010, there was another big jump.  Hydro One continued plodding ahead slowly, but the remaining distributors bumped their capital spending up by another 31%.

There is a story behind that.  The Electricity Distributors Association, in 2008-2010, put a big push on, with government and the regulator, for distributors to be allowed to increase their capital spending.  The technique was simple:  keep repeating the “need” to increase capital spending until everyone believes it must be true.

Evidence?  Facts?


In 2011, a new Chair was appointed to the OEB, a former distribution company CEO who had also been active in the Electricity Distributors Association.  That new Chair launched (or re-launched, more correctly) the Renewed Regulatory Framework for Electricity.  One of its key tenets was continuation, even expansion, of the increased levels of capital spending seen in 2010.

By 2015, capital spending was up to $2.23 billion per year, 258% of depreciation.  Even that wasn’t the whole story.  Hydro One was still trundling along, and it was still at 226% of depreciation.  The rest of the industry had increased its spending to 281% of depreciation.  To put that in perspective, at that rate you can replace all of your assets – assets that have an average 40 year life or more – in less than 15 years, and still have money for growth as well.

What does this mean?  From 2005 to 2010, Hydro One added $1.7 billion to its net assets, and the rest of the industry added another $1.4 billion.  From 2010 to 2015, Hydro One added a further $1.9 billion, but the rest of the industry added a whopping $3.8 billion.  Not only did they spend money on poles and wires, but it was also an opportunity to build hundreds of millions of dollars of new (and fancy) head office buildings, as well as purchase many new technologies that, for some inexplicable reason, don’t seem to reduce other costs.

We often treat Hydro One as the major culprit when it comes to distribution issues, and they do indeed have very high prices and problematic cost controls.  On this one, though, it is now the rest of the distribution industry that has seen the writing on the wall, and decided that they can have as much capital to spend as they want.

In the venture capital game, there is a saying:  “Take the money, stupid”.  The same is true here.  Capital spending is in vogue.  Distributors have noticed, and are taking advantage of the opening.  Who knows how long it will last?

And Then It Gets Worse

To understand the role of the OEB in all of this, you have to go back to the early days of the Renewed Regulatory Framework for Electricity.

When the distributors and their association were jumping up and down, in a frenzy about the need for more capital spending, some of the customers in the room wanted to see some evidence that there was a particular need for additional capital spending.  The customers, before paying for the Big Build, wanted to see past capital spending data.  The data was available, in various forms, for fifty years or more.

For example, if in the 70s there was a large buildout in capital spending, then it would be reasonable to expect that forty years later there would be a need for extra capital spending to replace those assets.  Like kids in the baby boom, the assets would be getting old together.  If a large number of assets are getting old at the same time, you will have a spending bulge.  You could even calculate how much that bulge should be, and figure out ways to soften the blow.

Or, if there was evidence that for the most recent ten years there was underspending relative to long term averages, that would suggest a need for a short-term capital spending catch-up.  If you spend less than you should for a while, eventually you have to spend more to catch up.

As noted earlier, this is not rocket science.

Instead, the OEB had the brilliant idea to require every distributor to do an asset condition assessment, and then prepare a formal, five-year distribution system plan (DSP).  This is basically a five year plan for future capital spending.

To no-one’s surprise, the spending forecasts were big.  Letting loose the engineers to assess what has to be spent on capital is like asking a priest how often you should pray.  Even if they’re “right”, however that might be defined, their estimate is going to be a lot higher than what you get from anyone else.

Further, OEB told the distributors that, once they had their asset condition assessments, they had to consult with local customers to make sure the customers were onside with the spending plans.  This has led to focus groups and surveys with questions like “If we have to spend more money on capital to prevent blackouts, do you think we should do that?”, and “Would you prefer that we replace older assets before they break down, or wait until they break and cause an outage before replacing them?”

(No, I am not making this up.)

No-one asked the questions “Should we increase your rates 10% to reduce your outages by one every three years?”, or “We normally don’t replace light bulbs and other non-essential assets until they fail;  should we continue to do that?”

We now have distribution system plans for 43 of the 67 existing electricity distributors.  If you plot their spending plans on a graph, relative to their past spending, you can generate a representative forecast of capital spending in distribution over the next five years.

Remember, annual capital spending in 2005 was $869 million, but by 2015 it had increased to $2.23 billion per year.  We can look forward to capital spending in 2021, based on current plans, of about $2.2 billion, i.e. maintaining the current high spending rate.  That should result in another $7.2 billion added to net distribution assets in just those six years, a further 75% increase relative to that 2005 base.

Oh, and one other thing I forgot to mention.  The regulator says that if they want to spend more than their plans, they can come in any time for permission to do so.  Just in case, you know.

What Can we Do?

This is where I’m supposed to provide a creative, insightful answer to this problem.  This is where I say “If we just do X, all of these concerns will magically disappear”.

That is not to be.

We’ve already spent the money.  We can’t get it back.  We can’t sell the assets that we bought with that $17.8 billion.  We’ve borrowed to pay for them (at a high rate of interest), and now we have to pay that off.  There is no-one else to pay.  The shareholders can’t pay, and even if they could, they are almost all governments, so if the shareholders pay, that still means us (or our kids).

Bottom line, we have to suck it up.  We foolishly let our local utilities borrow on our credit cards to spend our money, and we let our regulator/protector be their cheerleader.  Actions have consequences.  Now we have to pay.

At best, what we can do is tell the utilities, and their owners, and the regulator, to stop spending money we don’t have on things we don’t need.  Don’t make it any worse.

Will they listen?  That I can’t tell you.

    –  Jay Shepherd, March 18, 2017

Posted in Energy, Politics | Tagged | 2 Comments

Lives #9 – So How Would You Have Reacted?

This is a story about Jeanne.

Jeanne’s story encompasses her whole life, really, but even she would acknowledge that her husband Bobby’s death was a turning point.  Many things happened before and leading up to his death.  Some of them were good, even great.  Some of them were very romantic.  And, some of them were proof that her life was not perfect.

Yet, it was her reaction to that event – Bobby’s death -, and the ripples her reaction created, that changed her life in ways she did not expect.  When Bobby died, Jeanne was 43, and most certainly not ready to be a widow.  She responded accordingly.

Jeanne is originally from St. Jerome, a small town an hour or so north of Montreal.  When she met Bobby, she was 21, a bilingual legal secretary in a large Montreal law firm.

As Bobby described her later, she must have been the most beautiful young woman he had ever seen.  If you listen to her, however, she was a “horsey-looking” Quebec country girl who, like many French women, knew how to look her very best.  Clothes, makeup, walk, gestures, all designed to enhance her attractiveness.  Even thirty-nine years later, she is still striking, but in all probability her description was closer to the truth than his.

Bobby, on the other hand, was a salesman for IBM, back when (in the late 1970s) Big Blue still sold large computers to big companies.  Her take on him at the time was that he was a successful, well-dressed, and urbane older man (33) who literally made her swoon when she talked to him.  Despite being an Anglophone, he even spoke passable French, meaning that he would be able to talk to her unilingual parents.  (Bobby would not have rejected her description, but he knew better.  In his eyes, he was boring, his sales job essentially wasting a perfectly good degree in mathematics at a time when such a degree was not that common.)

The prosaic truth is that both Bobby and Jeanne wanted more than anything to have a family, and each saw in the other the perfect partner to succeed in that goal.  Jeanne was an attractive and intelligent young woman, brought up in a large Quebec family.  Bobby was an established and successful businessman whose dream was to coach his kids’ hockey teams.  Both were ready – “right now” ready – and not interested in waiting.

Sometimes the right people meet each other at the right time.

I could go on, but sure enough they got married, within a year in fact, and over the next two years had first a boy, then a girl.  They bought a house in Mississauga, and life was good.  In the mid 1980s Bobby started to shift from hardware to software, and did a little less traveling as he moved up the ranks.  Jeanne planned to work, but the house and the kids were a full-time job, so until the kids were both in school they agreed she would stay at home.  She took night school courses toward a degree, but his income was enough for the family.

All good.

For the most part, it actually was all good.  Bobby never stopped being in love with Jeanne, and even twenty years after they were married he was convinced that he had just lucked out in finding her. They fought sometimes, because she was not really the “little woman” type, and she was quick to speak her mind.  And, he was not exactly Casper Milquetoast.  However, their marriage was a good one, grounding a strong family life.

They had two setbacks.  When the kids were teenagers, in the mid-1990s, Bobby took a lucrative offer to move from a weakened IBM to an apparently great software startup.  He signed on to a compensation plan with a lot of performance bonuses built in, but the software didn’t sell well.  He landed on his feet at another startup.  Less money, but a job.  Jeanne went back to work, and because she had been going to night school for years, she was able to score a pretty good government job that gave them more financial stability.  They weren’t going to lose the house, and they probably could still keep saving for the kids’ university.  Their financial dynamics changed, but they were fine.

It was the second setback that was the real problem.  Bobby, at 52, was diagnosed with pancreatic cancer.  Their lives changed big time.  While they never faltered in their commitment to their 17 year old son and 16 year old daughter, they also had to focus on chemotherapy and radiation treatments.  Bobby’s ability to work rapidly dropped to almost nothing, and the small company’s long term disability plan was, shall we say, rudimentary.  Jeanne could keep working, but her time spent with Bobby limited her ability to get promotions.

She told me later:  “The funny thing was, our financial situation wasn’t really bad.  Sure, we didn’t have a lot of money coming in, but we had some.  We took out a mortgage on the house, which was almost fully paid for anyway.  And, if I’m being honest, we both knew he was going to die.  There was more than a million dollars in insurance on his life, between the company and our own policies.  No-one had to worry about money.  No matter what we did, that problem was eventually going to solve itself.”

Bobby fought the cancer for three years, with Jeanne’s determined support.  I knew them both then.  Neither was perfect.  Bobby complained that his employer was not “in his corner”, but when he said it he sounded like he was whining.  Jeanne told me, to Bobby’s face, that one of the biggest problems for her was that Bobby couldn’t have sex any more.  She was intending to make a complimentary but perhaps inappropriate statement about Bobby’s sexual prowess.  Sadly, it came across as a complaint.  They tried really hard to be there for each other, but in fact their perfect family was being destroyed by cancer.  They hated it, and that showed.

They spent their twenty-first wedding anniversary in the hospital, Bobby hooked up to an IV and waiting for some kind of last chance surgery.  It never happened.  He died that night.  Jeanne was there, but she had stepped out to talk to the nurses when the moment came.  It was all she could talk about for months.  She wasn’t beside him when the time came.  It was her failure.

So Bobby died.

They knew he was going to die.  They tried to prepare for it.  They made sure their wills were in order.  They talked to the kids.  They did everything they should do.  But, as these things tend to be, it was inevitable.  He died.

And there sits Jeanne.  She has been married since before her 22nd birthday.  Her adult life has revolved around her husband and her family.  And her husband is now dead.

A few months after Bobby’s death, she described it to me this way:  “You’re 43 years old.  You have two kids still relying on you.  Your husband has been sick for three years, and just died.  You’ve had no sex – no real intimacy at all – since you were in your thirties, and you suddenly feel very old.  How would you react?   What I’ve decided is, I’m not ready to be old.”

Now, before you judge her, Jeanne was certainly devastated by the loss of Bobby from her life.  It hurt her not just because she never stopped loving him, but also because he was the father her kids needed, and still needed.  She was hurt, and lost, and scared.  And, as she said, she was not old.

Bobby died in December 1999.  In June 2000 a friend at work set Jeanne up on a blind date, and she agreed to go.  It didn’t work out, but it was like that event flicked a switch in her life.  She started dating, almost aggressively, agreeing to go out with anyone who showed interest.  Her “beauty based on style” stood her in good stead.  She elicited interest from a broad range of executives, professionals, and tech geeks.  Married, divorced, separated, single, even marital status uncertain, many were interested.

Over the next three years, Jeanne jumped on the dating bandwagon, going out with probably twenty or thirty – or maybe even more – different men.  Most were only good for dinner and (kind) rejection, but some lasted a few dates, and a couple even a few months.  Socially, it was the most active Jeanne had ever been in her life.

Her kids did not see it as mom’s social life.  While she rarely brought men back to her house, she did stay late or overnight at their houses, or in hotels.  She didn’t hide it.  Her kids were adults.  They would understand.

To them, however, it was simple:  “Mom’s a slut”.  As she later understood, they had also lost Bobby, and her dating by itself appeared to be disloyalty.  As her son said, bitterly:  “Couldn’t you have waited a little longer?”

To which she replied:  “I started grieving the loss of your dad when the doctor gave us the bad news.  I waited four years before trying to find someone new.  How much is enough?”

I witnessed this intense, biting exchange.  Strong but fragile 45 year old mother, tall 22 year old son who looked like a football player.  Both with flashing eyes, full of anger, but close to tears.  Only love could make people that angry.

It all came to a head in 2003, one night that in the broader scheme of things was irrelevant, but ended up being a tipping point in Jeanne’s life.

Jeanne had met a 38-year-old accountant from Hamilton who was tall, and good-looking, and reminded her a little bit of Bobby when he was younger.  They went out several times, and then on a weekend trip to Vermont for skiing.  He was intelligent, good company, and made her feel good.

The incident that precipitated her crisis started as an early dinner in downtown Toronto, after which they were going to “go dancing” or something similar.  He had booked a room at the Four Seasons, thinking correctly that after dinner with wine and liqueurs, it would be better not to try to drive home.  She thought it was perfect.  They could change to dancing clothes, even rest a bit before hitting the clubs.

Except, what happened was that they ended up in bed.  Then they ordered a bottle of good Scotch from room service, then went back to bed…  At 2:00 AM, drunk to the point of incoherence, Jeanne suddenly saw everything around her as … not what she wanted.  She felt like a teenager, doing something naughty.  But, she was not a teenager any more.  Over her friend’s objections, she called a taxi and took the long ride home to Mississauga.

She never saw him again, and when he called she told him, quite simply, that she was changing her life.  She wasn’t cold, but neither was he going to be in her new life.  Thanks, but bye.

The next day was her 47th birthday.

Three years after Bobby died, Jeanne brought her frenzied dating period to an abrupt end.  It wasn’t that she thought it was wrong.  She just realized that her dating was about being young again.  She was rejecting Bobby’s death, and her subconscious feeling that his death also meant she was too old to live.  She was single, and she wanted to act like an attractive single woman.

What the incident brought home to her was that she was no longer that twenty-two year old girl.  Her kids were older than that.  She was a real person, but she was not that person.  By riding the carousel, she was forgetting that she had grown, become a different person, over the years.

Jeanne later told me that when she sat down to talk to her kids about it, she spoke to them in French.  “French is a better language to express that kind of emotions,” she said.  “They understood what I was going through.  It wasn’t as hard as I thought.”

There is perhaps some irony that, within six months, Jeanne was for the first time alone in her big suburban house.  Her son went to do his MBA in Montreal, and her daughter moved to a condo in downtown Toronto with a roommate.

Her relationship with them was very good, though.  Her “period of grief” (“en deuil” in French) became just a running joke between them.  A good example was a couple of years later, when Jeanne’s daughter insisted on taking her into Aren’t We Naughty, an adult products store, because she “seemed sad”.  The kids never stopped teasing Jeanne for having been a teenager in her forties, and she took it just fine.  She put her en deuil period on the shelf, neatly packaged but decidedly part of the past.

Since then, there are more chapters to Jeanne’s story already, and undoubtedly more to come.  In 2008, she became a grandmother when her daughter had a baby, and then again in 2012 when her son became a parent.  (Her kids got her a coffee mug saying “World’s Youngest Grandmother”.)  In 2010 she was promoted to a more responsible job, one that included extensive international travel.

Jeanne still met guys from time to time, but she wasn’t really “looking”.  It just happened, and she took it in stride when it did.

Then, just after she became a grandmother for a second time, she met Marc – another accountant.  Eighteen months later, Marc and Jeanne were married, both of them surrounded by their happy children and grandchildren.  Jeanne was 57, not a teenager any more, but excited and positive about the future.

Why am I telling this story?

At Jeanne’s wedding in 2013, someone from my past, who knew Jeanne when Bobby was sick and afterwards, made an offhand comment to me:  “This Jeanne is nothing like the woman we saw after Bobby died.”  Implicit in his tone was some kind of criticism for her past excesses.

I thought about that, and told him I didn’t agree.  This is exactly the same Jeanne.  Back then she had some things to work out in her life.  She did, but throughout even that difficult period she never lost any of the good things that made up her character.

This is a “walk a mile in her shoes” type of story.  Jeanne has lived, and continues to live, a good life, her actions for the most part admirable.  Her reaction to Bobby’s death was not Jeanne doing something wrong, nor does it warrant opprobrium.  Something bad happened.  She handled it the best way she could.  And, in the process, she grew.

How would you have handled it?  Any better?

     – Jay Shepherd, March 8, 2017

Posted in Life Lessons, Lives | Tagged , | 3 Comments