Energy #15 – An Answer for the Premier

Premier Kathleen Wynne is looking for a way to attack the rising cost of electricity, an increasingly dangerous political issue in Ontario.

She has already given up the 8% Ontario portion of the HST, sure enough, but the public has largely discounted that because it is less than the 10% Ontario Clean Energy Benefit, terminated last year.  Knowing she hasn’t solved the public’s concerns, the Premier has announced that she will do something further, and there has been a flurry of activity at Queen’s Park, and at the Ontario Energy Board, to figure out just what that should be.

The problem is, most things that might have significant impact will cost significant money, and the Province doesn’t have any money to spare.  Spending serious money to bring electricity costs down for average householders will cost billions of dollars, more than the Province can afford.  Even the 8% HST break was a billion a year cost.  There is really no more money for this.

This article is proposing a way of reducing electricity bills – at least for some Ontarians – that will not have any real incremental cost, but could produce substantial reductions for those affected.  It is not the whole answer, but it would be a step in the right direction.

The proposal?

Declare – and legislate – an open competition for the right to serve monopoly electricity distribution territories in Ontario.

Already I can see many in the industry getting “twitchy”, or even falling off their chairs, at this outrageous suggestion.  Yes, yes, I know that a free-for-all doesn’t really help anyone.

On the other hand, rationalization of the distribution sector is happening at a snail’s pace, despite the merger that has formed Alectra.  Not only that, but too many of the acquisitions are by the most expensive distributor in Ontario, Hydro One, so the customers will actually be worse off in the long run.  Meanwhile, many other economically sensible steps to improve the structure of the distribution sector can’t happen because of the laissez-faire M&A rules in place today.

So instead of the existing approach – essentially benign neglect – and instead of an outright free-for-all, I am proposing a managed move to open competition, with the following rules:

  • Initiation.  Any licensed electricity distributor in Ontario can initiate a bid to acquire a part of the service territory of any other distributor by making public an offer to purchase that territory, and filing it with the Ontario Energy Board.
  • Partial Service Territory Only. The service territory to be acquired cannot be more than 50% of the service territory of the distributor currently licensed to serve it.  You can take part of another distributor’s territory, but not all of it.  Municipalities shouldn’t be forced to give up their local utilities if they don’t want to.
  • Proof of Rate Reductions. The acquiring distributor must demonstrate that their distribution bills for customers are currently lower than those the customers in the acquired territory are paying now, and those bills will continue to be lower in the foreseeable future.
  • Valuation-Based Price. The price offered must be based on an independent valuation.  That valuation, if it is on a discounted cash flow basis, must use the existing and forecast revenues at the acquiring distributor’s rates, not the higher rates of the seller.
  • Share Option. The offer must include an option for the seller to take as much of the price as they choose in the form of shares of the purchaser, provided that the shares would not put the purchaser offside for federal tax purposes (i.e. maximum of 10% of the purchaser).
  • Public Interest. The Ontario Energy Board must determine that the transfer of the service territory is in the public interest.  This will necessarily involve the purchaser filing an implementation plan, and showing the benefits of the acquisition for the customers.

Once a qualifying offer is filed publicly with the Ontario Energy Board, any other distributor would have ninety days to file a competing offer.  Once all offers are on the table, the OEB would hear from purchaser(s), seller, and customers on the pros and cons of the transaction, including any disagreement over the valuation.  If the customers would benefit from the change, and electricity distribution in the Province would be more rational as a result, it would be approved.  That is, the seller would be required to sell on the terms approved by the OEB.

Introduction of this kind of managed but open competition could have positive effects quite quickly.

The first transactions in play would likely be in those cities where, right now, part of the city is served by a municipally-owned distributor, and part by Hydro One.  In those cities – Kingston, Sudbury, Thunder Bay, and Windsor, for example – the customers in the Hydro One area often pay up to twice as much for their distribution services.  The local distributors have for years wanted to expand to serve their neighbours in the same city (“chomping at the bit”, one told me), saving considerable money in the process, but have been stymied by Hydro One’s unilateral refusal to discuss it.  This would allow that rationalization to happen.

The same thing is true around some of the other urban areas, where suburbs outside of the city are more sensibly served by the local distributor, rather than by Hydro One.  This is most obvious in areas around Hamilton, London, Ottawa, and Vaughan, but is true elsewhere as well.

It might take a little longer, but this open competition could also open up other merger possibilities.  The Guelph, Kitchener, Cambridge and Waterloo distributors should probably merge, but one sticking point (there are others) is Hydro One territory in between, and on the edges.  A similar impact could be seen if Veridian, Oshawa, and Whitby continue their current merger discussions.  That would be a better territory – and potentially an easier merger to complete – if certain Hydro One areas were added.

Although the most expensive utility, Hydro One, would probably be the target of most of the service territory battles, others could be affected as well.  The new Alectra has St. Catharines, but it may well be that a merger of all the Niagara region distributors could be facilitated if the St. Catharines service territory was also served by the newly merged entity.  Under open competition, this is more likely.

The key here is that, in every case, the acquiring utility must show that rates will go down.  In many cases, these reductions will be substantial.  However, they will not be going down because of government subsidies.  They will go down because lower cost providers are buying out higher cost providers, and then driving further cost efficiencies.  (Just like in the competitive markets, I should add.)

And what about poor Hydro One?  Aren’t they going to be the target of most of these challenges? Aren’t they going to lose hundreds of thousands of customers, and thus some of the market value of their newly-public shares?

The answer to that is three-fold.

First, this would absolutely put the pressure on Hydro One to become more cost-effective.  However, that is a good thing, and I for one would certainly not be shedding any tears over Hydro One being subject to increased market pressures.  All of their customers will benefit from that.

Second, in this scenario Hydro One is getting paid fair value for the service territories it sells.  This is no bargain basement sale.  The stock market may well see the sale at full value of these territories – ones that at some point in the future will likely become contentious anyway – as a good thing.

Third, and most important, Hydro One shareholders will be worried about losing the upside of future growth.  This is solved by allowing Hydro One to take shares in other distributors as part of the purchase price it is paid.  This will diversify Hydro One’s distribution portfolio and reduce risk (including in particular operational risk), while still maintaining full participation in the upside of distribution growth.

As I said, this is not a “solution” to the problem of high electricity costs.  What it could achieve, though, is 5-10% bill reductions for hundreds of thousands of residential customers throughout the Province, at no cost to the government.  Further, it would accelerate the rationalization of the distribution sector, and that in the long term will produce even greater cost efficiencies for customers.

And, let’s not fool ourselves.  What other choices are available to the Premier?  Unless she has sources of funds that we don’t know about (which would be great….but no), any real action to drive down electricity costs is going to be difficult and/or expensive.  You can’t get around that.

This proposal is something that can be implemented now, and can produce billions of dollars of long-term benefits for customers, not through government largesse, but through greater efficiencies.

– Jay Shepherd, February 3, 2017

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Energy #14 – Corporate Governance

It may have been the first time I’ve heard the word “effrontery” actually voiced orally.

The speaker was the Chairman of the Board of a small Ontario utility.  The subject was the Ontario Energy Board’s upcoming “guidance” to be given to utilities on how their boards of directors should be selected and supervised, and how those boards should carry out their responsibilities (called, in legal circles, “corporate governance”).

Since the OEB announced last year that their long-simmering foray into corporate governance was back on the rails, I have been talking to utility management and directors about it.  It has not always been pretty.  The word “effrontery” is one of the more printable terms I’ve heard.  (It derives, by the way, from the Latin word effrons meaning, literally – and I am absolutely not making this up – “without a forehead”.)

Anyway, the result was that I wrote my first try at this article in July, but before being published it was overtaken by events when the Milton decision came out.  I was then going to publish a revised version in September, but the OEB launched a series of consultations in this area, and I decided in fairness that I should hear what was being discussed.  Meanwhile, I continued to talk to utilities and their directors about the initiative.

Those reactions continued to question the OEB’s direction, and role, in what is undoubtedly an important area for Ontario utilities.  The question is whether it is, or should be, an equally important area for the regulator.

Background

Some background may be helpful.

At a stakeholder meeting in 2013, Ontario Energy Board Chair Rosemarie Leclair told utility and customer representatives that the OEB was planning to take a more active role in supervising the corporate governance practices of regulated entities.

No-one said anything.  It was as if she had used vulgar language, and everyone was trying to ignore it to avoid embarrassing her.  She was pretty new to the job at the time, and I think everyone just assumed that she didn’t yet know what areas were outside of her purview.

Afterwards, though, there was much shaking of heads, of the “She doesn’t understand” variety.

All was then pretty quiet for a couple of years, until 2016.  Things were happening, though, behind the scenes.  In 2015 KPMG was asked to do a review of how other energy regulators were supervising utility corporate governance (they aren’t … not in Canada, not in the U.S., not anywhere else).

Unhappy with the KPMG result, the OEB turned to always-cooperative Elenchus Research to provide an analysis of what the OEB could do to take more control over utility governance practices.  Finally, in 2016, the OEB has unveiled a consultation on corporate governance.  The direction is clear.  The OEB wants more control.

It has kicked off with separate meetings in September between the OEB and utilities, and then the OEB and customer groups.

There are two high level regulatory issues within this subject, each invoking a well-known regulatory buzz-word.  First, from the point of view of the utilities, there is the spectre of “micromanagement”.  Second, from the point of view of the customers, there is the bogey-man of “light-handed regulation”.  The OEB denies they are heading in either direction.  Not everyone believes them.

Related to these general regulatory issues are three more fundamental concerns.  Does the OEB have a legal mandate to regulate corporate governance?  If it does, does it have the expertise to do so?  Surrounding all of this, are the discussions by the OEB with utility executives reflective of the views of utility shareholders, who are ultimately in charge of the governance of the utilities they own?

Or, as one utility board member summed it up to me in November: “Have they gone completely nuts?”

Is There a Problem?

Let’s start with a basic question:  is there a problem with the corporate governance practices of regulated energy companies?  Do they, for example, select, train or supervise their boards of directors poorly, or fail to maintain proper procedures for ethical conduct, conflict of interest, and transparent decision-making?  Do their boards of directors have sufficient independence or, conversely, do they succumb to political influence, or the influence of their unregulated parent companies, in their decisions?  If they do any of these things, does that even matter?

The honest answer is, some utilities have good corporate governance, some not so good.  In this respect, they probably reflect any random cross-section of similar-sized private companies in the province.  Indeed, on average utilities probably do a better job of corporate governance than most private companies.

But, of course, it is not the averages that matter.  Utilities are given a public monopoly (to distribute gas or electricity, typically), and it is important that these utilities be run properly.   They are not like normal private companies, who are judged by the market, sometimes harshly.  The Ontario Energy Board, the regulator, acts as their market.

It was in part to improve utility governance (and also to promote consolidations and privatizations) that, in 1999, the Ontario government of the day decided that all municipal utility commissions would be required to incorporate as private business corporations under the Ontario Business Corporations Act.   Prior to that time, they were essentially arms of their local governments, and their governance practices … what’s the word? … sucked.   Sometimes overly political, sometimes nothing more than sinecures for local political contributors, sometimes just a cash cow for local government, the commissions were not always models of good corporate governance.

Importing the Corporate Law Rules

Moving to the framework of the Ontario Business Corporations Act (OBCA) imported a known and fairly rigorous structure, including not just the fiduciary duty and standard of care that were probably already applicable to the commissioners, but also a level of separation between shareholder and utility.  Further, the OBCA was and is itself based on a strong tradition of regulation of corporations and their practices.  Not only is there a broad basis of statutory rules, but in Ontario and elsewhere the principles in the OBCA have been considered by the courts tens of thousands of times.  While nothing is ever completely certain, in the OBCA we are at least dealing with a set of rules and principles that are well-known and understood.

Corporate law is set up to deal with the relationship between shareholder and company, the relationship between third parties and the company (and through the company, the shareholder), and collaterally the solvency or financial viability of companies.  It is supplemented by separate regulation dealing with taking money from the public as shareholders or debtors (the Ontario Securities Commission, or OSC) and, in special cases, the ability of financial institutions to meet their obligations (the Ontario Superintendent of Financial Institutions, or OSFI).  Corporate governance rules and principles are fundamentally structured to protect shareholders and creditors, i.e. those who provide the capital for the company.

This is not accidental.  To understand why this is true, you have to start by understanding that corporations are just pieces of paper.  Like the emperor’s new clothes, they don’t actually exist.  (Technically, they are “juristic entities”, which means they exist in the legal world, not in the real world.)  Thus, the only way they can operate in the real world is if they are imbued with real world powers, and their duties, responsibilities, liabilities and actions in the real world are set out in a formal code.  People can be held accountable for things.  Pieces of paper, not so much.

So the corporate law makes clear the rules relating to: how corporations make decisions and act on them; the rights and liabilities of the shareholders and creditors vis-à-vis the company and third parties dealing with the company; and so on.

What neither the OBCA, nor any of the corporate governance rules we already have, are intended to do is protect the customers or other stakeholders of companies.  Corporate law goes so far as to require certain levels of financial probity in companies (to protect shareholders and creditors), but has nothing whatsoever to say about how they run their business, or how they treat their customers or employees.  Zero.

In fact, the corporate rules run directly counter to the protection of the customer.  They require directors and, through them, management to act in the best interests of the corporation.  The sole arbiters of whether they are succeeding in that task is the shareholders, who appoint them.  Any resulting protection of the customers or the employees – even though it may actually happen – is serendipitous.  Customers and employees are protected through other areas of the law (consumer protection law, labour law, etc.).

The Role of the Regulator – Mandate

The first and most fundamental question about the role of the OEB in corporate governance is:  “Where is the OEB’s mandate to regulate or control utility corporate governance?”

OEB Staff and their consultants start from the theory that anything to do with the health and well-being of regulated utilities is within the mandate of the OEB.  That is, of course, not the law.

The OEB has three main mandates:  setting just and reasonable rates, licensing many of the participants in the energy sector, and enforcing rules either made by the OEB, or set out in other statutes.

Clearly a mandate to regulate corporate governance cannot be implied within the rate-setting mandate, and the enforcement power is limited to specific rules and requirements.  Unless the OEB establishes a binding Code on corporate governance (which would likely be challenged successfully in the courts), the enforcement power doesn’t help them.

That leaves the licensing power.  In theory, the OEB could require adherence to corporate governance standards as part of licences. If you want a licence, for example to be an electricity distributor, you have to govern yourself this way.

This would run into two problems.

First, presumably if you are requiring licensees to meet certain governance standards, that would have to include not just the regulated utilities, but also licensees that have unregulated energy businesses, such as private generation companies, or energy marketers, and so on.  Not only would they object, but it would be obvious that the licensing power is not intended to include such intrusive control.

Of course, if it is not intended to include that control for unregulated companies, why would it be intended to do so for regulated companies?  The only possible reason would be the mandate to regulate the rates of those companies.  As noted above, that clearly does not mandate control of corporate governance.

Second, and more problematic for the OEB, regulation of utility corporate governance cannot include any real consideration of other stakeholders, such as customers, without running afoul of the existing statutory rules relating to corporate governance.

For example, the fiduciary duty of directors is to the corporation.  That is a statutory requirement.  The OEB can’t change that.  It can express its interpretation that the best interests of the corporation includes the customers, but that has no force or effect.  If the OEB tried to enforce it, they would certainly be exceeding their mandate, and likely be wrong in any case.  The best interests of the corporation is, under the OBCA, enforced by shareholders or by the Director under that act.

Similarly, the shareholders are granted rights under the OBCA to select directors, and there is a rich area of law that they are entitled to exercise those rights in their own self-interest.  The OEB would be on very shaky ground in trying to restrict those rights, for example by requiring that certain nomination and appointment processes be followed.  The OBCA sets out those rules already.

OEB Staff point to court decisions like Toronto Hydro v. OEB, which upheld an order of the OEB that Toronto Hydro not pay dividends for a period of time without the approval of a majority of its independent directors.  This, the high water mark of OEB authority in this area, was still limited to a specific situation in which, acting arguably within its mandate to ensure the financial integrity of the particular utility, and based on evidence that there was an issue, the OEB ordered the utility (not the shareholders or the directors) to act in a certain way.  Even then, it is not at all clear that the decision would have been upheld on appeal.

To be fair, the OEB appears to have accepted the limitations on its mandate in this area.  While OEB Staff refused to disclose, during a public consultation, whether they have a legal opinion on their jurisdiction (I asked), they did make clear that the OEB is planning to provide “guidance” to utilities, without any binding force or other consequences.

(Asked if the upcoming guidelines would have any more effect than they would if they were guidelines from Electricity Distributors Association, a utility trade association, the answer – verbatim – was “not really, except of course that they would be from the OEB”.  To some, that could sound a lot like “wink, wink, nudge, nudge”.)

The Role of the Regulator – Value Added

But legal restrictions on the Board’s mandate in this area may not be the biggest problem.  In all my discussions with utilities and other energy stakeholders, the most common question asked has been:  “How can an organization that can’t get their own corporate governance right ever be relied on to give guidance to others?”

Harsh, but probably fair.

The OEB really has two strikes against it in the corporate governance department.

First, it ignored the express governance requirements of its own statute for several years, leaving the OEB without any effective governance structure for that entire period.

Second, when it re-established part of the statutory governance structure – the management committee – it is still composed of the Chair and the two Vice-Chairs, both of whom rely on the Chair to be re-appointed.  Further, the Chair has been re-constituted, contrary to the statute, as the CEO, thus affirming her role as management rather than governance, but she has no regular reporting process to any management committee or board of directors.

The end result is that the OEB now operates without any independent oversight of either their operations, or their strategies.  They only answer, if to anyone, to the Minister of Energy.  In short, their governance structure is much like the old municipal electric commissions, directly tied into the political structure.

This is particularly problematic because the whole purpose of the OEB is to be independent from government.   The government regularly touts that independence as protecting the public from government influence over the energy sector.  Yet in fact, the OEB has less independent governance than even the most poorly governed regulated utility.

(Contrast the OEB with the Ontario Securities Commission, where the board members constitute a board of directors to which the Chair reports.)

But the complaint that the OEB are not the people to provide governance guidance is not just “the pot calling the kettle black”.  It is also about expertise.

The OEB has some very knowledgeable and talented people, but their training is in economics, accounting, and engineering, areas that provide a foundation for economic regulation.  No-one at the OEB – not one person – can be considered an expert in corporate governance, and they usually don’t even have much knowledge of how utilities are actually governed today.  How many people at the OEB, for example, have even attended a board of directors meeting of a regulated utility?

The OEB recognized this in going out to consulting firms to get assistance.  The first, KPMG, is an accounting/consulting firm, but they were well placed to do a jurisdictional review in the energy sector.  They did that, but they were not asked to continue.

The second, Elenchus, provided a four-person team.  Two are former Vice-Chairs of the OEB, and trained by ICD.D in how to be good directors.  However, both would say that they are not corporate governance experts.  Only one member of the team is a lawyer, and his specialty is mergers and acquisitions.  While M&A lawyers have to know something about corporate governance, it is not their area of expertise.

There are recognized experts in corporate governance in many leading law firms, and elsewhere.  None are part of this consultation process.

The limited expertise of both OEB staff and the consulting team was brought front and centre in the consultations last fall.  The very first recommendation to the OEB from the consultants is that OEB corporate governance guidance be based on the guidance by the OSC (which protects shareholders and debtors), and OSFI (which protects the financial viability of financial institutions).  Presented with the reality that corporate governance principles that protect the customers would have to come from an entirely different perspective, they were nonplussed.  They simply did not understand the concept, even though this perspective issue is central to the duty of any fiduciary, including a director.

Light-Handed Regulation/Micromanagement

The OEB’s goal is a set of governance rules presented as (theoretically) non-binding guidance.   Utilities would be required to report annually and in detail on their compliance with the guidance, and the OEB would then audit their corporate governance reporting to ensure that it was accurate.  Periodically the OEB would send teams in to do a more detailed assessment of the corporate governance practices of individual utilities.  It is not clear who they would send, since clearly it could not be OEB staff.  Perhaps they plan to add to their staff, or perhaps they will simply rely on outside consulting firms.

All of this is, in theory, without any consequences for utilities that do not comply.

Well, not really.

It is carrot and stick.  The stick is that “poorly governed” utilities will be outed publicly by the OEB, the “governance experts”, as if they were made to stand in the stocks in the town square.

The carrot is that, if a utility is judged to be “well governed”, the OEB will embark on a less thorough review of their proposed rates (because, after all, the utility board of directors is looking after that already, right?).

The stick exceeds the Board’s mandate.  The carrot declines the Board’s mandate.

But legal technicalities aside, all good, right?

Again, not really.

The stick is, if you don’t have internal procedures consistent with our rules, we will punish you.  This is not the role of economic regulators.  If the Board were a government department, perhaps it could get away with setting rules on corporate governance (although it would probably be a bad idea).  As an economic regulator, the Board doesn’t deal with the internal workings of the regulated utility.  Its job is to deal with the interaction between the utility and its customers – whether dealing with rates, conservation programs, reliability, customer care, or otherwise.  It is a “market proxy”.

The Board, in its Renewed Regulatory Framework for Electricity, got one thing glaringly right:  outcomes.  Driven by the concept of the market proxy, the job of the economic regulator is to deal with outcomes.

It is not the Board’s job to stipulate how the outcomes are achieved.  That is the role of the utility.  The Board can set targets for rates or reliability, for example.  It cannot and should not stipulate that everyone must have an IVR system, or standardize on Microsoft Word, or use red maple poles.  If a utility can meet its targets without doing those things, that is the end of the matter.  (It is only when goals are not being achieved that things like “best practices” are even relevant to the regulator.)

The regulated energy sector has a term for a regulator encroaching on the role of the utility:  “micromanagement”.  The basic theory is that utility personnel are in the business of running a utility.  They have both more expertise and better information than the regulator, and so with rare exceptions will run the utility better than any regulator could.  “Tell us what results you want us to achieve”, the utilities say, “and assuming those results are reasonable, we’ll figure out how to get there.  Just leave us to do it.”

Thus, the stick in this exercise is an overreaching by the regulator, crossing a well-understood line – micromanagement – that is there for a good reason, and has stood the test of time.

The carrot, on the other hand, is “light-handed regulation”.  This apparently common-sense theory is that, like a doctor dealing with a healthy patient, the regulator doesn’t have to look as closely at a utility that is clearly better than its peers.

Customers generally don’t like light-handed regulation, because it seems like the regulator is not really meeting its full responsibilities with respect to some utilities.  How do you know the utility’s rates are OK if you don’t take a thorough look?

In fairness, the answer is that the level of investigation can be driven in part by external measures of success.  The critical element is that you set the intensity of your review not on the basis of operational factors, but on the basis of results.

A regulator has outcomes that it can assess using objective tools.  If rates are low, reliability and customer interaction are good, cost benchmarking is favourable, and asset condition is strong, this is probably not a utility that needs a CT Scan and an MRI.

The OEB’s scorecard approach is already moving in this direction.  “If you’re achieving objectively proven good results for your customers, we the regulator have met our goals, and we’re not going to try to fix what isn’t broken.”  While the scorecard system still needs work, there’s nothing wrong with the concept.

The concept of light-handed regulation goes off the rails, though, when it is tied to operational tests, rather than results.  Good results are what matters, and a utility achieving good results does not need the same level of diagnostics as one with issues.  That would be true, by the way, whether the utility has an independent and stellar board of directors, or whether they are effectively run through the local municipal offices (bad, very bad).  Results are results.

Thus, if the implicit promise of complying with the Board’s governance guidelines is light-handed regulation, that is essentially the Board refusing to do its job.  A utility with good governance and high rates needs regulatory attention, and not doing so is a regulatory failure (whether through laziness or stupidity or anything else, it doesn’t really matter).  A utility with lousy governance that delivers for its customers doesn’t need a full-scale regulatory onslaught.  Jumping on them is not only unfair, but a waste.

Who Are They Talking To?

Part of the problem here may be that the OEB is talking to utility management, and consultants, and themselves, and even sometimes (well, a little bit) to customer groups, but not to the owners of the utilities.

Corporate governance belongs, in a very real sense, to the owners of corporations.  Step one in any review process would have to be to go to the owners of utilities and talk to them.

What?  They haven’t talked to the municipalities and other owners of utilities? Apparently not.  (Or at least, if they have, they haven’t told anyone about it).

They have talked to utility management, particularly CEOs, but the OEB doesn’t appear to realize that CEOs and their shareholders have different perspectives on issues like this.

I talked to one CEO, for example, who told me quite frankly that while he can’t publicly support the OEB’s corporate governance initiative, privately he sort of likes it.  If the OEB does what it plans, he expects that he will have more influence over the selection, orientation and training of board members, the people to whom he reports.  His municipal owners will have less influence, because this will be seen to be a regulatory requirement.  It will expand the CEO’s freedom to manage as he sees fit, and reduce the extent to which his board questions what he’s doing.  His job is made easier due to decreased accountability to the shareholders.

It is likely that if you talk directly to a municipality that owns a utility, they will have a different view.  (And as for Enbridge Inc., for example, the publicly traded owners of Enbridge Gas Distribution and now Union Gas, they will certainly have a very different view.)

If the OEB wants to help the owners of utilities improve the governance of those utilities, the right thing to do is ask those owners how the Board can help.  The answer might well be positive.  Municipalities and others may value the input of the Board, consultants and customers, particularly if it is constructive and respectful of their rights.

On the other hand, the answer might be some polite, or less polite, variation on “Thanks for bringing this to our attention.  We’ll take it from here.”

What appears to have happened, instead, is that the OEB is simply moving forward as if the utility owners have no say in this.  It is unclear why that would make any sense.

Conclusion

The Ontario Energy Board’s foray into regulating corporate governance is likely a mistake on multiple levels.

That is not to say that they can’t do some good in this area, just because as the regulator they have an ability to get peoples’ attention.  However, until they recognize that the owners – whose issue it is – need to be at the centre of it, there is little likelihood they can be helpful.

Even in partnership with the utility owners, it is at least questionable whether the OEB should be spending its time barking at this particular squirrel.  The OEB has a lot of important things to do that are within its mandate, some of which are not getting sufficient attention due to finite resources.  Whatever value the OEB could add to the corporate governance issue, it may well be able to add more value in an area for which it actually has both legal responsibility and technical expertise.

– Jay Shepherd, January 7, 2017

 

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How Bad Can It Be, Really?

[This is my fourth attempt at an article on the Trumpian ascendancy.  I usually set an article aside for a day or two, then come back to it and see if it’s silly, prosaic or boring before publishing it.  The first three “Trump” articles, seven thousand apparently pithy words, didn’t survive the sober second thought test.  If you’re reading this, this one did.  Of course, I could have followed the lead of The Donald: all of that stuff could have been shared over the last four weeks, in 140 character 3 AM bursts.  But no.]

Let’s start with some basics.  I believe in democracy, perhaps somewhat naively.  I believe that the genius of the democratic model is that the “public” – many disparate people, some of them stupid and venal, some of them naïve, some of them apathetic – can collectively make wise decisions.  Democracy is the epitome of the aphorism “Some of us are not as smart as all of us.”

Events like the latest American election put this belief to the test, and like many – particularly in Canada – I’m shaking my head at the result.  However, I still believe in democracy, and as strongly as I disagree with this election result, the people have spoken, and they are right.  (No.  No buts.  They are right.  That’s how democracy works.)

The Election is Over

Of course, there is an issue – or maybe more than one – about what the people actually said when they spoke.  Did they say Trump or Clinton?

Many people argue that, with a lead of more than two and half million votes, Clinton was the peoples’ choice, and should be President.  That, they say, is real democracy at work.

There is a part of me that wants to agree, but I know in my heart that I can’t.  The election took place according to certain rules.  Those rules – and in particular the electoral college system – may be archaic.  They may no longer reflect the growing urbanization of America.  However, they are the rules.  I hate to agree with Trump, but he’s right.  Even Clinton probably agrees.

(Imagine.  “The double fault is a stupid rule.  That’s not real tennis.  Tennis is hitting the ball back and forth across the net.  If there were no double fault rule, I would have won.”)

So maybe the current electoral college structure now has a bias against urban voters, which implies an anti-minority bias.  Maybe it should be fixed.  (Or maybe not.  Is it really right that the President of the United States should be selected by the voters in a handful of states?)  Either way, that would be for next time.  Right now it is the way this election was contested, and thus decided.

There have been, and are still, demonstrators in the streets of many US cities.  While their chant is “Not my President”, in fact what they are protesting is how Donald Trump won.  They are protesting xenophobia, and sexism, and victory by mudslinging.

I heard someone say that Trump won by cheating.  Instead of playing the election by the Marquess of Queensberry rules, talking about the issues, he turned it into a cage-fight, where the normal rules don’t apply.  I understand the sentiment, but it’s wrong.  The analogy is not to cheating.  He didn’t take performance-enhancing drugs.  He didn’t rig the voting machines. (Well…I’ll get to that.)

The better sports analogy – at least for hockey fans – is the neutral zone trap.  Perfectly legal for a long time, the neutral zone trap was a way of winning hockey games by disrupting opponents in the middle of the hockey rink (the neutral zone).  It was used for years by weak teams to prevent offensively stronger teams from getting their plays started.  For that reason, and because it makes for boring hockey (the fans hated it), it was banned a few years ago.  Until then, it was a very successful approach that was well within the rules.

Donald Trump played within the rules, but he didn’t play the election game the way many people would like.  He is weak on policy, so he used his own neutral zone trap, disrupting any talk of issues with enough name-calling and finger-pointing to make a five-year-old proud.  He used demagoguery instead of reason to appeal to voters.  He lied, and exaggerated, and obfuscated reality.

Like the Catholic Archdiocese of New York, you might not want to invite him to dinner.  But he won, fair and square.

The third part of the “Who really won?” issue is the rigged election question.  There are recounts going on, but they will almost certainly confirm rather than change the result.  Still, like many I have a nagging feeling that there is something fishy going on here.

I know that there are statisticians and analysts saying that there is numerical evidence of something untoward, but that’s not really the genesis of my doubts.  My doubts come from the personality of Donald Trump.

When Trump first said, during the campaign, that the election was rigged, my immediate thought was “He’s going to rig the election.”  That’s not because I mis-heard.  It’s because he has shown, over and over, a tendency to project his own bad characteristics and bad actions onto others, a defensive reflex that you often see in bullies.  If he is corrupt – and he almost certainly is – then he calls Clinton “Corrupt Hillary”.  If he is lying to get elected, he calls Ted Cruz “Lyin’ Ted”.  If you go through his campaign, you see one example after another where he accuses his opponent of a flaw or impropriety that is, in reality, his own obvious failing.

(Remember “No puppet!  No puppet!  You’re the puppet!”?)

So, when Trump said the election was going to be rigged against him, I read that as an indication that he or the GOP was going to cheat to help Trump win.  It’s brilliant, when you think of it.  Get everyone on the other side swearing that American elections are sacrosanct, and they will be prevented from investigating your own cheating later.

There is still a part of me that wonders whether the fix was in, given both the polls and my sense of the campaign.  However, the election is over, and so far there is no hard evidence of cheating.  Some people, like a dog with a bone, will continue to investigate it for years, and maybe they will eventually find something.  Until someone does find something, though, the election is over.  Subject to the million to one recount shot, a new President has been chosen, and it is time to move on.

Now What?

Once you accept that the new President will be Donald Trump, there are lots of subjects that come up.

He is undoubtedly the President who, in all of US history, is the most likely to fail to make it to the end of his first term: being assassinated (by one of America’s many well-armed nutbars), impeached (by a Congress that, while Republican, doesn’t really like him), or deposed (by generals or his Vice-President, stopping him from firing nuclear weapons in a fit of pique).

His cabinet is starting to emerge as something like a Sergeant Pepper’s Lonely Hearts Club Band parody, but at the bottom of that swamp he promised to drain.

He isn’t even President yet, but through his weak impulse control he is already drawing the US into significant geopolitical black holes, and with India and China no less.

Trump is nothing if not entertaining.  You almost wonder if his election was engineered by the news media to ensure good ratings for the next few years.  (Although if I have to listen to Kayleigh McEnany defending Trump much longer, CNN may have to give way to HGTV in my house.)

Despite all of these juicy subjects, I want to look instead at Vladimir Putin.  What is his game in a Trump reality?  How will the Strongman of Leningrad deal with the Rich Kid of Queens, and where does Putin hope to end up when it all plays out?

This, it seems to me, is the most interesting part of the whole thing, in terms of speculative outcomes.  It could be incremental business as usual.  Or, it could be a very, very big deal.  It depends largely on whether Putin has the cojones he advertises.

There seem to be four possible Putin-Trump futures.

Brothers in Arms

First, and most obvious, they could be just two peas in a pod.  Both bullies with serious insecurity issues, and both relentlessly narcissistic, Trump and Putin could be legitimate best buds because they are so much alike.

Now, two narcissists can’t be friends as you and I might understand the term.  Friendship requires some level of selflessness and sharing, and clearly neither of those is going to happen here.  On the other hand, they may intuitively understand (and fear) each other, and thus have a wary truce, dividing up geopolitical interests and influence in a cautious but collectively selfish way.  If you’ve ever seen two bullies in a schoolyard, each with their own entourage and territory, but never facing off against each other, you may be able to picture this Trump-Putin world.

I don’t think this is going to happen, because Putin is obviously smarter and tougher than Trump.  This future lacks a certain balance.  Still, it has to be on the list.  It is not crazy as a possible outcome.  And, of course, it may be the least damaging outcome for everyone, all things considered.

Global Chess Match

Second, the future could be more like the past, an incremental chess match in which Russia and America match wits to expand, consolidate, or erode their respective spheres of influence in the world.

Putin, despite having once been named a chess grandmaster, is not a player of that game.  Yes, there is the famous story that he played Garry Kasparov (and lost in 11 moves), but in real life he doesn’t have the patience for it.  And Trump is not really the chess type.  (Although I for one would pay to see him play chess:  “Whaddya mean the king can’t ride the horsey.  He’s the fuckin’ king.  He can do whatever he likes.”)

That having been said, both will, by choice or by necessity, be playing chess on the global stage.  Putin (trained as a lawyer, no surprise) is 64, and has been the de facto leader of Russia since August 1999, when he was not quite 47.  He probably thinks he has another ten years or so, and he has certainly shown that he knows how to play the long game (remember the Medvedev interregnum?).  No-one believes that Putin will walk away smiling at the end of his current term in 2020, but at this point he must be thinking legacy.

His strategy during the Trump years could be to invite mistakes by Trump, then capitalize on them in small ways.  Not enough for a confrontation, but enough to expand Russian influence and get back to a situation of two global superpowers, rather than just one.

This is the safest route for Putin.  If he’s careful, he won’t wake up the other powers in America (the Senate, for example), and will be able to parlay a series of small wins into a longer term success.  He has the advantage that Trump doesn’t really listen to others, and – as we have already seen with his ham-handed approaches to Taiwan and China, and then Pakistan and India – will stumble into mistakes simply because of his lack of understanding.  That behaviour is not going to get better any time soon.  Each of these gaffes, and the many more to come, will be an opportunity for Russia to gain some ground.

In this scenario, Putin retires having brought Russia back to its former glory.  More than that he doesn’t need.

This is clearly the likeliest future for Trump and Putin.

Russian Dominance Through Rope-A-Dope

Third, both of the first two options assume that Putin is not going to chase the brass ring:  Russian dominance.

Fareed Zakaria noted recently, in case it wasn’t obvious, that America is currently the dominant power in the world:  “We have less than five percent of the world’s population”, he said, “but the other ninety-five percent look to the US to be the leaders.”  It is not out of the question that Putin sees in a Trump Presidency an opportunity to replace the US as the one dominant global superpower.  “Why not us?”, Putin would say.

Could this happen?  Most certainly it could.

Look at the centrepiece of the Trump “ideology”, if there is such a thing.  He restated it the other day:  “There is no global citizenship.  There is no global flag.  We are citizens of the United States of America, and the only flag we pledge allegiance to is the American flag.”  This, along with his attacks on trade agreements and offshoring of jobs, presages an era of protectionism in the United States.  America dominates the rest of the world through its economy.  Close the borders, and that dominance is undermined.

Further, America is still seen by many in the world as the place where the streets are (figuratively speaking) paved with gold.  Even those who will never be able to move to the US think of it as the place to which they aspire.  If America decides it no longer wants immigrants, the “American dream” may, for many around the world, simply become a thing of the past.

Clearly at some point in the future America will no longer be the dominant power.  (See below.)  There are only really four current candidates to replace America in that position – countries with size, and resources, and aspirations.  Those are the BRIC countries:  Brazil, Russia, India and China.  Brazil is not quite there yet, and it has more limited resources.  India will not be a serious candidate for dominance until they solve their population problem, which is not any time soon.  That leaves China and Russia.  Russia has more physical resources, but a small population and a language issue.  China has more people, but more limited resources, and its own issues with xenophobia.  Both have significant markets close by.  Both have growing business and educational sectors.

In this scenario, Putin pushes Trump to make mistakes, particularly mistakes that hurt China.  It is, in effect, geopolitical “rope-a-dope”, in which Putin, a judo expert, allows or encourages Trump to flail about, while Putin takes advantage of Trump’s lack of discipline.  In the best future (for Putin), Trump ends up in a confrontation with China.  Meanwhile, Putin plays the adult in the room with the Middle East, Europe, and South America, i.e. tough, but the only one with his head on straight.  If he really wants to become dominant, he also opens up Russia to immigration to solve his under-population problem, and expands his reach through “acquisition” of the Baltic States and Finland.

Do I think this is going to happen?  That is really a two part question.  Do I think Putin will try this?  I think it is a reasonable possibility.  Never underestimate the patriotic fervour of Russians, or the personal ambition of Vladimir Putin.  On the other hand, do I think Putin can succeed at this strategy?  Not really likely.  That would be to underestimate the ability of America, and its diverse political institutions, to re-orient a White House that has veered off course.  The US will one day decline.  That is inevitable.  However, it will not go easily.

The Fall of the American Empire

Fourth, and even more extreme, Putin could seek to push America over the cliff.

Now, before you scoff, start by accepting some obvious truths.  America is an empire, and all empires ultimately fail.  The world has become smaller, which means that the evolution of world power is moving faster.  US dominance has been driven in large part by its own economic growth (fed mainly by immigration and trade), but growth cannot continue forever.  I could go on.

Perhaps more important, most empires fail because of internal conflicts, and America has the early signs of a similar future.

Someone said to me this morning, in all seriousness, that there is going to be a race war in America.  While unlikely, is that completely out of the question?  Not at all.  The USA struggles to handle a racial divide that has almost destroyed the country more than once.  This election brought that divide back up to the surface (we are seeing it already in the aftermath).  In fact, the election also highlighted a significant urban-rural chasm that is only partly based on race and ethnicity.

More than that, though, the election put a spotlight on a large segment of the US public that is dissatisfied, and looking for someone to blame.  In a heavily armed country, this personalization of economic dissatisfaction into good people and bad people is very dangerous, on both sides, yet it is in fact how Donald Trump got elected.

The interesting thing is that, for this risk to be realized, it doesn’t really matter whether Donald Trump does all the things he said he would do.

If he does, the US will become isolated from the rest of the world, the economy will stagnate, the wealthy will appear to be protecting/enriching themselves, minorities will feel threatened (and justified in defending themselves), and middle America will still be suffering.  Trump will be a one-term President, but at a cost, and with a serious risk of conflict along the way.

If he doesn’t follow through on his promises, on the other hand, his working class base will once more feel betrayed.  Their need to “drain the swamp” could become acute, leading to even more extreme winners in the mid-term elections, and again the risk of conflict.

Sooner or later, someone has to actually provide real, sustainable solutions to the systemic problems of middle America.  It certainly isn’t going to be Trump, either way.  Without solutions, the polarization in American society isn’t going to get better by itself.

From Putin’s point of view, the question is whether he can, with the right kind of nudge, get the US over the precipice.  Is America sufficiently vulnerable right now that supporting dissidents (on both sides), attacking America’s internet security, seeding external threats from radical jihadists, and challenging the US internationally, can push a tense political and social conflict across the line to become a true civil conflict.  That’s what Putin has to assess.

Once more, do I think this will happen?  Not really, but it is no more crazy than the “best buds” scenario.  Putin is perfectly capable of seeing this as an opportunity to sink the US, and equally capable of going for it.  Trump and his advisors are certainly capable of screwing up, domestically and internationally, in egregious enough ways that the cliff will be tantalizingly near.  And, the USA may in any case be closer today to actual internal conflict than it has been since the Sixties.   The table has certainly been set.

Conclusion

Amidst the angst (or, in some cases, exuberance) of the Trump victory, and now his pitiful victory lap, we are not always focusing on how others around the world will respond to a Trump Presidency.

For some countries, and their leaders, Trump in the White House will simply be a problem to be managed.  For others, however, it will be an opportunity to be exploited.

Those are the countries, and leaders, that pose the real threat.

 – Jay Shepherd, December 3, 2016

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

Teachers

As a society, we don’t value teachers enough.

To my mind, a society should value work – in the sense of the rewards society delivers to people who do that work – based on two factors.  First, how important is the function to society?  Second, how hard is it to do?  If you value teaching based on those factors, teachers should be much higher up on the list.

Obviously teaching is a critically important role in our society.  We hand them our children, for crying out loud.  We ask teachers to guide our children to learn the things they need to know to be happy and functioning adults.  We ask them to take a key role in supervising their socialization and growth.  And, in a broader sense we rely on the teaching profession to prepare a new generation to be useful and productive, one of the fundamental drivers of every economy throughout history.

Compare teaching to law, for example.  Sure, it is important that we have lawyers.  (Otherwise, I’d have had to become a professional golfer, and who knows how that would have turned out.)

We pay lawyers a lot of money.  I know lawyers who make more than a million dollars a year, and I think the average after ten years is something like a couple of hundred thousand.  Certainly, every lawyer I know makes more money than any teacher I know, and with more upside.

Sure, lawyers often don’t have a pension or other benefits like teachers, but some do.  And, they make three times what a teacher makes, so it pretty well doesn’t matter.

Yes, yes, their job is important in at least some respects.  If we didn’t have lawyers, where would our politicians come from?  We’d have to elect real people.  More seriously, our systems of dispute resolution and commercial dealings and human rights all rely heavily on the specialized skills of lawyers. Be as cynical as you like.  They are still important for society’s efficient operation.  Modern societies have to have complex rules in order to function properly.  Someone has to understand those rules.

But does anyone really think that lawyers are more important to society than teachers?  Surely not.  At the end of the day, most lawyers deal primarily with money.  Teachers are responsible for our children.  OK, some lawyers (typically the ones paid the least, by the way) protect our rights, or protect the environment, etc., but ALL teachers are front and centre directing the lives of our kids.

I will agree that the job done by doctors is at least as important as the job done by teachers (and they are paid much more, I note).  Setting doctors aside, there is a long list of professional and other roles that are rewarded more highly in our society than teaching.  Rarely would we say that those roles have a higher intrinsic importance than teaching.  Accountants?  Architects?  Engineers? Actuaries?  I could go on.  All important.  But more than teachers?  Really?

If we can agree that teaching our children is a role in society that we should value highly for its intrinsic importance, we still have to ask the second question:  How hard is it, anyway?

To answer this properly, you have to ask not just how hard is it to teach, but how hard is it to teach well.  People who argue that teachers should be happy with what they get tend to focus on the mediocre teachers, not the stars.  I look at it from the other way around.  First look at how hard it is to be a great teacher.  Once you have set the value – in societal terms – of the great teachers, then you can look at how to value those who are less exceptional.  (Or, maybe the job is so important that you figure out how to ensure that more people who choose teaching end up being really great at it.)

If you look at the really great teachers, you see that they have qualities that most of us don’t.

They can’t just understand their subject or subjects.  Lots of people understand math.  (Yes, really.)  That’s not enough.  You have to understand it both at an operational level – how it works – and at a conceptual level – the underlying structure and logic.  Once you have that second level of understanding, you can communicate that understanding to others.  A good mathematician is not necessarily a good math teacher.

That leads to a second quality, the ability to communicate.  The average person finds it difficult to stand up before a room full of people even once in a while, for example to give a presentation.  Teachers spend all day, every day, in front of a crowd (and not always a receptive crowd).  They have to capture the imagination of a group of young people who have many natural distractions, and they have to communicate ideas and concepts that are not always intuitive for kids.  For younger kids, they face short attention spans.  For older kids, they face conflicting priorities and cynicism.

Teachers can only be great if they have natural empathy.  Connection is critical, but not everyone can do that.  Even those who can will usually have difficulty connecting with many different types of people, and in an environment where there are a lot of people seeking to connect with you at the same time.  This is made more difficult by the fact that you are seeking to connect with people who are not your peers, and whose lives do not have a great deal in common with yours.  A thirty-five year old teacher has to connect with a seven year old student, understand what that student is feeling, and reach his or her soul.  Every parent knows how hard that can be, and parents are dealing with young people they know really well.

The best teachers are motivational.  Part of that, to be sure, is empathy, and another part is communication skills.  Those traits are still probably not enough.  The very best teachers also believe in the potential of their students.  They are inherently optimistic about life, and about people.

All of these mostly natural skills have to exist side by side within a personality that is willing to work hard, and able to put up with society’s limitations on both the resources available to them, and the freedom they are given to do the job as well as they can.  Yes, teachers sometimes get some of the summer off.  They also often work fifty hours a week during the school year.  And, when they go into the classroom, they drag the shackles of bureaucracy and restrictions along with them.   Most of those restrictions are necessary, to be sure, but they are still a straitjacket that makes it more difficult to be empathetic, motivational, and exciting for the students.

OK, not all teachers are the paragons I’m describing.  But some are, and we would be happy if more reached that level.  And maybe the fact that some are not as good at it as we would like is a chicken and egg issue.  Maybe if we valued teachers more, we would get more good ones.

So why am I going on and on about the value of teachers?  Well, part of it is that this subject originally came up in September, the time of year that teachers are suddenly more top of mind for parents. In that time period I certainly heard lots of talk from parents of younger kids (mine are adults) about whether their kids got the best teachers, or the ones they wanted, or the ones most in demand, etc.

But what actually set me off was that someone casually mentioned the name Dorothy Prosser.  Dorothy Prosser was the epitome of what a teacher can be.

How many of us have felt the profound influence – whether positive or negative –  of a teacher?

Certainly Dorothy Prosser, my high school English teacher, had a hand on the dial, helping to map the trajectory of my career and my life.

When I hit high school, I was already a reader, and I already liked to write stories.  High school, and being a teenager, presented a blizzard of new challenges and influences, any of which could have  pushed me in one direction, or the other (and sometimes did).  That included dozens of teachers, some good, some bad.

But Dorothy Prosser was special because, to her, each of her students was an individual.  Some needed remedial assistance.  Some needed to cope with their insecurities.  Some needed to be encouraged to spread their wings.  And some, like me, needed to learn how to see what was possible.

“You can write a short story?” she told me.  “Good, now write a poem, a sonnet.  Write a play.  Write a piece of non-fiction that will teach me something, and keep me interested at the same time.”  Her constant theme – test your capabilities, see what you can do – pushed me to challenge myself.  It was never whether my writing was better than the next student.  It was always whether my writing was the best I could do.

The paradigm she presented led me to be a lawyer, a career in which my written work is likely my strong suit. And now, later in life, I’m once again becoming a writer.  Along the way, I’ve been lucky enough to have many positive influences – my wonderful parents, my great kids, friends who tell it like it is – but one teacher, way back when, still touches my life every day.

Do you have a teacher like that, one who, even today, you can say had an enduring influence over your life?  Many people do.  Proof positive of the critical value we get from those who excel at teaching.

Society is not going to change the monetary value we place on the job of teachers any time soon.  We have this view that teachers are a kind of specialized category of public servants, and should be slotted into a rewards category comparable to other public servants.  Valuing their work more, at least in any tangible way, is about raising taxes, not about providing the best for our kids.

That’s wrong, certainly, but it is what it is, and it’s not going to change.

What we can do, as individuals, is remind ourselves of the dedication and contribution that teachers give to all of us, and particularly to our children.  If we’re not going to pay them what they’re worth, at least we can give them the respect they deserve.

Yes, I know this was a bit of a rant, and for those of you have heard it before, over the years, I apologize for the repetition.  Our attitude towards teachers sucks.  That pisses me off.  Simple as that.

Jay Shepherd, November 25, 2016

Posted in Life Lessons, Social Change | Tagged , , | Leave a comment

Energy #13 – The OEB Goes Bold

Someone called it “principled”, but that, although true, is probably an understatement.  A better word for it is probably “bold”.

“It” is the Ontario Energy Board’s decision, released yesterday, on expansion of the natural gas system into unserved communities in small town and rural Ontario.  The two main utilities, Union Gas and Enbridge, had proposed 68 expansions that, by themselves, would be uneconomic.  However, under those proposals the existing natural gas customers would subsidize the 34,000 new customers, essentially forever, to the tune of more than $500 million.

The OEB said no.

In a decision that surprised many in the energy sector, the OEB said that they will allow utilities to charge location specific rates to customers in new communities, but they will not allow those expansions to be financed with subsidies from existing customers.  If the new customers want gas service, the OEB said, they must be willing to pay the cost themselves.

The Problem

The lack of natural gas service in many Ontario communities is a political hot-button.  Places like Kincardine and Fenelon Falls see the lower monthly bills for space and water heating (using natural gas) in London and Mississauga, and wonder why they have to pay two or three times as much (for heating with electricity, propane and other more expensive fuels).  They say, quite correctly, that if they had gas distribution infrastructure to their towns, that would be a significant economic boon to their residents.

In fact, the evidence in this proceeding supported that view.  For just the 34,000 Ontario residents for whom new gas service was proposed, the net present value of the economic benefits (basically, lower heating bills), would be more than $700 million.

So why don’t more communities have natural gas?  The answer is depressingly mundane.  Under the current rules, Union and Enbridge charge what are called “postage stamp rates”, meaning that all customers pay bills calculated using the same set of underlying costs.  If it costs more to serve a customer in Toronto than in Peterborough, that doesn’t matter.  Both have their bills calculated on the same basis.

The problem is that serving Kincardine is as lot more expensive than serving London, because of the high cost to build gas transmission lines all the way to Kincardine.  If you want gas service in London, the existing mains are a hundred meters away, if that.  If you want gas service in Kincardine, the existing mains are a hundred kilometers away.  If a utility has to spend a lot of money to serve a new customer, but can only charge the same rates as existing customers, they will lose money on that new customer.

The existing solution to this has been to ask the new customers to pay an upfront fee to be connected, sometimes as much as $20-30,000 per customer.  Needless to say, most homeowners don’t have that kind of money.  Faced with that option, they stick with propane or electric, even though over time paying the upfront cost would be cheaper.

Responding to the cries of unserved communities, the government announced in 2015 that it would provide up to $200 million of loans, and $30 million of grants, to help these communities get natural gas service.  The government also wrote to the OEB, asking that the OEB look at the process for approving expansions of the natural gas system, to see if it could be adjusted to reduce barriers to expansion.

At the same time as this was happening, however, over in the Ministry of Environment and Climate Change, the Climate Change Action Plan was being developed.  Under that plan, all fossil fuel use would have to be reduced.  The best estimate was that natural gas use for space and water heating would have to be reduced by 40% by 2030.

The seeds of an interesting political and regulatory conundrum were being sown.

The Proceeding

Union Gas made an application in 2015 for approval to serve 29 new communities, with an average of about 60% of the cost borne by existing customers rather than the new ones.  Before that got too far advanced, the OEB realized that this issue was bigger than just one Union Gas application, particularly given the letter from the government.  So, on their own the OEB initiated a generic hearing to reconsider the rules for expansion of the gas system.

In particular, the OEB wanted to find out what utilities, industry groups, and customers thought they should do with proposals for expansions that were otherwise uneconomic under the current rules.

What had, in the Union Gas proceeding, been a fairly contained discussion became a major case as a generic proceeding.  A total of forty-three parties signed on as intervenors, representing a broad range of interests.  This included seven utilities, five from Ontario and two from outside Ontario.  It included eleven customer groups, representing interests as diverse as farmers, large industrial users, seniors, tenants, and landlords.   There were eleven municipalities or municipal coalitions, and four groups representing First Nations.  One environmental group participated, as did eight industry groups, representing a host of options, such as oil, propane, and renewables.

(Full Disclosure:  I was counsel for the Ontario Geothermal Association, a renewables industry group, and my colleague Mark Rubenstein was counsel for the School Energy Coalition, a customer group.)

In addition to the proposal from Union Gas to expand to 29 communities, Enbridge then proposed 39 communities where they felt subsidized expansions would be appropriate.  Combined, 34,000 new customers would have been added out of the approximately 1.4 million Ontario households not currently served by natural gas.  Total subsidy requested by the two utilities, more than $500 million to be paid by existing customers to assist these new customers to have lower heating bills.

From the outset, the subsidy concept was opposed by a diverse group of intervenors: customer groups, competing energy sources (like propane and geothermal), environmentalists.  They each had their own reasons for opposing the concept, but despite being strange bedfellows they sang various parts of the same tune: existing customers had to pay their own way, so they shouldn’t have to subsidize new customers; the regulator should not prefer one energy source over another; and promoting the expanded use of any fossil fuel is contrary to the direction of history.

On the other side, the utilities were clear that, without subsidies, they could not expand into these unserved communities.  Supporting them were the municipalities and the First Nations, who were just as clear that they wanted to attack their energy costs through expansion of gas service, on a subsidized basis, to their areas.  “Energy poverty”, a significant and growing issue in Ontario, was front and centre.

The OEB heard evidence from several groups, and from the utilities, and then received more than fifty submissions – several hundred pages – on the issues before them.  Those submissions dealt with legal concerns (e.g. What is the OEB’s mandate in choosing between energy options?), technical energy policy issues (e.g. How do you calculate whether a proposed expansion is actually economic?), broader public policy issues (e.g. What are the solutions to energy poverty in rural and northern Ontario?), economic issues (e.g. How will the market respond to regulatory choices?), and environmental policy (e.g. How will the gas industry be affected by the public goal of reducing GHG emissions?).

Overlaying all of this was an unstated but hugely important meta-issue:  How will the OEB maintain its independence and integrity in the face of what is clearly a highly complex but fundamentally political combination of issues?

The Decision

When this process started, it was not clear that the result would be a regulatory decision of seminal and far-reaching importance.  The OEB deals with expansion applications all the time, and they are non-controversial.

Here, too, the OEB could have made the decision in this case less controversial, opting to tinker with its existing rules just enough to allow a few more expansions to go ahead, without opening the floodgates to large scale subsidization.  “Just give them a little bit” would have been the safest approach.

That’s not what they did.

In what can only be described as a bold decision, the OEB walked through the issues using fundamental regulatory principles as its measuring stick.  At each fork in the analysis, the Board members asked what principles should apply, and then how should they be applied on the facts in this case.

So, on the question of whether existing customers should be required to subsidize uneconomic expansions, the OEB applied the principle of “benefits follow costs”.  Customers of a monopoly service, the OEB said, should bear the reasonable costs to serve them.  They should not be given a subsidy by other customers, who are not getting the benefit of those additional costs.  Thus, said the OEB, if the new customers are getting $700 million of benefits, and the costs to serve them are much less than that, they should pay for the benefits they are getting.

But then, if there is no subsidy from existing customers, and the expansions are uneconomic at current rates, doesn’t that mean they won’t happen?  For that, the OEB looked squarely at the concept of “postage stamp rates”.  If the reason you can’t expand into Kincardine is that we, the OEB, will only allow you to charge the same rates as London, maybe we should remove that restriction.  Is that a principle that we need to follow, or is it a barrier that we need to destroy?

The OEB decided that it is a barrier.

This leads to what are called “standalone rates”, meaning rates that are specific to the costs to serve a particular geographic area or a particular group of customers.  If Union Gas can expand its service into Kincardine, but to pay for that expansion would require Kincardine rates to be higher than London rates, would that be OK?  The OEB did the math.  If they allowed rates for expansion areas of about $70 a month more than existing rates, those customers would get an average of $190 a month in savings from their existing costs for alternatives.

The barrier to entry, said the OEB, is postage stamp rates.  That is what leads to asking homeowners in an expansion area to write five figure cheques for gas service.  If, instead of writing those big cheques, those homeowners had a new monthly bill that, while higher than London, is lower than their current bill, will they sign up?  Probably yes.

Thus, by freeing up the utilities to charge the expected cost to serve new communities, the OEB frees up those new communities to choose gas service if it is the best option for their needs.

This also solves another problem.  It is a general principle that an economic regulator shouldn’t interfere in functioning competitive markets.  Regulators like the OEB deal with monopoly power, but are expected to respect market competition.  The principle is thus that the monopoly regulator should allow service providers to compete on a “level playing field” whenever possible.

Here, a subsidy for monopoly gas distributors would have tilted the playing field in their favour, and against the providers of heat via propane, oil, geothermal, electricity, and other means.

On the other hand, rejecting the subsidy concept, but allowing more palatable ways of charging full price to gas customers (through “standalone rates”), means that gas competes head to head with other options.  If customers agree that gas is the better choice, it will out-compete its competitors.  If paying full price for gas over the long term means that other choices are better, then those other choices will prevail.  The market does some things well.  This is one of them.

The other principle the OEB engaged is flexibility.  There was a temptation for the Board panel to be very prescriptive in what it expects, or will allow.  Instead, the decision makes clear that in each expansion application the OEB will look at what is fair and reasonable in that case.  For example, things like the location-specific rates to be charged, or any contributions from the municipality (to support economic development) will be resolved on an individual basis.  These things don’t all need to have detailed rules cast in stone.  Once the principle is accepted that those who benefit, pay, then the utilities, local municipalities, businesses and residents are invited to develop a plan for each community that suits everyone’s needs.

All of this was done without one word about the political ramifications.  The OEB – sometimes accused recently of being too attuned to the political winds – reverted to its independent, economic regulator roots.

Climate Change Action Plan?  The OEB recognized that it will be an important influence on the natural gas industry, but concluded that its market-driven approach to community expansion will allow gas expansion to be influenced in a natural way by relevant government policies.  No need to figure it all out now.  It will evolve.

The government wants more municipalities to have gas?  Great.  We – the OEB – are not going to stand in the way.  We’ve removed the main barrier by allowing standalone rates.  If the government wants to provide subsidies, they can (with a recommendation that the subsidies be to homeowners for conversion costs, rather than payments to the gas utilities).  We – the OEB – are not in the transfer payments business.

The Implications

There are four main implications of this decision.

First, expansion of gas service into unserved communities will proceed, but at a much slower pace than the utilities had proposed.  Utilities are by nature risk averse.  At full cost, it is harder to get people to convert from propane or electricity to gas heating.  Once converted, it is harder to get them to stay on gas.  The price differential is simply not enough.  Therefore, except in a few cases in which gas service is close to being economic at current rates, most of these 68 proposed communities will not likely get gas any time soon.  Without the subsidies, the risk to the utilities will be too much for them to proceed.

Second, the gauntlet has been thrown down to competitive suppliers of heating options.  The OEB heard serious negative feedback about existing supply options.  The existing suppliers, and new entrants like geothermal, have received a loud public invitation to show that they can provide local energy service better than the natural gas distributors.  Once price is taken out of the equation through standalone rates, the competitors to natural gas are being told to “put up or shut up”.  How they respond, particularly in an era of climate change action, will be telling.

Third, the OEB has reasserted its role as an independent and professional economic regulator.  If this is a portent of things to come, an OEB not seen as being swayed by the political trends of the day will be welcomed by many in the Ontario energy sector.  Of course, it remains to be seen if this is a new direction, or an anomaly.  What is certain is that many in the sector will be watching more closely than before, to see which way the OEB goes.  (One industry insider referred to it as “Return of the Jedi”)

Fourth, the value of a generic hearing to deal with tough policy choices has once more been affirmed.  In recent years, the OEB has moved away from generic hearings, because frankly it can cost a lot to have a comprehensive, evidence-based public analysis of policy options.  Instead, the OEB has been using consultations and stakeholder sessions, in which everyone expresses their opinions, but there is no actual evidence put forth.

Had this proceeding been a consultation, the kind of bold and principled approach that we have seen would have been much less likely.   It was only because of the hard evidence, tested through cross-examination, and the ability to engage in constructive and thorough dialogue in front of independent adjudicators, that a strong decision such as this was even possible.

Does this mean the OEB will have more generic hearings?  Probably not, but they should.  This is proof that they can work very well indeed.

All in all, a seminal decision.  Used well, it could have serious positive benefits.

–  Jay Shepherd, November 18, 2016

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Millennials

In a meeting the other day (a dozen white males in their 50s and 60s, as is so often the case in the energy sector), a discussion arose as to how to get the organization’s message out, both to the public and to the government.

After a few suggestions for case studies, and direct mail, and a glitzier website, it quickly became apparent that none of that mattered.  Why?  Because the people we had to reach are millennials.  The optimum approach, a Youtube video.  Maximum length?  90 seconds.

Much consternation.  90 seconds??!!  How could you possibly tell a proper story in 90 seconds?  Yet, as the discussion stumbled on, it become quite clear that this was exactly what we had to do.  To get our message out to the public, and to the government, we had to make this work.  Without the millennials, we would have nothing.

Sometimes in discussions like this I zone out (hopefully without anyone knowing I’m doing it) to follow my own train of thought.  Here, those rebellious thoughts were two realizations, both of which may have been obvious, but both of which were still jarring when they hit me.

The first realization was, baby boomers don’t matter anymore.  I, in fact, don’t matter anymore.

Yes, I know.  The baby boomers still hold the reins of power, and there is even some question whether we are willing to give them up as quickly as we should.  We seem to be hanging on pretty tightly.  (Or, as one person put it to me the other day, we’re playing elbows-up on the boards, a la Gordie Howe, rather than give up the puck.)

But as much as we may still be in charge, what we think doesn’t matter as much.  When you want to change public opinion, or introduce a new idea, you don’t try to sell the baby boomers.  You go after the millennials.  It is what they think that will matter, in the end.

The most obvious place to spot that is in voting.  When politicians are out stumping for votes, are they chasing the votes of baby boomers?  The surprising answer is, no.  Although baby boomers are more likely to vote than millennials, and there are still a lot of them, the ability to change the vote of a baby boomer is much less.  We are who we are, and we decide how we were going to vote very early in the process, likely based more on party lines than issues.  Our votes are not in play.

Millennials are not as certain to vote, and their allegiances are more fluid, so their votes are (defiantly and pointedly) in play.  A politician who can appeal to them on the issues, and who campaigns well, can create a wave of enthusiasm that will deliver a lot of votes.  Justin Trudeau is a prime example of that.  He may not be a millennial, but his strong support from those in their twenties and thirties was one of the foundations of his victory.  Bernie Sanders came closer than anyone would have expected to being nominated for US President on the basis of the same approach.

Another nail in the baby-boomer-relevance coffin is consumption.  Advertisers don’t target baby boomers.  Why is that?  We have more money than our kids, and we sometimes even like to spend it.  Why don’t advertisers love us?

The answer is that, while we do buy a few things (like travel, and pharmaceuticals), for the most part if we do have the money we also have the things we want already.  Millennials, on the other hand, face a lot of purchases of goods and services.  What good is it to advertise cell phones to baby boomers?  We are not seeking the next new thing (we still have Blackberries, for goodness sake), and when we change it will be on the advice of our kids anyway.  The same is true of most consumer durables, and many of the other accoutrements of Western society.

The same thinking extends to ideas, which means new policies, new technologies, and new ways of thinking generally.  Millennials – whatever their parents may think – are grappling with a changing world.  They don’t always like how things are going. (Ungrateful wretches, say the baby boomers, conveniently forgetting their own views in the 60s.) Millennials think there may be other ways of tackling problems.  Their minds are more open, in part because they are not as full of pre-conceived notions and hard-and-fast positions (what baby boomers like to refer to as “experience”).

And, while the millennials may not be conscious that they are preparing to take the reins of power, that is exactly what they’re doing.  Baby boomers have the power now, but the change has already started.  In Missouri, millennial Jason Kander may take down one of that state’s most powerful political families to become a US Senator.  Amazing, perhaps, but inevitable.

So the first realization that hit me is that our time is past.  We just don’t know it yet.  Our kids are taking over.  (I hear Elton John singing “The Circle of Life”.)

Of course, not being in charge doesn’t mean no longer having a purpose in life.  But, it is a different purpose.  (It involves less reverence, perhaps, but more slippers.)

Second, and perhaps much more important, millennials are different from baby boomers.  They are just not like us.  No way to sugar coat it.

Again, yes, I know.  Our kids are very much like us.  We instilled in them our most basic values, many of which we got from our own parents.  They have personality traits and ways of thinking and acting – good and bad – that are just like us, sometimes so much so that it’s scary.

But in many ways, they are also very different.

This is no more surprising than the first realization, of course.  Look at the world into which we have thrown the millennials.

  • It is a world suffused with technology, where not just physical activities, but even most types of information, are firmly rooted in the capabilities of machines. However, that means it is also a world in which there is less productive work for humans to do, and so there have been and continue to be fundamental changes in the relationship between people, their jobs, and their lives.
  • It is a much smaller world, because what happens anywhere else is happening here, right now. We video chat with people on the other side of the planet as casually as we would talk to a neighbour over the back fence.  When terrible things happen in other countries, we experience them in real time.  We see wars up close.  They are in one sense more real because we see them, but at the same time perhaps more abstract, because we see them so often.
  • It is a world jammed with many more people, and the problems those people create living cheek by jowl in many places in the world. As the overall standard of living in the world increases, poverty and famine are also increasing.  The problems are also different.  Nuclear war was one thing.  (It had difficult, but shorter-term if perhaps temporary, solutions.)  Climate change is quite another.
  • It is a world that is only a speck in an almost infinite universe that millennials have experienced – in all of its massiveness – much more than any other generation. The significance, or insignificance, of humans plays out before millennials every day.
  • And, unless some radical change occurs, millennials have a very good chance of living, and being healthy, beyond 100. A 100-year life doesn’t work with a 70-year life plan.

This different world means that, in important ways, their lives will be different from ours.

To test this, ask yourself the question: “Do you ever wonder whether your advice to your kids is really what’s best for them in the current world?”  We tell our kids to go to school, get a good job that will provide them with long-term security, buy a house, start a family, save for retirement.  In short, all the things we were supposed to do (and sometimes did).

Could that advice be wrong?  The answer is, almost certainly, yes.

School is important, no question about it.  But school is not the same today.  Where baby boomers went from high school to university (or not, as was often the case), and then to a job, millennials face the inevitability that they will have to learn new things many times in their lives.  Early, the most important thing for them to learn is how to learn, because the world is changing too rapidly for the things they learn at 20 to be either true, or relevant, at 50 (or perhaps even 30).

And jobs?  Does anyone think that the typical 30-year-old today will still be working for the same employer, in the same business, when (i.e. if) they retire?  Economists call the new normal the “gig economy”, meaning that jobs are temporary gigs, lasting as long as they are needed, or you still want to do them.  Then, you need a new job.  Or maybe a new career altogether.  Having one employer in your life is an economic buggy whip.  Ten jobs – some employment, some contract, some your own business – will be the new norm, and even that number is probably low.

Canadian Finance Minister Bill Morneau calls it “job churn”, but that likely misses the point.  It is not that jobs are less secure today, although that is certainly true.  It is, instead, that there are less jobs available, and in today’s much smaller (due to globalization) world there are many more people competing for that work.  That situation is not going to get better.  It will, instead, accelerate.  For millennials, building a happy and secure life will require more personal responsibility, more discipline, and more flexibility than the baby boomers ever had to find in themselves.

Yet these things pale beside the real ways in which the world is different.  The baby boomers lived in a world where they couldn’t know most things.  It was just not possible.  You could build an area of expertise, and become knowledgeable in that area, but for most things in life, there were going to be vast gaps in your knowledge.  You had to rely on others, who did have that knowledge.  There was no practical way you could know much about anything other than a small set of areas that interested you.  (On those, you could get really good.)

Today, knowledge is available at the fingertips of anyone who wants it.  While there may be too much of it, the average person can learn any fact they want, relatively quickly.  This is not just the demise of the skill of trivia.  Baby boomers grew up understanding that they would not know things, so they got comfortable with not knowing things, not caring about that gap.  It was normal.

Millennials acquire facts just because they want to.  How are bagels different than  bread?  What are the different types of elephants?  How does a black hole work?  What are the problems in the prison system?  What is life really like in a remote aboriginal community?  Even the most avid readers amongst baby boomers access a small fraction of the knowledge that millennials can – and do – access easily.  Of course, baby boomers are adapting, but for millennials it is second nature.  They think differently than baby boomers.

The mass of information also means that millennials take a different approach to acquiring new ideas.  A baby boomer reads a book – an expert analysing the components of a subject and presenting some new ideas – and assesses whether they accept the new ideas of the author.  It is a largely binary, often passive, response.  The publishing system has essentially curated the information for them.

A millennial gathers information in small chunks (hence, the 90 second Youtube video), and then follows the train of thought to find additional sources.  This continues only as long as they are interested.  Each new snippet of information, small though it is, can be assessed as reasonable or not.  Differing pieces of information can be compared, and the “truth”, at least for some things, can be crowdsourced.  Acquiring ideas is more a meander through the forest.  It is no longer as much of an organized trip, with a pre-determined route and plan.

Aside from the fact that discovering new ideas, for millennials, involves more self-directed effort, the converse is that millennials continue to get inputs on those ideas well after they have reached a conclusion.  Thus, a conclusion is not necessarily a decision point.  “Yes, I accept this new idea” actually means “Yes, for now”.  As new information emerges, the idea will be either supported, or undermined, or modified.  Knowledge is fluid.  A scientist recently told me that millennials have discovered what scientists have known for a long time: the truth will always change.  Very few things are set in stone.

There are many other ways in which millennials are different from their parents.  We should not be surprised.  We are just as different from our parents, much as we often reject that notion.  The ways in which the generations are different have changed (baby boomers turned away from religion, for example, a key staple in their parents’ lives), but the depth of the change is not less.

My two realizations are, as I noted, pretty obvious when you think about them.

These realizations may be a bit of a gut check, but probably not enough to warrant the shaking of heads and quiet disapproval that baby boomers sometimes display.

Knowing that millennials are an entirely new breed of people, different from us, and yet getting ready to take charge of “our” world, shouldn’t make us worried.  It should give us hope.  We took the world of our parents and, in many respects, made it a better place.  Our kids are getting ready to do the same.

We should expect, and anticipate, nothing less.

  –  Jay Shepherd, October 31, 2016.

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Lives #8 – Sandra Has Died

[This is the eighth in a series of stories about interesting people I’ve known, a series I call “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 easily identifiable.  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.]

The message I got last week was terse:  “Sandra has died.”

At the funeral, I stood beside the sender of the message, one of Sandra’s sons, as he and his brother stood tall and stone-faced in the cold fall air.  There were a lot of people there, because Sandra was a social person.  Many people did not know each other, but some still talked: brief, admiring comments on Sandra and her life.  A lot of people liked Sandra, as did I.

I didn’t go back to the house after the cemetery.  I can talk to the boys another time, and I don’t really want to talk to her many other friends.  I probably don’t know any of them, and so I don’t know what they know about Sandra’s life.  Easy to make a mistake.

Sandra was my very first client as a young lawyer, and it was certainly a strange way to start the practice of law.

I was 28 years old, just starting as a tax lawyer with a medium-sized Bay Street firm, (now called “Blaneys”).  I had no clients, and the expectation was that the firm would provide me with their clients needing tax advice for the first several years.  I wouldn’t have to find clients of my own. (That turned out to be completely wrong, but that’s a story for another day.)

Only a couple of weeks after starting work, I got a call out of the blue.  It was a woman who needed some advice on how to structure her real estate and other investments in a tax-efficient way.  She got my name, she told me, by looking at the list of lawyers who had just graduated, and researching to see who might be right for this task.  I had a notable academic record, and the right specialty, and a credible firm.  She thought she’d try me out.

Certainly an unusual way to approach it, I thought, perhaps with a little wariness lurking in the back of my mind.  But I agreed to meet with her.

Anyway, she came into our office a few days later, and a very nervous young lawyer (this was, after all, my first client meeting, so I was petrified) met a woman of 35 or so who seemed to be very much on top of her legal and financial situation.

The awkward unfolding of the conversation is perhaps interesting, but lengthy and ultimately irrelevant.  My style as a lawyer, which started then and has continued throughout, was all about lateral thinking, which meant I had to find out as much as I could about any client, on the theory that even some apparently random fact about them might be the key to solving whatever problem I had to solve.  The conversation, therefore, was about Sandra, her situation, her life, and what kind of person she was.

Her situation was that she had a good deal of money, all of which she had earned herself.  She had been saving for fifteen years, building up a portfolio of Toronto real estate, plus stocks and bonds, and now wanted to develop a plan to use her savings to transition away from her current job.  In effect, she was, over the course of a few years, planning to retire and live off her investment income, while perhaps finding a new career.

What was wrong with her current career?  Well, she was a prostitute – call girl, as they were called then, to distinguish them from streetwalkers – and she realized that by the time she was forty she would be much less in demand.  She had no desire to end up as – her precise words – “just another piece of meat”.

Sandra’s story, told to me then and over the next several years that I worked for her, started when she wanted to go to university in the early 60s.  Her father, who seemed like a pretty unfatherly sort of guy, refused to contribute to her education.  Girls should get married, he told her.

(Actually, he told her that women are all sluts, and the best they could hope for is that a man would look after them.  When I first met Sandra, she was completely estranged from her father, and I don’t think she ever talked to him while I knew her.)

Not willing to accept the limitation, Sandra decided she had to pay her own way.  A high school friend suggested that she come along to a party where men might pay for her company.  She did, and it didn’t take long until she was a regular making a good income.

Sandra knew from the start that she was different from her peers in the sex trade.  For one thing, she was not particularly good looking.  More like “ordinary”, she would have said, although she also said that it never seemed to matter.   For another thing, she saw selling her body as simply a job, and didn’t get wrapped up in either the morality of it, or the lifestyle.  She needed money to get a degree, and this was the easiest way to achieve that goal.

It helped that she really didn’t like drugs or alcohol, then or throughout her life.  While she was sociable, certainly, she was more a thinker than a partier.  (Partying, to her, was just part of the job.)

Sex paid her way through university, an honours degree in Psychology.  She got scholarships, and almost decided to go to graduate school.  She later said that the degree ended up being mostly useless on her resume, but she actually learned a lot that helped her later.  She remained interested in psychology throughout her life.

Sex paid her way, yes, but her relationship to the sex trade changed.  Once she realized it was becoming her primary job, she started to take charge of her professional life in ways that are probably quite alien to most prostitutes.  She found an apartment to live in, but then rented another apartment, in a different neighbourhood, to see customers.  She set up a savings account, and before she left university she had enough money to put a down payment on a small house.  She stopped taking calls from the company that organized her original parties, since they took too big a percentage of her earnings.  Instead, she kept her own records of customers, and saw them only when they contacted her directly.

Her business expanded through word of mouth, and she never advertised.  Her business cards were elegant.  They said only her name and phone number, and “Perfect Personal Services”.  It became almost a trademark.  (She told me recently that they had become collectors’ items.)

To deal with the ongoing problem that what she was doing was still illegal, and at that time enforcement was sometimes diligent, she created a “job”.  A regular customer put her on his payroll for a modest salary, but it was enough for her to get a mortgage, and enough so that she didn’t have to explain how she had money in the bank.  She paid her taxes.  She was a member of the middle class, a young woman embarking on a career in sales, as it appeared.

I never got into the details of how she pursued her profession on a day by day basis.  It was just a job to her, and she didn’t share the daily reality with me.  She didn’t care, and I probably was less interested than I could have been.

One story, though, provided a glimpse of both her approach, and her character.  As she told it, while she was still in university she came across her first client who liked violence.  It was completely unexpected.  She had no idea some men would be violent with her, and that they would see it as morally acceptable to hurt her because she was a prostitute, and thus not worthy of protection.

Sandra is not petite, but she’s not an athlete either, so most men would be bigger and stronger than her.  Her reaction, after tending to her bruises from the first encounter, was to sign up for martial arts classes.  She continued that training for more than twenty years, but very quickly she got good enough to defend herself when needed.  Customers that saw her as a punching bag got a rude awakening.

Her whole approach was like that.  If she was going to be a prostitute, she would make sure she was good at it, and the job achieved her goals in life.

By the time she met me in 1980, more than fifteen years later, she lived in a house in the Annex, and owned three downtown condos, two for rental income and one for her work.  One of the early investors in Toronto condos, she presaged a trend that carried her and many of the other early adopters to substantial profits. She also had more than $150,000 in stocks and bonds in a brokerage account.  Doesn’t seem like much now, I suppose, but in 1980 that was a lot of money for a single 35 year old woman to accumulate.

When she came to me, she was at a bit of a crossroads.  One of her long-time customers had stopped seeing her, giving her embarrassed excuses that failed to hide that she was simply not young enough for him anymore.  The writing was on the wall, so she had to make a plan for how to deal with it.

She also – no real surprise, if you think about it – was considering her biological clock.  She thought kids were in her future, and in 1980 the age to get on with it, or give it up, was probably 35.  To her mind, that meant finding a husband and starting a family.  She couldn’t do that working as a prostitute.

None of that worked out as she planned, but it did work out in a different way.

I set up her tax plan, a corporation carrying on an active advisory business that replaced her fake job with a real income from her work and her investments.  Some regular customers gave her consulting jobs from their companies, and she also invoiced some customers as their psychological counsellor or fitness advisor (perhaps an early version of a personal trainer).  She joined business organizations, and started to network just as she would as a more conventional small business owner.  I found her an accountant who would look after her books and taxes, without making judgments on the source of her wealth.  She drew a salary from her company, and investigated other types of work she could do going forward.

After the initial flurry of activity to set up her tax plan and corporate structure, I didn’t see her much for a few years;  just the odd phone call for routine paperwork, and a little catchup.  However, in 1984 she called on a more serious note, saying some important things were happening, and we needed to think about her planning again.

When she filled me in, I had a feeling that nothing she told me was unexpected.  She did try to date, but quickly realized that a) she was not going to marry someone who didn’t know about her past, and b) she wasn’t going to find anyone for whom that past didn’t matter.  Then she investigated artificial insemination, which at that time was not nearly as sophisticated as today.  To her surprise, the initial tests revealed that she was not able to have children.

After considering the option of a European clinic that claimed it could help her with that, and after considering the then fairly new and perhaps illegal concept of surrogacy, she went the more conventional route, for the 80s, of adoption.

Hence, she said, her visit with me.  She was planning to adopt first one, and later a second, baby from Guatemala, and wanted to ensure that her will and tax plan dealt with those kids. (I had just become a father for the first time, so I was an almost bubbly and certainly enthusiastic supporter of her plan.  She later told me that she thought I might have been more excited than her that she was planning to adopt kids.)

And so it was that, in 1985, she adopted her first son, now 31, and in 1987 her second son, now almost 29.  Typical of Sandra, part of her preparation for adopting from Guatemala was to learn Spanish, and for the rest of her life she regularly kept up her knowledge of the language.  It didn’t really matter to her kids, who were each babies when she adopted them, but later she was able to teach them Spanish and help them connect with their own biological heritage.

I kept in touch with Sandra sporadically over the next three decades, as her lifestyle shifted from parties and nightlife to middle class mom.  Her work as a prostitute phased out, so that by the time her oldest was 10 she was really not seeing any customers at all, except perhaps the odd Platonic dinner to reconnect.  Instead, she became a social (and somewhat political) fixture within her local Toronto neighbourhood – charity fundraising, local political organising, the tennis club.  She did some good things.  Like many people who make the effort, she was able to make the lives of others just a little better.

She even took up golf, at which predictably she excelled.  (I only played with her once.  She killed me.  It was not pretty.)

Along the way, she had a couple of relationships that lasted for a while, but none that continued to last long enough to be permanent.

Mostly, though, her role was mother.

I was curious at one point about what she was going to tell her kids about her past, and when (a subject I later bumped into in another context).  She told me that she had a company, and she had investments, and beyond that the kids just didn’t ask much.  To them, she was an apartment landlord and a former psychologist who had lots of money.  They didn’t ask why.  It wasn’t until they were in their 20s, and she was in her 60s, that she shared some of her history.  By then, they were both head-on-straight young men who took it in stride.  The boys are a lot like their mother.

And she did other things, as well.  She wrote a book, a novel, which fared poorly.  I read it at the time.  It wasn’t very good, as she later admitted.  She did some acting in commercials, which it turned out she did quite well.  She never made much money at it, but it did give her a lot of personal satisfaction.  She probably could have turned that into a new career, but she didn’t have the drive to make a real leap into it.

To my surprise, she also became quite an accomplished art collector.  I’ve long been interested in art, so as she spotted young artists, and started collecting their work, I was impressed by her eye for talent, even before that talent really showed.  It was Sandra who first recommended that I go to the Ontario College of Art annual open house to see some of the best young artists at work.  (I still go sometimes, although it isn’t what it once was.)

Her life, though, was her kids.  A few years ago, at a long dinner, with a lot of laughter and a little wine, Sandra talked to me about how her life had changed after having kids.  “I was entirely in control of my life,” she said. “Control was my thing, so when I had kids I thought I could still control my life.  Wrong.  I had to learn – and my boys taught me this – that life is a dance in which sometimes you lead, and sometimes someone else leads.  It’s so much better that way.” (That’s a quote from a country song, as it turns out, although I don’t think she knew that when she said it.)

Now Sandra is dead, victim of a heart attack at the relatively young age of 72.  Her boys, one a lawyer out west, the other still searching for a career, but probably a doctor in the end, are without any parents.  They do, however, have a solid grounding for their own lives, thanks to a mother who cared, and worked hard to be the best mother she could be.  Like everything else she did in her life.

Sandra wasn’t a close friend of mine.  She was a client first, but with some clients there evolves a social connection, which happened here, and continued for a long time.  Her passing makes me sad, but it would be dishonest for me to say I’m going to miss her in any serious way.  Life goes on.  I won’t forget her, but I won’t grieve either.

There is no real moral to this story.  It is just a story I wanted to tell.  Her life was an interesting one, to be sure.  In one sense, it was about as unconventional as it could be.  In another sense, it was a classic case of an achiever working hard to have a good life, for herself and for the people around her.

What you can say, perhaps, is that this is proof once more that it is possible to put the most unexpected, even disparate, components together into a life worth living.

Hers certainly was.

–  Jay Shepherd, October 26, 2016

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