No. Public utilities work better than privatized ones
After an election where hydro rates were one of the key debate issues, some people are suggesting our new premier should sell off Ontario’s remaining share of Hydro One.
Doing so would be to double down on not just a bad idea, but one that was quite possibly key to the downfall of the Wynne government, taking the Liberals below the threshold for official party status. It was a bad idea then and nothing has changed since that time.
Since the government’s surprise announcement in 2015 that it intended to sell off part of Hydro One, public opinion has remained consistently 75 to 80 per cent opposed to the idea of a partial privatization. The subsequent election result should provide the incoming government with a reminder of the perils of ignoring voters’ concerns.
The Liberals’ justification for the sale of Hydro One was that there was just no other way to get money to build much needed transit infrastructure. The sale did yield a quick, one-time cash hit of $3.8 billion, however, it came at a high cost. Hydro One had contributed almost $1 billion a year the provincial government’s revenues. Selling shares meant reducing those dividends by about $400 million annually.
Completely privatizing Hydro One would mean the loss of all remaining revenues, forever.
That’s nearly $1 billion coming out of provincial revenues. From an accounting perspective, as Ontario’s financial accountability officer made clear, using privatization to raise infrastructure capital needlessly cost the taxpayers of Ontario nearly $2 billion dollars compared to alternative means. Selling the remainder of Hydro One would almost double this cost.
While some have argued that a privatized utility would operate more efficiently, offsetting the lost revenue, there is no evidence of this. An independent study commissioned by the government in 2013 did not find any significant inefficiencies in the operation of Hydro One.
Further, a 2016 study by MPR Associates found that total costs for fully privatized local public utilities were 34 per cent higher than those that were partially privatized, and as much as 77 per cent higher than those that were fully public owned. Moreover, on three different measures of customer reliability, the fully public utilities performed markedly better than privatized entities.
Complete privatization also means complete loss of control and public accountability.
As a public entity, Hydro One’s mandate is to ensure Ontario residents have access to safe, reliable, affordable energy in a way that benefits the province. Private corporations, on the other hand, are accountable to their shareholders, not to consumers dependent upon the services they provide.
While a romantic might characterize public ownership of our energy utilities as a birthright, a more pragmatic view is generations of Ontario residents have invested in and reaped the benefits of a publicly controlled Hydro One.
A privatized Hydro One would saddle future generations with more expensive, less reliable energy, and an annual billion-dollar hole in the province’s revenues.
So if selling Hydro One is an expensive way to get cash that leads to higher costs for taxpayers and more expensive power prices while limiting the government’s ability to make important policy decisions, who benefits?
The short answer is investors. Regulated electricity assets represent virtually risk-free investments with guaranteed rates of return through the regulator. This makes them ideal targets for Bay Street. That is the source of any push to fully privatize Hydro One.
There are lessons to be learned from history. On Oct.10,1910, at a ceremony in Berlin, Ont., Sir Adam Beck — the visionary behind Ontario’s publicly owned electricity system — flipped the first ceremonial switch on Ontario’s nascent transmission system, lighting up a sign proclaiming “FOR THE PEOPLE.”
When Doug Ford chose “For the People” as his election campaign slogan, he may not have realized that he was echoing the voice of Beck through the decades. Perhaps the appropriate discussion at this point is not whether to further sell off of Hydro One, but, rather, how to reacquire majority ownership and return Hydro One to the vision of “For the People.”