407 fiasco looming over utility deal
A Hydro One sell-off will be a tough sell for Kathleen Wynne.
As it has been for every other premier making a similar sales pitch.
Wynne’s Liberal predecessor, Dalton McGuinty, ultimately had second thoughts about putting hydro utilities on the market in 2010. A Progressive Conservative government also abandoned a sale in 2002.
Hanging over any hydro sale are memories of the botched Hwy. 407 fire sale, which enriched foreign investors and infuriated Ontarians.
Now, after all that renouncing and denouncing of privatizing, can the governing Liberals credibly reverse course? How do they persuade the rest of the province to try another hydro hopscotch?
For Thursday’s announcement, Wynne is getting political cover from a panel of outside experts that includes ex-politicians of the left and right, headed by ex-TD Bank CEO Ed Clark (himself a former federal deputy minister).
The panel’s diversified composition is a counterpoint to the forces of ideology and personality that drove ex-PC premier Mike Harris to begin dismantling Ontario Hydro nearly two decades ago. Indeed, the Liberal government’s declared bias, when it set up the privatization commission last year, was to “give preference to owning rather than selling core assets.”
Today, the sale is being driven by money, not ideology: A lack of cash to bankroll new investments. And a new-found flexibility on principles.
Rather than hailing any expected windfall from the proceeds of sale, the emphasis is on what the money will buy — investing in roads and subways, not balancing the budget (avoiding additional debt is a subtext).
The sale to private buyers is being sold to the voting public as more of an asset swap than a sell-off — cashing in on transmission infrastructure to build more transit infrastructure. In short, the government’s new press line is that transmission lines are underwriting transit lines.
Does that mean our hydro utility is not quite as strategic as it was in 1906, when a visionary PC government set up Ontario Hydro as a publicly owned enterprise? Times change, Wynne argues.
“Recycling assets is something that businesses do all the time — that is a reality and I believe that it is something governments should do, should look at the asset mix that we have,” Wynne said in an interview. “We should make decisions based on the current reality and make wise decisions working with the private sector.”
Won’t Ontarians be skeptical of another 407 sell-off? Wynne is clearly ready for the question, suggesting she will use the old toll-road fiasco as a foil for the future hydro sale — a historical counterpoint for today.
“It is a clear example of how not to do it. I’m not going to be shy about using the 407 as backdrop in terms of ‘This is not what we are doing.’ I would have never done it, and railed against that decision that was made by the previous government,” Wynne said.
“That model . . . is exactly the opposite then of what we are doing.”
One difference will be continuing government control. The Liberals argue that they aren’t giving it up with Hydro One, because the government will remain the biggest single shareholder. They also stress the Ontario Energy Board will remain the regulator. “Having significant ownership of the asset has always been a principle,” Wynne says. “Control in terms of regulation, and price, and price control.”
But as students of monopolies know well, denying rate increases doesn’t empower the regulator to ensure excellent service to customers who have nowhere else to turn.
If Wynne seems conflicted about unloading a Crown corporation, given her past preferences, she is clearly driven now by a determination to find the money to bankroll expenditures that would otherwise be unaffordable in a sluggish economy. “We need the substantial amount of money to invest in transit and transportation infrastructure — roads, bridges and transit. We need that money and we need it quickly.”
After becoming premier in 2013, Wynne argued for more “revenue tools” to fund those transportation investments, notably through road tolls and higher taxes. But it was a losing battle in a minority government, where she faced fierce political and public opposition on the eve of an election.
Coming up short, she had to come up with the cash somewhere. Now she appears ready to sacrifice one of Ontario’s oldest revenue tools — its Hydro One transmission utility, which pays a good, steady return, much sought-after by investors — in order to finance all those costly roads and subways. More than an “asset swap,” it looks like a reordering of “revenue tools” by Wynne in a world where no one wants to pay. But will it add up in the end? Martin Regg Cohn’s Ontario politics column appears Tuesday, Thursday and Sunday. mcohn@thestar.ca, Twitter: @reggcohn