Energy price surge not expected
Regulatory board, controlled by the province, would have to approve any rate increase
Energy experts are insisting the sell-off of a big chunk of Hydro One won’t mean rising hydro bills for consumers, unlike Highway 407’s privatization, which led to higher tolls.
Fees for the toll highway have steadily risen, and the provincial government can’t do anything to stop them because those fees are not regulated. The energy sector, however, is closely regulated, with the Ontario Energy Board required to approve any changes or rate hikes.
Plans to partially privatize Hydro One along with loosening rules around beer sales were among the recommendations made public Thursday as part of a review of Ontario government assets led by former TD chief executive Ed Clark.
“This is not an unknown beast — the electricity transmission and distribution system is very similar worldwide,” said Leonard Waverman, dean of McMaster University’s DeGroote School of Business.
“You cannot have a (hydro) price increase without it going through the Ontario Energy Board,” he added. “And the province is the largest shareholder (of the utility). They are the controlling interest.”
The province plans to start the sale with 15 per cent of Hydro One, gradually growing the portion sold to 60 per cent, with the government keeping 40 per cent. However, nothing would stop the remaining shareholders from banding together.
Waverman argues that the province, which has invested billions in the electricity system, now has an asset worth upwards of $16 billion that only provides an annual dividend of $287 million.
He said it makes better sense to take the proceeds and invest them in badly needed transit infrastructure. “The cupboard is bare. We have a deficit, and there is slow growth.
“Where are we going to get the money from?” he said. “I think it’s very smart.”
However, NDP Leader Andrea Horwath disputes that. “The rates will skyrocket,” she said. “Has anybody seen their rates go down lately?”
John Sprackett, chief of staff for the Power Workers’ Union, doesn’t believe rates will jump. “We don’t see any built-in things in this proposal that would naturally increase costs to consumers,” he said.
Dennis O’Leary, a partner with the law firm Aird and Berlis, said Hydro One’s rates have already been fixed until 2017.
“Their rates will not change,” he said, adding there is a “no harm test” for the energy board to consider for any sale of Hydro One.
“If the buyer is intending to do a lot of things that would result in a harm, such as increase the risk of blackouts or frequency of outages, then it won’t be approved,” said O’Leary, who specializes in energy regulatory law.
He added that when a sale occurs and efficiencies are found, any benefits should, at least in part, be passed along to consumers.
The Clark report also called for the merger of Hydro One Brampton — an electricity distributor — with other utilities in the region including Enersource, Powerstream and Horizon Utilities. It noted that such a merger would serve as a catalyst for more consolidation of smaller utilities across the province.
Hamilton Mayor Fred Eisenberger said such a merger should help create efficiencies, though he doubts it would lead to lower hydro rates. “I always think it’s kind of mitigating any future rate increases. Can we at any point say we’re going to reduce rates for people on an ongoing basis? I doubt it,” he said.
O’Leary added that hydro rates are set based on the book value of the company, regardless of what a purchaser may pay. Even if a purchaser were to pay an extraordinary premium for the asset, the energy board would not allow that premium to serve as a basis to increase rates, he said.