How leftie epiphanies found Hydro One on auction block

The advice from Ed Clark to Kathleen Wynne was unequivocal: Hydro One’s electrical wires are too strategic to privatize.

“We believe Hydro One transmission should remain in public ownership as a core asset at this time,” the privatization czar wrote in an interim report to the premier last November.

“We believe this is an asset that, retained in public ownership, can play a positive policy role.” That was five months ago. Five days ago, Clark unplugged that advice — and reversed polarity — by urging the government to privatize the electrical utility after all. It was akin to reversing the flow of Niagara Falls, but Wynne swam in the current with him, buying into Clark’s “sell” recommendation with astonishing alacrity.

Why did “Red Ed” — a self-described lifelong leftie, once a federal deputy minister, latterly TD Bank’s CEO — so suddenly change his mind? How did he win over fellow panelist Frances Lankin, a former NDP cabinet minister?

When Wynne first appointed them to her advisory council on government assets a year ago, their formal mandate was to “give preference to owning rather than selling core assets.” So why did they all eat their words and mangle that mandate?

First, whatever your ideological or partisan biases, it’s fair to say that Clark’s not a flake — nor is he on the take (he’s a pro bono panelist). And Lankin is no stooge. They’ve both got better things to do than sign up for a bait-and-switch ruse.

And while Wynne bears the albatross of being an elected politician — motives always suspect — she’s more prone to government intervention than privatization (her latest projects: a new public pension plan and a carbon pricing scheme).

As Clark tells it, the panel — and the premier — had joint epiphanies:

First, a belated realization that in today’s low-interest economy, buyers are prepared to pay an unprecedented premium for Hydro One’s steady returns.

Second, a delayed recognition that Ontario could still achieve its public policy objectives through a partial privatization that would reduce their ability to meddle, while maintaining effective control. One wonders why they came so late to their final position, but the panel insists it merely kept an open mind and took a deeper dive. In fairness, their 38-page report on Hydro One is a clear-eyed analysis of the risks and benefits of acting — versus the opportunity costs of doing nothing.

Clark argues that there is more money there for the taking in current market conditions. And that the money is needed more than ever — not for a budget-balancing political stunt, but to bankroll badly needed transit infrastructure that will pay dividends (and mitigate economic costs).

The government cannot merely borrow the money for that infrastructure, because it is weighed down by a massive debt load. The money has to be found somewhere or the tunnels won’t be dug.

Alternative revenue sources — the higher sales taxes, income taxes, parking fees and road tolls that always made the most sense to me — were bitterly resisted by both opposition parties and proved unpopular in opinion polls. (The NDP’s call to reverse recent cuts to corporate tax rates, while sensible, would not be nearly enough.)

Hence Clark’s call for an asset swap: unlock the scarce capital tied up in legacy hydro transmission lines for new transit lines that are needed now.

It seems necessity is not only the mother of invention, but privatization.

Along the way, the panel buys into the benefit of “private sector discipline” for Hydro One. Not everyone, however, believes that private firms are mythically endowed with clarity of thought and purity of action.

Don Drummond, Clark’s former chief economist at TD Bank (before he, too, retired and headed a 2012 government panel) told me this month that he questioned the “huge efficiency factor just simply for getting it out of the public domain . . . I just didn’t see why you couldn’t run that as a fairly long arm’s length away from the government.”

But the reality is that Hydro One remains one of Ontario’s least popular Crown corporations, renowned for screwing up service. Even Drummond believes few will mourn privatization, provided it is carried out prudently.

Both Clark and Wynne claim they have learned lessons from the past, insisting any road map for privatization won’t go down the road of the Hwy. 407 giveaway — a poster child for privatization gone wrong.

The premier promises she won’t hatch Hydro One’s privatization in secrecy; won’t unload it in a fire sale all at once (releasing only small portions to maximize prices); limit all other owners to 10-per-cent stakes; require a two-thirds majority on key board votes (giving government a veto) and retain a “nuclear” option to fire the entire board.

It all adds up to effective control, even with 40-per-cent government ownership, Clark insists. He also vows Bay St. brokers won’t make a killing on commissions from this deal as Hydro One “sells itself.”

All elegantly argued. But what about the public policy imperative that Clark’s panel previously adduced — and has now reduced to almost an afterthought: Is Hydro One a strategic asset for the greater good? Martin Regg Cohn’s Ontario politics column appears Tuesday, Thursday and Sunday. mcohn@thestar.ca, Twitter: @reggcohn