Wynne shrugs off warning about Hydro One sale
Watchdog’s damning report won’t affect plan to sell off 60% of utility, defiant premier vows
It’s “full steam ahead” with the Liberal government’s sell-off of Hydro One despite a damaging report from the budget watchdog warning the sale will hurt the province’s bottom line.
Premier Kathleen Wynne said she is sticking to her plan to unload 60 per cent of the utility in order to bankroll transportation infrastructure.
“It’s going,” Wynne said firmly on Thursday in Niagara-on-the-Lake.
As first disclosed by the Star, Stephen LeClair, the new financial accountability officer, warned the province will be in even “worse” shape after the sale of the Crown utility.
In a report to the legislature, LeClair said there is much “uncertainty” surrounding the sale of the electricity transmitter. His findings landed the same day the government announced the first tranche of 89 million shares of Hydro One — 15 per cent of the company — will begin being sold next Thursday on the Toronto Stock Exchange for $20.50 apiece, generating $1.83 billion.
“We are pleased to announce that 40 per cent of shares are being reserved for retail investors, so individual Ontarians can participate in the IPO,” said Energy Minister Bob Chiarelli.
Both the Progressive Conservatives and New Democrats are imploring the Liberals not to sell such a valuable public asset.
“This government has known all along that the most they could get was limited new money on the fire sale of Hydro One . . . while you lose an asset that brings in $700 million each and every year,” said Progressive Conservative Leader Patrick Brown. NDP Leader Andrea Horwath echoed Brown’s assessment. “This is a terrible deal and it makes no sense whatsoever. Will the premier and her government stop this insane sell-off of Hydro One?”
LeClair warned the Liberals’ move would increase the provincial debt by reducing revenue.
“In the years following the sale of 60 per cent of Hydro One, the province’s budget balance would be worse than it would have been without the sale,” he wrote in his first report to the legislature.
“The province’s net debt would initially be reduced, but will eventually be higher than it would have been without the sale,” he said in the report entitled.
“Assuming the province sells 15 per cent of Hydro One in 2015-16, Ontario’s net debt would initially be reduced by $2.4 billion to $3.9 billion. However, net debt would eventually increase as a result of the partial sale as the costs of forgone revenues from Hydro One begin to exceed the initial fiscal benefits.”
That’s in part because Hydro One brings in about $750 million to the provincial coffers annually, meaning the treasury stands to lose some $500 million a year once the majority share is sold.
LeClair said the transmitter is worth between $11 billion and $14.3 billion and that the proceeds would be between $3.3 billion and $5.8 billion after its debt is repaid.
Despite his findings, Wynne said “in terms of the long-term, we thought this was the right way to go.”
At Queen’s Park, Finance Minister Charles Sousa emphasized the government needs the proceeds to help fund a 10-year, $30.5-billion expansion of transit, roads and bridges.
“It’s full steam ahead,” said Sousa, adding the government “remains on track to realize our target of $9 billion through the broadening of ownership of Hydro One.”
Of that $9 billion, $4 billion is earmarked for transportation with another $5 billion to pay off the debt.
Wynne was urged to sell the company by her privatization guru Ed Clark, the former TD Bank chair who is also behind the expansion of beer sales in grocery stores.
Clark disputed LeClair’s conclusions, which don’t take into account the impact of investing billions in new transit and transportation infrastructure.
“Do you believe that infrastructure is an important element of a modern economy and will the economy perform better if we put the money into infrastructure?” said the Bay Street tycoon.
“My personal view is that the rate of return for infrastructure is higher than the rate of return that we’re in a sense getting compensated for when we sell these shares, so the province is making money — it may not be the provincial government is making money.”
Hydro One brings in about $750M in annual revenue to the province