Hydro One sell-off could be Liberals’ biggest goof

Credit Kathleen Wynne for being stubborn. The Ontario premier does not let facts get in her way.

In the face of all evidence, she is forging ahead with plans to privatize Hydro One, the provincially owned electricity transmission monopoly.

The sell-off could be the biggest economic and political mistake of her Liberal government’s time in office. And it is entirely unnecessary. As an exercise in public finance, the decision to sell 60 per cent of Hydro One is ludicrous.

That’s the point that Stephen LeClair, the province’s new financial accountability officer made this week.

Put bluntly, selling the utility to private investors will end up costing the provincial treasury more than it takes in.

That’s because Hydro One is a money-maker, earning roughly $750 million a year in total profits.

As well, the utility now hands the province what are called payments in lieu of taxes. These are currently worth $100 million annually.

As a private corporation, Hydro One would no longer have to make these payments. What’s more says LeClair’s report, it could take advantage of loopholes and avoid paying any corporate tax to Queen’s Park for at least another five years. So that’s the revenue loss side. Yet the projected gains from the sale are relatively meagre.

In return for selling 60 per cent of Hydro One, the government would receive, after paying off the utility’s debt, somewhere between about $3.3 billion and $5 billion.

LeClair calculates that this is enough to make government finances look good in the short run. But once the province completes its plan to sell off 60 per cent of Hydro One, the revenue losses will swamp any of these initial gains.

Think of it as short-term gain for long-term pain.

So why is a seemingly sensible person like Wynne pressing ahead with this bone-headed scheme?

Her answer is that she wants to use the proceeds from the sale to spend on transportation infrastructure.

Ed Clark, the former banker who masterminded this deal, says he believes the social rate of return from, say, better subways, will outweigh the financial loss to government.

This might be a telling argument if there were no alternative to selling profitable assets. But there is.

Hydro One is currently earning a rate of return on equity of between 10 and 11.5 per cent, according to regulatory filings. Even if the social rate of return from improved infra- structure exceeded that, it would make more sense for the Wynne government to finance its ambitious plans by borrowing at current rockbottom interest rates rather than by selling off this valuable — and lucrative — gem.

Some close to the centre of government blame Clark.

They say that Wynne and Finance Minister Charles Sousa have been bedazzled by this talented banker and former bureaucrat who, earlier in his career, masterminded another political dud — Pierre Trudeau’s controversial National Energy Program.

A more cynical observer might argue that the Liberal government is interested only in short-term gains. Such a cynic would point out that Wynne is desperate to keep her promise to eliminate the province’s deficit by 2017-18, and that if selling Hydro One is the price then so be it.

In his report, LeClair says he is unable to estimate whether the Hydro One sale will allow the province to balance its books by 2017-18 because the government is keeping that information secret.

The Liberals seem to think voters will have forgotten about Hydro One when Ontario next goes to the polls in 2018. They may be optimistic.

Wynne’s absurd Hydro One sale fits into a pattern of dubious Liberal schemes to mix private and public interests, ranging from the gas plant debacles to the ORNGE air ambulance scandal.

Once again the Liberals are deliberately creating a monster they may be unable to control.

Politically, the Hydro One sale has also achieved what had seemed impossible.

It has resurrected New Democratic Party Leader Andrea Horwath from the crypt of defeat in which she has been languishing since her disastrous 2014 election campaign.

“This is a terrible deal and it makes no sense whatsoever,” an energized Horwath said Thursday.

She was right. Thomas Walkom’s column appears Wednesday, Thursday and Saturday.