Ontario’s plan to sell its Hydro One electricity system is to raise money for new infrastructure.
The proposed privatization of the Crown corporation that delivers Ontario’s electricity isn’t necessarily a bad thing for consumers’ pocketbooks, analysts say.
But the province and its taxpayers will still be on the hook for Hydro One’s massive debt load if much of the quick cash from the sale goes towards new infrastructure, as Premier Kathleen Wynne intends.
“Whether it’s ratepayers or taxpayers, someone is eventually going to have to pay for it,” said Energy Probe economist Brady Yauch of the approximately $27 billion that hydro ratepayers currently owe the Ontario Electricity Financial Corp. after Hydro One’s giant parent, Ontario Hydro, was broken up in the late 1990s.
“Basically, the government is doing whatever it wants with the money” from the proposed sale, says Yauch. “But this idea that because it’s private rates will go up is a straw man.”
Still, even as the Liberal government unveiled its plan last week to sell off a large chunk of Hydro One in order to funnel money into new projects rather than debt reduction, even Wynne herself couldn’t promise the province’s electricity rates wouldn’t go up.
All that has been promised is that “the government would retain de facto control” of Hydro One, meaning rates won’t skyrocket.
The proposed privatization, however, would appear to contravene the current mandate that all of Hydro One’s profits go to OEFC for debt reduction.
But Wynne said the government will sell up to 60 per cent of Hydro One, while not allowing any one shareholder to buy more than 10 per cent and with the province retaining control of at least 40 per cent of the utility.
In effect, that means the Ontario Energy Board will still determine hydro rates, not a privatized Hydro One.
Ed Clark, the former head of the T-D Bank and the current chairman of the premier’s advisory council on government assets, says the plan should mean good things for Ontario hydro bills.
The province could generate about $9 billion from the Hydro One sale, he said, with $5 billion going to pay the utility’s debt and $4 billion being channelled into infrastructure projects.
“I think they’ll go down,” Clark confidently told CBC Radio’s Metro Morning, referring to hydro rates and talking about private-sector discipline and more capital investment flowing into Hydro One.
Still, while the government’s official word is that hydro rates will not go up, Clark admitted “there’s no question that not all privatizations have gone well.”
No crystal ball
In fact, other privatization schemes across the country have resulted in an increase in rates, Sheila Block, of the Canadian Centre for policy Alternatives, wrote CBC. “If you look at Nova Scotia, which privatized its electricity system a generation ago, it has the highest electricity prices in Canada,” she says.
Energy analyst Tom Adams agrees that customers will pay more for hydro by moving proceeds of the sale of Hydro One assets outside of the power system.
Hydro One’s profits today, over $700 million a year, goes to service that debt, Adams says. “As the stream of profits at Hydro One goes to fund subways, that leaves a hole over at OEFC. The government hasn’t explained one syllable how they are going to fill that hole. I think there is a new electricity tax that is coming that they haven’t announced.”
The long-term trend is that rates will go up, regardless, adds Yauch.
But rates have gone up when Crown corporations are public, as well, he says. “They’ll still have to go to OEB, still have to go through the same rigmarole whether it’s public or private. If it’s private, people might even push against rate hikes more.”
Hydro One recently applied to the OEB for distribution rates to increase, on average, six per cent annually over the next five years, according to Yauch. “So, collectively, ratepayers could see double digit increases in the next couple of years regardless of who owns Hydro One.”