A broken electricity system, not a Hydro One sale, the real risk to ratepayers

Privatizing Hydro One won’t be bad for ratepayers, but a lack of reform in the province’s electricity sector will be. 

Ontario’s Auditor General and ombudsman, among other Independent Officers of the Legislative Assembly (Officers), have come out against the government’s plan to sell 60% of Hydro One to private investors, warning that it will “reduce important oversight powers.” While on first glance, the public might believe they’re on a path to being victims of a rampant, private monopoly, many of the Officers’ fears are exaggerated or misplaced.

The true problem with Ontario’s electricity sector is not whether Hydro One or other distributors are privatized; rather, it’s the political meddling, pick-the-winner policies and undermining of the sector’s regulator that have been a staple of the sector for years that have resulted in soaring rates. Without addressing those problems – which any privatization of Hydro One will not do – ratepayers will continue to see their bills soar higher.

In recent years, ratepayers haven’t been well-served under a publicly owned Hydro One and the many oversight agencies that are supposed to keep it in line. Ratepayers have seen their bills increase faster than inflation, watched as the company tabled an application before the OEB asking for 6% annual rate increases over the next five years, all the while having to contend with thousands of erroneous bills. If the future is anything like the past, there’s little to suggest that keeping Hydro One publicly owned will be of net benefit to ratepayers.

But at the heart of the Officers’ fears is that “their ability to assess its value and quality of service, among other matters, would be eliminated” if Hydro One was privatized.

Hydro One, like every other electricity distributor in the province, already falls under the review and control of the Ontario Energy Board (OEB). Any of the profits, spending programs or potential rate increases that will occur when Hydro One is partially privatized will be scrutinized to the same degree as if the distributor was publicly owned. When distributors appear before the OEB to set their rates, they table a wealth of information regarding the quality of their service (length and frequency of blackouts, for example), how productive they are compared to their peers and the value of their assets.

These policies will remain, regardless of who owns the company.

The real concern – and one that the Officers’ public letter doesn’t address – is whether the OEB is strong and independent enough to protect ratepayers from government policies that have proven to be detrimental.

In recent years, it’s been government directives – which overrule the OEB – that have been the major drivers of price increases. The Smart Meter program, for example, was pushed through by the provincial government in 2004 and sidelined the OEB by ensuring the regulator wasn’t able to fully assess its impact on ratepayers. Additionally, the guaranteed contracts that have been handed out to a variety of generators – most notably renewable producers, some of whom receive 10 to 20 times the wholesale rate for their power – have also bypassed OEB oversight. These costs are resulting in higher bills for all ratepayers, including Hydro One.

Whether Hydro One is private or public, ratepayers will be best protected by a strong, independent regulator – which is the exact opposite of what has occurred in recent years. Privatizing Hydro One should be the catalyst to push the government to strengthen the OEB’s powers, not weaken them as it has done over the past decade through political directives.

One only need to look at Ontario’s natural gas sector – whose customers just received a rate decrease and which receives much less political meddling – for a counterpoint to the fears that selling Hydro One will leave ratepayers at the whim of greedy investors.

The Auditor General (AG), in fact, recently reviewed the natural gas sector in the province and concluded that it has “adequate systems and processes” to protect consumers and ensure that energy is provided at “reasonable cost.” The AG found that consumers in Ontario paid less for natural gas than all but one province (Alberta) and parts of two others. Nevertheless, the AG provided a number of recommendations on how the sector could be improved and more transparent, which the OEB agreed and is currently addressing through reviewing its procedures.

Regulation of the natural gas sector in Ontario shows that consumers aren’t there for the taking if a distribution system is privatized and there is a strong and independent regulator in place. Contrary to the fears of the Officers, soaring hydro bills show that blocking a sale of Hydro One and keeping it in public hands doesn’t put ratepayers’ interest first.

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236

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