The case for broadening Hydro One ownership

Probably the most controversial action taken since I was elected is the decision to sell off 60 per cent of Hydro One. I have heard from many constituents about the deal, and in this column will make the case for why it is the right thing for Ontario.

Our mandate

We do have a mandate to do this. The budget introduced before the election, and subsequently passed, specifically stated that we would seek ways to repurpose assets such as Hydro One, the LCBO, Ontario Power Generation and others. That review, conducted by Ed Clark with input from former Beaches NDP MPP Frances Lankin and former Conservative MPP Janet Ecker, recommended not selling OPG or the LCBO, but concluded that selling GM shares, the LCBO head office lands and 60 per cent of Hydro One was prudent.

Note that Hydro One does not generate electricity but only transmits and distributes it to customers. In fact over three quarters of Ontarians, including East Yorkers and Beachers, are not Hydro One customers and are well served by municipal and private distribution companies such as Toronto Hydro, which are not owned by the province.

Financing new infrastructure

The sale of Hydro One must be viewed in conjunction with our commitment to spend $130 billion over 10 years to build needed infrastructure. Despite low interest rates, Ontario’s debt load is too great for more borrowing. The sale is expected to bring in about $9 billion, $5 billion of which will go to paying down Hydro One debt.

Without the partial sale of Hydro One, many proposed projects, such as increased GO train service that will see the Main and Danforth area transformed into a transit hub, would not be possible. The same goes for needed roads, bridges, schools and hospitals, including the $300- to $400-million reconstruction of Toronto East General Hospital.

Not the 407

Many view the sale as an example of bad government decision making, along the lines of the sale of Highway 407, the only toll road in Ontario. We have learned from the mistakes made in that sale because the Conservative government of the day did not get good value for the asset and did not maintain control over the rates that drivers must pay.

Conversely, the sale of Hydro One will be done in four stages of 15 per cent each, to ensure we get the best value possible.

Furthermore, the rates that the new entity can charge will continue to be set by the Ontario Energy Board so that consumers will be protected from gouging. Should Hydro One start making too great a profit, the OEB will reduce the rates that are charged, just as they have been doing to privately-held Enbridge on gas bills because of the falling price of natural gas.

Governance model

Constituents have also expressed concern that by selling 60 per cent, the government is not maintaining a majority stake in Hydro One. Under securities law, a 40 per cent stake is considered a “controlling interest” and the province will maintain control over major decisions that are in the public interest, including dismissing the board of directors.

The deal further restricts any one group from owning more than 10 per cent of shares.

The sale of Hydro One will bring private-sector discipline to its operations.

The province will continue to receive a dividend, and if the new entity is better-run and expands its business in line with new smart grid opportunities, all Ontarians will benefit from owning 40 per cent of a bigger and better company while building Ontario up.

 

Arthur Potts is the MPP for Beaches-East York


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5 comments

Contrary to the assertions by Mr. Potts the Liberal government didn’t campaign on a program of selling off Hydro One. If the Liberals had proclaimed their intention to proceed with the largest privatization in Ontario history they would have met a very cold reception. Hydro One runs the high voltage transmission lines that carry power to every corner of Ontario. When Toronto Hydro distributes power to our homes it is power that has reached our city by way of those high voltage lines. The drive by the new private owners to make more money will drive up our rates. The regulator, the Ontario Energy Board has been by-passed before and you can be sure it will be by-passed again.
Peter Tabuns
MPP
Toronto-Danforth

Peter is absolutely correct; Arthur’s opinion piece above is misleading as it incorrectly states several facts. Hydro one isn’t just selling off 60% of Hydro One’s distribution business, it’s selling off 60% of its distribution AND transmission business. While the sale of the distribution arm won’t directly affect most Ontarians, the sale of the transmission arm most certainly will.

While the OEB does have the mandate to ensure the utility earns a “fair return” while balancing the interest of ratepayers, I can assure you that a private corporation is going to be much more aggressive in what they believe to be a fair return for their assets. Hydro One already has excessively high rates, and this is a utility that is fully owned by the province, and has political pressure to keep electricity at a reasonable rate. Once the ownership becomes 60% private, the political pressure disappears and you’re left with a privately held monopoly with no incentives to do anything but maximize profits.

Had the Liberals included the Hydro One sell-off in there election platform, there is no way I would have voted for them. However, I did, and never will again.

Mr. Potts:

Your mandate is no such thing – essentially your defence for the Hydro One deal is “it was in the fine print” and this is unacceptable. What else was in the fine print that will be revealed in the next 3 years?

Hydro One is in the transmission corridor business – these are the highways for power – this is equivalent to selling off 60% of the 400 series highways instead of just selling off the 407.

The transmission corridors are important because new ones require the use of government expropriation, and if we want to import power from Quebec instead of nuclear we need to create new corridors and for any benefit to stay with the public, not private ownership.

What is to stop the other 40% from being sold off by a future Liberal (or PC) government? Nothing, because that too might be in the fine print… you see, your argument destroys the credibility of future liberal campaigns.

Hydro One makes money – which is why the private sector is willing to buy it. So saying we are selling one asset to create another is misleading – the obvious answer is then “why not let the private sector build and operate transit?” and the reason is because transit is a money loser – big time!

It would have made more sense to sell the LCBO and allow real competition to the Beer Store – most provinces and states allow private sector to sell liquor, just as we allow bars and restaurants to sell it with minimal problems.

As for regulation, it doesn’t keep our auto…

Why was the last part of my reply cut off? Is there a technical glitch?

What I was saying was “As for regulation, it doesn’t keep our auto insurance rates low”.

It appears that investing in Hydro One through the banks is a good deal at this time. But now with the US company(s) suing Ontario for financial losses, I believe that it will be another wasteful venture when all profits are lost in legal battles.

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