Is Efficiency or Accountability a one-or-the-other choice? The Privatization of Hydro One

Alyssa Wali

Walking home on a chilly Tuesday night in Toronto, I spotted the latest campaign strategy from the opponents of electricity privatization: a moving van projecting the implications of the Hydro One privatization and images of MPPs who support it.

The privatization of Hydro One has been a hot-button issue since April of this year, when the Wynne government announced its plan to privatize 60 per cent of the public company. Although electricity in Ontario is distributed by a number of local companies, Hydro One continues to be an important entity as it transmits electricity to most of the province, and is even involved in the direct distribution of electricity to 1.4 million consumers. Alongside Hydro One, other important public players include the Ontario Power Generation, which is responsible for the operation of nuclear and hydro-electrical plans, and the Ontario Energy Board, which determines electricity rates.

The Liberal government, advised by former TD president Ed Clark, has argued that the privatization of Hydro One would generate some much-needed revenue for a cash-strapped government. The sale is projected to generate approximately $9 billion, $4 billion of which would be used to fund transit infrastructure and $5 billion of which would go towards paying off provincial debt. Moreover, the Liberal government has faced no difficulty passing legislation to privatize Hydro One given its majority status at Queen’s Park.

However, this proposal is not without fierce opponents. Both the Conservative party and the New Democratic Party oppose the idea of privatization, with the NDP even launching their own anti-privatization campaign through the website youpaytheprice.ca. Through this website, users can sign a petition to combat the sale. Similarly, the Canadian Union of Public Employees (CUPE) has launched the Keep Hydro Public social media campaign to convince users that privatization is against the public’s interest. Furthermore, a total of 194 municipalities have spoken out against this plan, and eight provincial watchdogs, including the provincial auditor general, have raised concern about the lack of oversight for Hydro One.

Those against the Hydro One sale point to three main arguments: the sale will increase hydro prices, it will reduce the public’s ability to demand proper service delivery, and it will result in a greater revenue loss over the long term. The idea that privatization will drive up prices is doubtful, as it is the Ontario Energy Board, an external body, that sets prices. Regardless, CUPE has argued that its comparison of public and private local utilities has shown that private utilities preform worse and have a higher price tag.

CUPE has also stated that the lack of public control is a major issue given the importance of electricity. However, the government will continue to maintain a 40 per cent ownership, and will limit private entities to purchasing a maximum of 10 per cent of the company. This effectively grants the province veto power, as Hydro One board decisions require a two-thirds majority, indicating that public accountability will likely remain intact. Nevertheless, questions over service delivery remain at the forefront of the privatization debate. Toronto Star’s Martin Regg Cohn has invoked the public policy argument, maintaining that government demands, like the requirement to install energy efficient—but costly—smart meters in Ontario homes, may not occur if the utility is privatized. This would occur because Hydro One will be partially responsive to shareholders demanding the most cost-efficient decisions, with minimal consideration for the environment and social factors.

Finally, Hydro One generates approximately $750 million in annual net revenue, and the resulting sale will result in a provincial balance sheet “worse than it would have been without the sale”, according to Financial Accountability Officer Stephen LeClair. Nevertheless, as of November 2015, the Wynne government has sold 15 per cent of the company and has collected a total of $1.83 billion in profits.

This sale, combined with the release of the provincial Auditor General’s report in December has re-ignited the already heated conversation around electricity in Ontario. The Auditor General’s report took a critical look at Ontario’s energy market, noting that Ontarians have overpaid for their electricity by $37 billion, and will pay another $133 billion in additional costs by 2032. Specific examples include a converted Thunder Bay biomass plant, which costs 25 times more than other Ontario biomass plants, yet it remains in operation. Furthermore, Ontario produces enough extra electricity to power the whole province of Manitoba, paying $3.1 billion between 2009 and 2014 for power that was not needed. Astonishingly, the province also paid out $339 million to simply not produce power. Indeed, the province paid to reduce power to select generators just to ensure grid stability. This was all on top of the revelation that the Liberal government ignored expert advice and rejected two long-term plans from the Ontario Power Authority that would have reduced prices for consumers.

These stories present an interesting dichotomy. While those opposing the privatization of power have cited arguments about public accountability and increased costs, it is evident that the public ownership of electrical utilities has not resulted in fair costs. Recognizing that there are other concerns that factor into these decisions, such as employment and community impact, it is unwise to speculate on why the government acted the way it did. However, the sale of Hydro One opens up the door for new, innovative service delivery. Perhaps the introduction of the private sector could reform this industry, improving efficiency even with the lack of oversight. Privatization could actually result in greater accountability by cutting unnecessary costs and re-enforcing a system whereby the experts are once again involved in the planning and implementation process. The recent report released by the Auditor General highlights the inefficiencies present in a publically owned Hydro One, emphasizing the role political influence has played in decision making. Including private shareholders can limit political intervention and broaden the conversation surrounding electricity generation, introducing new management tools to promote equity and efficiency.

However, this may be too optimistic of a view. Yes, privatization will most likely reduce Ontario’s long-term, revenue-generating resources in an already indebted province, but the government’s mandate is to ensure effective service delivery to consumers. There are many things that could go wrong, but if private actors work alongside public servants to truly and effectively change the creation and distribution of electricity, there is a real potential to have a system that could work to the benefit of consumers. And, after all, isn’t that what we all want?

 

Alyssa Wali is a 2016 Master of Public Policy Candidate at the University of Toronto’s School of Public Policy and Governance. She holds a Bachelor of Arts from Queen’s University, where she completed a major in Global Development Studies, and a minor in Political Studies. Alyssa’s main areas of interest include environmental policy, educational policy and labour policy.

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