The Ontario government is heading down a dangerous path with its plan to sell off a majority interest in Hydro One.
The risks involved in the plan are becoming more obvious, and the benefits to be gained are at best unclear. Moreover, the arrival of a new Liberal government in Ottawa with promises to spend billions more on infrastructure undermines the argument that selling off the massive utility is crucial to financing the province’s pressing need for more spending in that area.
None of this has deterred the Wynne government, which says it is going “full steam ahead” with the plan. Indeed, on the same day that the province’s financial accountability watchdog reported on the financial risks of the sell-off, Hydro One announced it will start the process this coming week with an initial public offering of 15 per cent of the company on the Toronto Stock Exchange. It expects to reap $1.83 billion from the transaction.
It may be too late to stop that part of the sale. But the government should make clear that it will go no further until the risks and benefits of this plan are more carefully calculated.
It can start with the report from Stephen LeClair, Ontario’s new financial accountability officer. He concludes that the province will be in even worse financial shape after the planned sale of 60 per cent of Hydro One than it is now. That’s because Hydro One brings in about $750 million a year to the provincial treasury, so the sale means it would lose some $500 million a year.
In short, says LeClair: “The province’s fiscal position will deteriorate compared to if they didn’t undertake this sale.”
The government rejects this logic, and says LeClair is not taking into account the benefits to be reaped by the whole province if transit, highways and other infrastructure are improved. But if it has studies backing up that conclusion, it hasn’t made them public. And those sorts of benefits are by their very nature difficult to estimate with any accuracy.
Beyond that, the political environment around infrastructure funding has changed dramatically after the election of Justin Trudeau’s Liberals with a majority mandate in Ottawa.
The fundamental justification for the sale of Hydro One was that the money is needed to help pay for Ontario’s plan to spend $30.5 billion over 10 years on transit, bridges, highways and other infrastructure. Of the $9 billion expected to be raised by privatizing most of Hydro One, $5 billion would go to pay off debt and the other $4 billion would be earmarked for infrastructure.
The incoming Trudeau government campaigned heavily on its promise to expand infrastructure spending dramatically — even saying it will run deficits for the next three years to pay for it. It pledged to deliver $60 billion more in infrastructure spending over 10 years to provinces and municipalities.
Who knows exactly how much will come Ontario’s way? But if the province gets a share roughly equivalent to its proportion of Canada’s population (38 per cent), it could end up with something on the order of $22-$23 billion. Surely Premier Kathleen Wynne, given her excellent relationship with fellow Liberal Trudeau, won’t settle for much less.
With the prospect of that kind of federal funding in the offing, the argument for selling off a valuable utility to reap $4 billion is clearly weakened.
To be fair, it was understandable that Wynne turned to creative methods to finance her infrastructure plan when she was working with the Harper government. It had turned a deaf ear to pleas from provinces and municipalities — never mind economists and other experts — for more money. At the same time, there was little public appetite for bringing in so-called “revenue tools” (extra taxes and fees) to pay for transit and roads.
Now, though, Wynne should reconsider the arguments of those who came out against the sale when it was announced last March.
LeClair’s report, for example, comes in addition to a joint warning from eight respected legislative watchdogs, including the auditor general and the ombudsman, that privatizing the majority of the utility would “significantly reduce” their ability to hold it accountable on behalf of taxpayers.
And it’s in addition to an internal government poll that found 73 per cent of respondents believe the Crown electricity transmission utility should definitely or probably stay in public hands.
The calculus around this project has fundamentally changed. The government should take the new information into account and make it clear that any further sale is on hold.