Wednesday, June 3, 2015

Ontario moves clumsily to exit public power

Writing frequently on Ontario's electricity escapades I feel obliged to put something together on the moves at Hydro One, which today hit a new stage as legislation passes to hide the operations at the company.

Ontario Liberals set to remove Hydro One oversight ahead of sell-off
Ontario Premier Kathleen Wynne is poised to pull the iron curtain over Hydro One, ensuring one of the largest privatizations in the province’s history will unfold in secret.
The Liberals’ omnibus budget bill is expected to pass a final vote in the legislature Wednesday. The legislation, which will allow the government to start selling off the Crown corporation on the stock market later this year, contains a raft of clauses that remove public oversight of the company.
The bill strips the provincial auditor-general, financial accountability officer, ombudsman and several other independent watchdogs of their right to investigate Hydro One and resolve customer complaints. It also bars freedom-of-information requests and shields Hydro One employees’ salaries from the Sunshine List...
Given the movements to hide what's going on, perhaps it's not surprising Ontario's Minister Of Energy chose to respond to one specific article on the sale - by a convicted fraudster -claiming:

Our approach will generate billions to invest in much needed infrastructure that does not come from tax increases, program cuts or borrowing. And our plan will create more than 110,00 jobs each year and help grow our economy.
He didn't quibble with the mechanics of "the approach" described by "convicted white-collar criminal" Keith M. Summers in Hydro One sell-off the ‘biggest con job I’ve ever seen:
...In March, bond investors lent Ontario money for 10 years at a rate of 2.1 per cent. Our average interest rate on all our existing debt is only 3.8 per cent (and falling).

So, we have some numbers to work with: 1) Hydro One earns $749 million. 2) The province pays, on average, a 3.8-per-cent interest rate on its outstanding debt and 3) the province can borrow new money at rates as low as 2.1 per cent for 10 years. So here’s the question: how much should we, as Ontarians, receive for selling this $749-million income stream?
The specific valuation is not one of my primary concerns, which are regulation and government finance.

Regarding government finances, the report setting the sell-off in motion claimed there was an opportunity cost to not using the equity in Hydro One in other assets - which are claimed to be transportation infrastructure in this instance. Considering every year seems to bring cries for the province to fund the operations budget of Toronto's transit (it already funds capital expenditures), its not at all clear investing in transit with capital spending wouldn't have negative returns in requiring ongoing operational spending support.
There's an opportunity cost to selling off revenue producing assets to indefinitely inflate expenses.

Regarding regulation/oversight, I highly recommend a full reading of Brady Yauch's A broken electricity system, not a Hydro One sale, the real risk to ratepayers:
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...
In case it's not clear, I'm not committed to Hydro One remaining public, it's the deceit and indifference to both the law and public finance that annoys me.

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