Last week, politically right-of-centre Toronto Mayor John Tory announced that the city was looking at options to “unlock the value” of the 100% Toronto-owned, non-profit utility that distributes electricity to residents. In current political speak, this means privatization. This was a shock to no one as privatizing the 100-plus year old Toronto Hydro has been a common theme during previous budget discussions.
However, while privatization has been raised before, the current context should make people take the suggestion seriously. The provincial Liberals (and Progressive Conservatives before them) have been on a long-term program of privatizing the electricity system in Ontario. Our public system has been eroded through the privatization of electricity generation, the subsidization of private for-profit wind and solar generation, the privatization of the provinces’ transmission company Hydro One, and the reliance on privately operated nuclear plants.
The mayor and his ideological allies have been trying to turn people against public ownership of Toronto Hydro by pointing to specific outages and “decaying” infrastructure. This is an act right out of the provincial Liberal’s play book – pointing to the need for infrastructure investment has been the go-to response for the Wynne government while selling Hydro One. Of course, it makes no economic sense to sell a utility that generates revenue for the province or municipality especially if infrastructure spending is required.
It is important to note that Ontario residents are strongly opposed to privatization. Poll after poll shows a sizable majority of electricity consumers (home-owners and corporations) understand the issue and are opposed to privatization.
The Society of Energy Professionals released a poll in June of 2016 showing 64% of Toronto residents think that electricity should be provided through a public utility with even more (over 70%) are opposed to selling Toronto Hydro.
The public’s opposition to selling Toronto Hydro comes from the belief that electricity rates will go up if it is sold. This is an obvious visceral response to the privatization of a non-profit, public utility. And they are right to feel that way. Evidence shows that electricity rates are almost always higher when the utility is private. However, this is not the only problem with the privatization of Toronto Hydro.
Analysis from the Canadian Union of Public Employees’ research branch shows that in addition to higher electricity rates, when local utilities like Toronto Hydro are private, they experience significantly longer and more frequent blackouts.
The budgetary impact of selling Toronto Hydro is severe. While there would be an infusion of money from the sale into the current year’s budget, the city would lose millions of dollars of investment return and dividends paid to the city each year.
For example, a 10% sale of Toronto Hydro could generate a one time amount of about $168M, but cause (at a minimum) Toronto to spend $80M more over ten years, and $10M a year after that compared to if Toronto borrowed $168M.
A 2016 study showed that the return on equity (the value of the company) of Toronto Hydro is about nine per cent. Of this, the city gets dividends (direct cash to the city from Toronto Hydro) of over four per cent each year. This is one of the best investments a city (or anyone) can have. Privatizing the company would mean the loss of this revenue. This makes even less sense when you consider the millions of dollars that would have to be paid to the province in any sale.
All said, it is rather disingenuous, if not an outright lie, to suggest that selling Toronto Hydro would solve any budgetary issues for Toronto or lead to better services. All it would mean is higher taxes, higher electricity bills, and more frequent and longer power outages.