Restructuring and Privatizing Hydro One in the Public Interest

This morning, CBC’s Morning North program ran an interview I did with host Marcus Schwabe about the proposal from the Ontario Premier’s Advisory Council on Government Assets, chaired by Ed Clark, which last week issued an interim report proposing in part restructuring and privatizing parts of the Crown-own electricity wires company Hydro One.

Here is a link to that interview.

The interim report of the Advisory Council, called “Retain & Gain: Making Ontario’s Assets Work Better for Taxpayers and Consumers” is available here.

I support privatization of government-owned electricity assets as a means to diversify the available pool of skills to developing Ontario electricity future and also as a means to reduce the role of politics in decision making within the sector. Although general in agreement with the aims of the Advisory Council, I remain concerned that the report does not address the implications of potential privatization of Hydro One assets for the defeasance of the stranded debt left over from the old Ontario Hydro. The report headlines the Advisory Council’s proposal to transfer what might become billions of dollars of value from power assets to other government spending initiatives without acknowledging that all the ongoing profits from those power assets are already earmarked for debt reduction. Ontario ratepayers should demand that the proceeds of any sale of Hydro One assets be used to pay down the government’s electricity debts held by the provincial Crown corporation Ontario Electricity Financial Corporation (OEFC). That persistent debt is the reason we all pay the “Debt Reduction Charge”. (The Ontario government once promised that Debt Reduction Charge would no longer be necessary after 2010.)

The interview also touches on potential efficiency gains that might arise from restructuring power distribution utilities in the province and the difficult problem of mitigating the burden consumers bear of excessive utility wage, pension and benefits costs and the barriers to moving toward more competitive compensation levels.

It was beyond the scope of the interview, but I believe that the provincial government should facilitate the sale of municipally-owned distribution utilities. Today, municipally-owned utilities pay taxes as if they were privately owned businesses but all of the tax revenue is earmarked for servicing debt held by OEFC. Should those assets be sold to private owners, the federal portion of the corporate tax would “leak” to the federal government, thereby cutting off some of some of OEFC’s revenue. Since OEFC has no source of funds except consumers, any shortfalls force OEFC to shift more burden onto ratepayers. If the federal and provincial governments were interested in promoting the long term efficiency of the provincial power system, they would do well to negotiate a tax sharing agreement with the objective of protecting a reasonable share of OEFC’s revenues from the effects of private purchases of municipal utility assets.


  1. Private or not private the electricity sector will still be involved in politics.

    Just look at the government politics involving private power companies in the U.S. both at the state and federal levels. Result of being allowed to be monopolies in the areas these companies service.

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