Toronto mayor John Tory presented his case for the sale of Toronto Hydro to CBC’s Matt Galloway on September 22. Every element of Mayor Tory’s argument justifying the sale is nonsense. Yet, the very weakness of the mayor’s case makes a strong argument that Toronto Hydro should be sold.
Toronto Hydro should be privatized because Toronto city council has proven itself over a long period to be utterly incapable of properly overseeing the utility.
Mayor Tory’s interview with CBC can be found here.
His points were:
“If Hydro is going to have to money to fix its infrastructure, there are only three ways to do it. One, we can put taxpayers money into it…Two, we can stop the dividend coming to the Toronto taxpayers…Three, you can look for ways to find that money…There are no other options.”
“If you don’t want to have power failures…in condos…approved without upgrading our electricity system since the 1950s then there’s ways we’re going to have to find to pay for that.”
“The alternative is not fixing their plant. Do you think that’s responsible? I don’t.”
“(in addition to Toronto Hydro’s dividend paid to the city) the Hydro needs to invest hundreds of millions of dollar in fixing up its plant so they don’t have power failures.”
“We could finance the upgrading the hydro system, hundreds of millions of dollars, on property tax. It would involve a 4% or 5% increase just for that.”
The mayor is feeding the public a line of garbage about the fundamentals of Toronto Hydro financial structure.
In Ontario, utilities like Toronto Hydro take their capital budgets to the Ontario Energy Board for approval. In recent years, those budgets are mostly rubber stamped. Several years ago, the OEB allowed Toronto Hydro’s capital spending to rise from about $100 million per year to about $500 million per year. This spending is financed in part by borrowing. In 2006, Toronto Hydro had long-term debts of $0.96 billion. In 2015, the corresponding figure was $1.89 billion. The utility’s financing costs and other costs like depreciation, operating costs and taxes are recovered in rates. In 2006, a residence consuming 700 kW/month paid $23.46 for the core of their Toronto Hydro service costs whereas in 2016 the same usage cost $35.94. In 2006, a small business consuming 10MWh/month paid $201.31 and in 2016 $312.27.
On its face, Mayor Tory’s statements would appear to indicate that he doesn’t understand that the money to fix Toronto Hydro’s infrastructure is already coming from consumers (not taxpayers), and that the utility’s annual spending has multiplied in amount several years ago to about $500 million per year and has continued at a historically very high rate of spending for a sustained period. Toronto Hydro is not underfunded.
Tory has experience in running regulated businesses, so he must know that his talking points are garbage. Tory also has a history of parroting the messaging of Toronto Hydro’s chairman David Williams and its CEO Anthony Haines. Check out this radio interview where Tory attempts to whitewash Haines’ history of perjury at regulatory hearings.
With the mayor spinning junk about the financial structure of the utility, he is clearly unfit to address the real causes of Toronto Hydro poor reliability performance.
Every time the lights go out, Toronto Hydro repeats its sales pitch about aging assets, attempting to even further increase its budgets. (Executive bonuses are indexed in part to capital spending.) Often the actually causes or duration of the outage are the result of the utility’s neglect and sometimes negligence. Neglectful failure to follow good utility practices was the root cause of the CityPlace Labour Day blackout and the Thorncliffe Park blackout of March 2013, to pick two examples of many.
Mayor Tory is riffing off the public’s concern about the utility’s poor reliability. The public is right to be concerned. Toronto Hydro’s reliability has not improved despite many years of massively increased capital spending.
However, Tory’s clueless financial tall tales about the utility’s capital programs points to a wider problem. Toronto City Council is unfit to supervise this asset. Toronto City Council has proven itself unable to even identify where deficiencies exist at the utility and its board of directors, let alone to act constructively to improve things.
The citizens of Toronto would be better off if our power distributor was owned and operated more like our gas distributor. Regulation of gas is far less politicized in Ontario than the regulation of electricity.
Privatization would eliminate the conflict of interest that prevents Toronto’s city council from acting effectively in support of consumers in the city. Council depends on dividends from Toronto Hydro and therefore never holds the utility accountable for high costs and low performance, let alone the continuing truth deficit in its public pronouncement.
What private utility owner would tolerate a CEO who can’t appear before any regulatory body for fear of being called out on his career-long practice of lying about his credentials under oath? What regulator would tolerate a regulated private utility quintupling its capital spending for a sustained period without demonstrating improvement in reliability? What city council would stand idly by as a private Toronto Hydro jacks up rates but fails to improve service?
I suggest that the key issue in any potential sale of Toronto Hydro is ensuring that the proceeds are used to pay down debt rather than being diverted into fresh spending programs. John Tory’s nonsense about taxpayers being at risk for capital needs at Toronto Hydro is a clear indication that Tory can’t be trusted to manage the transaction.
(Mayor Tory is not the only source of junk claims about the situation at Toronto Hydro. Check out this clip of president Scott Travers of The Society, a management union representing some of the engineering staff at Toronto Hydro, claiming Toronto Hydro is a “well-run utility”.)
Privatization of Toronto Hydro is a win win win right across the board but you know as much as me, Tom that the game of greed and very special personal pocket and personal accounts eat any funds of a sale of this size in no time.
It’s how our law makers and system works you know better Tom.
The only way this will work is the cheque is locked into a very well monitored security account with a third party securities agent monitoring the heath and where any of these funds are invested or used with fully open transparency record keeping at all times…
One Of Many Who Cares
Why do politicians like Tory continue to endorse and exude incompetence? They let Haines off the hook and now are afraid to hand him his walking papers. Who in their right mind would pay a bonus to someone for spending money without ensuring the money was spent on the right things!
I must disagree.
Privatization is not the solution to mismanagement of public assets and crown corporations.
The only reason on earth why any company or a bunch of individual shareholders would buy toronto hydro is to turn out a profit.
Either way there’s an incentive to siphon money from consumers to shareholders. (whether the shareholder(s) is government or individuals) The owners of any dividend paying company will do everything to increase the dividends at the consumer’s expense. (including not maintaining infrastructure, hiking rates, increasing spending)
Publicly owned corporations like toronto hydro, LCBO are excellent assets to keep public because they are sources of revenue. They prevent tax increases and help fund government progams.
If toronto hydro is being mismanaged, yes, have government intervene and kick the executives out. Yes, babysit them -> keep them accountable.
The energy board is apparently supposed to a lot of this, and if everything gets rubber stamped and there’s corruption/collusion between the energy board and the local utilities -> yes, that has to be dealt with.
There could be protective measures put in place to prevent the politicization of the energy sector.
But don’t privatize.
As things are, big business and the wealthy have too much power. Things are going in the wrong direction even with the utilities being publicly held -> I just heard that they’re going to flat rate distribution while simultaneously deficit spending on conservation programs. That’s horrible for people like me who are super careful, low income and use up under 5 kwh per day.
It’s great for the suburban mcmansion owner with a large stock portfolio who has central air conditioning on all the time, three to four fridges, potlights, burns through 50 to 80 kwh per day.
With the flat rate distribution I get to subsidize these over-consuming jerks! Transfer money from the poor to the upper middle class and high class; great plan!
It would get worse if utilities like toronto hydro were privatized -> owned by the ruling class, the 1% rather than by all of us.
I do agree though that politicians of all stripes are woefully uneducated about the energy sector and use utilities for personal gain.
it says a lot about the quality of people running governments. they’re in it for themselves.
being an MP, city councilor or mayor isn’t a public service anymore, it’s all for personal gain.
I have worked on both sides of the fence. I have been part of privatisation of a portion of government owned infrastructure that is price regulated. There are issues on both sides.
When an asset is government owned but independently price regulated there are three key issues:
1. It is difficult to attract management talent. You do not have to pay astronomical amounts and big perks but you do have to incentivise.
2. It is difficult to improve efficiency. The unions are entrenched and it is difficult to get them to change their ways – in the long run their members will lose. The unions leadership has been at it for a long time while there is a revolving door at the management suite. The union leadership is much more familiar with how to game existing collective agreements than management. In most of these government owned companies you can fire significant numbers of management staff and the lights will remain on. In capital projects, the management and the unions, both like to gold plate the projects. Why would you install a lift that is needed once every 30 years unless there are no cheaper alternatives?
3. It is difficult to avoid political interference. The political masters like to use the electricity industry as a tool of economic development policy.
When an asset is privately owned but independently price regulated there are issues too:
1. Private owners are profit motivated – They will do anything to increase profits – cut costs, cut service, increase capital costs etc. While they are accountable to the OEB, these are long-term assets and it is possible to squeeze and earn short term profits and lose in the long term. Stop maintaining the asset as well – both shareholders and customers lose in the long term.
2. Private owners are opportunistic. They will take advantage of scarcity and squeeze he last ounce of blood if an opportunity arose. The only way to avoid this is to have an independent system operator whose role is to ensure reliability and supply.
3. Private owners will make every effort to skirt price regulation and strike a private deal with government.
4. Private owners won’t stick to a commitment made with the government when the going gets tough. They will use political influence to renegotiate – often branding the re-negotiation as something good for the customers. While they will want compensation for any risks they bear, they will structure the deal such that they can walk away (with their subsidiary declaring bankruptcy if it came to that) if they are not making money – the fact that they made money in the past is not relevant.
Therefore the answer is not clear cut. You need to bring about a change in society’s thinking – with United States so close to home and Scandinavia so far away it is difficult to do.
Privatization is not the solution, leadership based on merit and training is. Toronto Hydro and the electricity sector in general has been a jackpot for the “White Cowboys Club”.