Ed Clark, Premier Wynne’s privatization advisor insisted in the May 19 Toronto Star that the partial sell-off of Hydro One to private owners will produce greater efficiencies through private sector discipline and that those benefits are passed onto rate payers through lower rates. Baloney.
This is exactly the same line that the Harris Government used when introducing hydro privatization and deregulation. Mike Harris promised that deregulation and private sector discipline would lead to lower rates. Since then rates have gone from 4.3 cents a kwh to the top rate of 16.1 cents a kwh. Smart meter charges have been added and executive salaries have skyrocketed. Hydro rates under the partial privatization of generation have gone up more than 10 times the rate of inflation since 1999 according to Statistics Canada, all under the so called protection of the Ontario Energy Board regulations.
Premier Wynne, is convinced that privatization of Hydro One is a great idea and that private sector discipline will lead to lower rates. But can anyone point to one jurisdiction in the world where privatization has lead to lower rates?
Ask the people of Nova Scotia about private sector discipline. They haven’t seen lower rates as a result of increased efficiencies. Quite the contrary, they pay the highest rates in the country to their privatized hydro. Whenever there’s a storm, many people go without power for weeks because the company has reduced their workforce to increase profits. Private companies have a legal, fiduciary duty to maximize profits for their shareholders, not pass on savings to their customers.
The number one reason to keep hydro public is not financial. The world’s climate is in trouble, now more than ever, it’s critical that governments have the levers of public ownership to curb global warming and institute real conservation programs. Private companies are not in the habit of selling less product, so they can make less money.
Premier Wynne is promising that money from the sale will go towards transportation infrastructure. Infrastructure lasts 40 to 50 years and then needs to be rebuilt again. The problem with selling public assets is that you can only sell them once. We said 14 years ago during Mike Harris’ efforts at hydro privatization, that it’s like burning your furniture to heat your home. What do you burn next?
There is no such thing as free money. There are permanent consequences from privatization. Giving up forever, all future revenue (currently an 8% return on investment), for a one-time cash payment for Hydro One is not a very wise thing to do.
There is a clause in Bill 91 forbidding the government from buying back Hydro One. Once it’s sold, it’s gone forever.
Premier Wynne is promising that regulations will protect the people of Ontario from rate hikes. After announcing the possible sale of Hydro One, Premier Wynne, on March the 10, 2015 went on the record in the Globe and Mail and said, “whatever we do, we are going to control prices. We are going to make sure that the regulatory regimes that will protect people in this province stay in place.”
The clauses in Bill 91 are completely contradictory to Premier Wynne’s promises. The removal of the regulatory regimes by Bill 91 is jaw dropping. In Bill 91 oversight from the Auditor General and the Ombudsman is removed. Oversight by the Financial Accountability Officer on Hydro One, and all government power to regulate accounting practices and policies of Hydro One is removed. The cap on Hydro One’s executives and the requirement to report salaries to the “Sunshine List” are removed. The Freedom of Information Act both for the province and for Municipalities and any of Hydro Ones subsidiaries, is removed. Restrictions forbidding Hydro One from hiring lobbyists is removed. In Bill 91, Hydro One is completely severed from the interests of the broader public sector.
During the 2002 court case on Hydro One, Judge Gans asked the government lawyer, “why did you separate the debt from the asset, How do you pay off the debt when you separate it from the revenue stream.” The government lawyer said, “to make it easier to sell.”
This is why Premier Wynne is removing all public and government oversight: to make it easier to sell!
Regulating private power?
Private companies are political powerhouses. According to TURN, The Utility Reform Network in the U.S., private companies spend millions of dollars a year pressuring and lobbying governments to remove labour, environmental and rate regimes they need to maximize profits.
The Ontario Energy Board hasn’t protected the people of Ontario from massive rate hikes in the past 15 years and won’t protect us from massive hikes in the future. The OEB does set rates but only has the appearance of setting rates. It’s hard to believe but we have a deregulated electricity market that was designed by ENRON and all the private energy companies in Ontario. This Market Design Committee was set up by the Harris Government. It really was like letting the foxes design the henhouse and this market called the Independent Electricity System Operator or the IESO. It is this electricity market that really sets the electricity rates in Ontario.
The OEB is required to true up rates every six months to cover the costs of this electricity market.
As was shown in the California crisis of 2000- 2001, electricity markets are extremely easy to manipulate. How do you have a market for something you can’t store or stock pile? The private sector will do anything and everything to keep this market open.
Of great concern is the removal of the 33% tax if you sell your local municipal hydro. Cash strapped municipalities will be very tempted to sell their local Hydro’s. This legislation gives away total control to the corporations and paves the way for a tsunami of privatization.
The proposed merging and amalgamating Hydro’s doesn’t work either. It takes away local democratic control and packages the utility up for privatization. The promise of greater efficiencies from economies of scale is also false. Look at Toronto Hydro. At amalgamation they had 1810 employees. Now they have 900. Since 2006, Toronto Hydro has been granted by the OEB $3.5 billion in rate increases. Toronto Hydro is now before the OEB asking for another $2.5 billion in rate increases for the people of Toronto. The CEO’s salary went from $199,990 in 1999 to $1.2 million today and a raft of vice-presidents getting over $400,000 a year.
Other ways to raise revenues
There is more wealth now than ever before. We don’t have a wealth problem, we have a distribution of wealth problem. The Liberals have been transferring wealth to the rich at a stupendous rate. Corporate taxes have been cut under the Liberals from an historic low of 14% to 11%. The Liberals have given the private sector $8 billion in P3s, $2 billion in smart meters and over $1 billion to pay private companies 20 years of future profits for the cancellation of the private gas plants (That clause was written right in to the contract).
Politicians did not sell Ontario Hydro during the depths of the Great Depression or during the heights of the Second World War. Those economic times were far worse than what we face now. Those politicians wisely kept Hydro to create jobs and to help the economy recover from those lean times. They solved their problems by selling public bonds. That is what we should do now. If you have private investment, all you get is private pay-off. If you have public investment, you get public pay-off. It’s as simple as that.
On April 18, 2002, Judge Gans ruled that the Government did not have the right to sell Hydro One. It belonged to the people of Ontario. The Tories marched right back into the legislature and passed Bill 58 allowing them to sell it. They didn’t sell it because a Toronto Star poll found that 94% of the people in Ontario opposed it.
Oppose the privatization of power
Let’s remember that Sir Adam Beck, a Tory backed by business, after a ten year campaign and 18 municipal referendums, brought Public Power to Ontario in 1905. For 95 years profits from at-cost, non-profit power went out to businesses and citizens in the form of low and stable rates. On his death bed Sir Adam Beck said, “I wish I could have lived long enough to build a band of iron around Hydro, to keep it safe from the politicians.”
The Hydro privatization experiment has failed in Ontario. In fact, there is not one jurisdiction anywhere in the world where privatization hasn’t resulted in big rate hikes. The promise of deregulation was lower rates. The promise of Smarts Meters was that they will save you money. Both of these promises were completely false.
Wynne’s numbers and arguments to sell Hydro One don’t add up. The government has no mandate to sell Hydro One. Wynne needs to scrap the idea of selling Hydro One and put the brakes on hydro deregulation and privatization. It’s in the public interest, both for the economy and environment.
This piece was an edited version of Paul Khanert’s written submission to the Standing Committee on Finance and Economic Affairs hearing on Bill 91.