April 29, 2015
The Real Hydro One Sell-Off Shocker
Money from the utility that’s supposed to fund the building of schools and hospitals is actually going to cover debt racked up by nukes
Is selling a big chunk of publicly owned Hydro One to private investors a good idea?
The answer may surprise you. Truth is, there’s not much of a downside to selling a big piece of the transmission utility – if we use the money smartly.
First, your hydro costs won’t change with new ownership. Hydro One is and will remain a regulated utility that answers to the Ontario Energy Board (OEB). And the OEB already gives publicly owned utilities (e.g., Hydro One, Toronto Hydro) exactly the same rate of return on capital they’d earn if they were owned by private shareholders. So partial privatization should have no effect on Hydro One’s allowed rate of profit.
Second, the dividends and income taxes Hydro One now pays to the provincial government don’t actually fund the building of schools, hospitals and transit. Instead, every cent goes to paying down the enormous debt racked up building and fixing our high-cost and unreliable nuclear reactors.
That’s not something the nuclear industry likes to talk about when touting so-called low-cost nuclear power in feel-good TV ads. So if we do indeed use the proceeds from selling a chunk of Hydro One to finance badly needed public transit, we will be doing our environment and our economy a lot of good.
But there’s a catch.
Right now the Ontario government is allowing Ontario Power Generation (OPG) to steam ahead with plans to spend tens of billions on re-building the Darlington Nuclear Generating Station.
Because no sane private investor would ever take on the full risks of a nuclear rebuild, OPG is asking the province to provide all the financing for this $13 billion (their estimate) to $32 billion (our estimate) project – at below-market rates. See if you can get an offer like that from your bank.
Providing billions in below-market-rate financing for the Darlington Re-Build Project will do two things:
It will significantly reduce the province’s borrowing room for transit and other infrastructure projects while driving up its debt.
And it will leave us paying at least $14 billion more for electricity over the next 20 years than we would if we imported cleaner and safer water power from Quebec instead.
So if we really are going to rethink the roles of our public utilities, we also need to rethink our approach to providing electricity.
Instead of relying on a couple of huge nuclear stations, we can combine water power imports from Quebec with made-in-Ontario green power (and a real push to invest in energy efficiency) in a lower-cost and much less wasteful electricity system.
However, to get real bang for our privatization buck, we will need to ensure that Hydro One is not owned or beholden to nuclear interests. It must be willing to invest in improving our transmission connections from Quebec and become much more enthusiastic about connecting renewable energy projects to its grid.
That’s why the provincial government must not wash its hands of Hydro One altogether.
With the cost of renewable energy sources like solar and wind falling dramatically, there are big changes coming for the staid old utility sector. Embracing these changes, instead of fighting them tooth and nail as some U.S. utilities are now doing, will be important to further reduce climate-disrupting emissions and build on renewable energy.
Done right, selling a piece of Hydro One could give us a big pot of money to invest in transit, which will net us big gains in reducing congestion and greenhouse gas emissions. But done wrong, we will just perpetuate the old-style thinking that’s left Ontario’s electricity system mired in debt and oversupplied with high-cost and inflexible nuclear power.
It’s not by chance that Ontario has the world’s largest nuclear station – Bruce on Lake Huron – and had what was, before it was finally shut down last year, North America’s largest coal plant, Nanticoke. Our public utilities have long clung to the outdated “bigger is always better” model of power development, to the point where almost all the power consumed in downtown Toronto is supplied by just two high-voltage transmission lines connected to distant electricity generating stations.
We need electric utilities that embrace water power from Quebec and distributed energy solutions through a flexible, responsive and renewable smart grid.
And we need convenient and affordable public transit that keeps our growing cities moving. We can get closer to both through a smart partial privatization of Hydro One.
Jack Gibbons is chair of the Ontario Clean Air Alliance.