It falls to Ontario Premier Ernie Eves to make a fateful decision for the future of the province---whether to proceed with the privatization of Hydro One, Ontario’s publicly owned electric power transmission system. A court decision, requiring public consultation and new legislation before privatization can go ahead, gives the new premier the opportunity for sober second thought.
Two arguments buttress the case for privatization. The first is that a private sector corporation is inherently more productive than a public sector corporation. The problem with resting the case for privatization on this ideological proposition is that it ignores a century of actual experience with a publicly operated power system in Ontario.
It was Sir Adam Beck, a remarkable businessman and Conservative politician from London, Ontario who led the crusade for "public power" a century ago. He argued that providing power "at cost" to consumers and industries in Ontario was the key to making the province competitive against neighbouring American jurisdictions. If power generation, transmission and distribution were left in the hands of a greedy few, Beck insisted, all Ontarians would suffer.
Responding to Beck’s leadership, municipalities held plebiscites to decide on the principle of public power and to link up their communities with a province wide Hydro system. With both business and labour on side, large majorities voted for public power. This legacy makes privatization a very weighty matter. What was created through the direct expression of the will of the people ought not to be swept aside in the absence of a similar expression of the public will.
For over nine decades, Ontarians have benefited from one of the most reliable power systems in the world, which has provided electricity at enviably low prices. Would private companies have done better? There’s no evidence to support that contention.
The one undeniable black mark on Hydro’s record was its reckless overbuilding of nuclear power plants, the consequence of which is a $20.9 billion stranded debt. The problem with blaming this strategic error on the fact that Hydro was a public utility is that exactly the same error was made by privately owned U.S. utilities, which are now left managing aging, deteriorating nuclear facilities. The stranded debts of privately owned U.S. electric utilities now total tens of billions of dollars.
The second argument for privatization is that selling off Hydro One will draw in an infusion of fresh private capital, which will lessen the amount of Hydro’s debt carried by taxpayers. In practice, this argument turns out to be wishful thinking, a mirage that vanishes as privatization proceeds. To tempt investors to take up an offering, privatizers have perennially been impelled by the logic of their situation to undervalue public assets. The late Lord Stockton (Harold Macmillan), a former British Conservative Prime Minister, once derided this type of privatization as "selling the family silver".
The privatization of Britain's electric power utility by Margaret Thatcher in 1989---the model the Ontario government has had in mind----amounted to a giant rip-off of the British public. William Farlinger, Chairman of Ontario Power Generation, and a big booster of privatization, conceded in a speech to the Canadian Club in the mid 1990s that some "mistakes were made" in the U.K., the worst one being to undervalue "the assets of the utilities." That's a polite way to describe what amounted to highway robbery. The assets of the British electricity system were sold off at about half their true value. Huge private fortunes were made, while billions of pounds were filched from British tax payers. The government of Tony Blair has since introduced a windfall profits tax to recapture a portion of the obscene profits that were realized.
While it is motivated by ideology, privatization is also driven by greed. Brokerage houses, such as Goldman Sachs, as well as Bay Street corporate law firms stand to make a killing if Hydro One is sold. The fees to be gained in what would be the largest IPO in Canadian history have been estimated at $113 million. Also with much to gain in the drive to privatize are the top managers of public corporations who expect that when a corporation goes private they will see their salaries shoot to levels undreamed of in the public sector.
Selling Hydro One will effectively end the ability of Ontarians to control their own electric power system. As soon as the private entity (which is virtually certain to include U.S. investors) exports power to the U.S.----exports are a major goal of privatization---the rules of Canada’s free trade deal with the U.S. will be triggered. Once we turn the export tap on, the rules could prevent us from turning it off. Ontario will be operating in a continental market and prices, including ours at home, are likely to move up to the higher levels south of the border. To make a profit, the new owners will go where the prices are highest. Consumers and industries in Ontario will be the losers.
Ontarians are going to have to pay for Hydro's past errors, privatization or not.
Under the circumstances, the prudent course is to hold onto collective ownership, to ensure energy security and to reap the future profits that will follow restructuring.
Selling the birthright of Ontarians is no way for the new premier to begin his term of office.
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