Ontario’s Power Trip: No windfall in selling off part of Hydro One – by Mike Hilson and Tom Adams (National Post – March 19, 2015)

The National Post is Canada’s second largest national paper.

A proposal leaked out from Ontario Premier Kathleen Wynne’s government to privatize a portion of Hydro One, the Crown-owned electricity transmission and distribution company. Although the Premier stressed that the decision wasn’t final and that it will remain regulated to protect ratepayers, she has been clear about her motivation.

Referring to the ongoing Advisory Council on Government Assets headed by former TD Bank CEO Ed Clark, she stated that the reason for the asset review is to leverage dollars to invest in transit and transportation infrastructure across the province.

The prospect of an IPO for Hydro One had commentators, opponents and supporters debating whether to cash in on the “windfall” and how much the haul might be. Generally agreed is the proposition that a sale would, as one columnist wrote, “generate a one-time cash haul for the government.”

The government’s proposal and the discussion around it has so far almost completely ignored the basic facts of financial life underpinning Ontario’s electricity system.

Hydro One’s numbers seem impressive – it claims $22.55 billion total assets and net equity of $7.93 billion – but there is a catch. Hydro One’s entire value is already spoken for. Taking into account bloated and growing taxpayer-backed electricity debt lurking at the shadowy Crown corporation called Ontario Electricity Financial Corporation (OEFC) along with Hydro One’s $3.2- billion in regulatory assets, half of which is pension liabilities not yet funded, it is likely that Hydro One is today more than 100% mortgaged. There is no value to be extracted, unless new burdens are foisted onto ratepayers and taxpayers.

While many benefits could flow from full or even partial privatization of parts of Ontario’s electricity system, the hard financial fact of life is that there is no windfall available.

As set out in the applicable legislation and its successive annual reports, OEFC is the legal continuation of the former Ontario Hydro, which collapsed in 1998. The original purpose of OEFC was to pay down the old Hydro’s debts, which far outweighed the value of its assets. OEFC refers to its net debt as the so-called “stranded debt.” Ratepayers are still on the hook for the outstanding stranded debt.

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