Financial Accountability Officer warns partial sale of Hydro One will hurt Ontario
TORONTO – Ontario’s new budget watchdog warns the Liberals’ plan to sell Hydro One, the giant transmission utility that turns over $750 million a year to the government, will have a negative impact on the province’s finances.
“The province’s fiscal position will deteriorate compared to if they didn’t undertake this sale,” Stephen LeClair, Ontario’s financial accountability officer, said Thursday as he released his first-ever report to the legislature.
LeClair found the province would see gains in the first year after an initial sale of 15 per cent of shares in the utility, but the impact will ultimately be negative once the Liberals sell the 60 per cent of Hydro One that they plan to privatize.
“The sale of Hydro One will have an immediate improvement to the province’s balance sheet, but because of the loss of net income that results from the partial sale, there will be a subsequent worsening of the government’s fiscal position,” he said.
In addition to the lost revenue from a privatized Hydro One, the province would also lose $100 million a year it currently gets from the utility in lieu of taxes.
“The net income effect cannot be understated,” cautioned LeClair. The lost future income after the Hydro One sale will add to Ontario’s 284.1-billion net debt, he added.
LeClair also said the government “should be clear on whether or not the sale will impact the debt retirement charge,” a fee levied on residential electricity bills that is supposed to be used to pay off stranded debt from the old Ontario Hydro.
He estimated the total value of Hydro One at between $11 billion and $14.3 billion, and said based on that, a 60-per-cent sale would generate $6.8 billion to $8.9 billion, “a wider and somewhat lower range” than the government’s estimates.
“There is significant uncertainty over how much the province will take in in proceeds from the partial sale,” said LeClair. “This uncertainty feeds its way through the entire analysis.”
But LeClair couldn’t determine how the government came up with its valuations for Hydro One because the Liberals won’t tell him their methodology.
“They responded that the information was a cabinet confidence,” he said.
Without knowing how the Liberals made their calculations, LeClair said it is not possible for him to offer a definitive opinion on whether the partial sale will help the government eliminate a $10.3-billion deficit by 2017-18 as promised.
Premier Kathleen Wynne said she needs to sell 60 per cent of the utility to raise money for her 10-year, $130-billion plan for public transit and infrastructure projects.
“In terms of the long term, we thought this was the right way to go,” Wynne said Thursday at an unrelated event in Niagara-on-the-Lake, Ont. “The other factor is that the benefit, the economic benefit of the investments we’re going to make, I’m convinced that they will outweigh that long-term change in the revenue.”
NDP Leader Andrea Horwath called the sale “ludicrous” and “insane,” and said LeClair’s report shows the government will get only a fraction of the money it was expecting.
Municipalities, business groups, unions, First Nations and both opposition parties have all come out against privatizing Hydro One because it’s a “bad deal” for Ontario, she said while urging Wynne to listen to all the opponents.
“Now with the evidence from the FAO, we finally have a professional, independent analysis that shows all of us are right and she is wrong,” said Horwath. “She needs to back away from this.”
Progressive Conservative Leader Patrick Brown said after the government puts $5 billion from the sale to pay down hydro debt, it will be left with a lot less than it expected to raise for transit and infrastructure.
“It makes no sense to sell an asset that will only net $1.4 billion while you lose an asset that brings in $700 million each and every year,” he said.
© 2015 The Canadian Press