About one year after she became the leader of Canada's largest province, Kathleen Wynne announced that her government was going to privatize Hydro One, one of Ontario's largest publicly-owned corporations.
The announcement, made this year, was a highly controversial one. Hydro One generates more than $740 million (CAD) profit each year. This money goes back to the province and helps pay for social programs like education and health care. However, the Premier wants to sell the province's shares in the company because, she says, the money is needed to pay for vital, new infrastructure projects. She's expecting it to net $9 billion for 60% of the crown corporation.
This may sound good at first, but it is terrible, terrible policy. And here's why:
Hydro One is vital infrastructure.
Wynne's key argument for privatizing Hydro One is that the money is needed to invest in much-needed infrastructure such as transit and roads. Unfortunately, this is terribly myopic way of defining the word 'infrastructure'.
Hydro One manages nearly all of Ontario's electricity transmission wires. Selling that company, even just 60%, which is what the Premier is planning, is the electricity equivalent of selling 60% of the public roads, bridges, and highways in the province, just so you can pay for new commuter trains.
Roads, bridges, and highways are public in order to give the citizens greater access to the physical network of communities, towns, and cities that exist. Placing those assets into private hands threatens the public's access to the physical world around them.
Similarly, the electrical grid currently consists of a large network of producers and users, all linked together with electrical lines. In other words, the electrical lines aren't like typical electrical assets: They're vital pieces of infrastructure that connect all users and producers together. A power system without electrical lines would be like a city without roads. The public needs these vital pieces of infrastructure in order to properly function.
Recognizing this as vital public infrastructure means that they will need to be maintained at a certain level of functionality. If a storm blows out a bridge, or a falling tree takes down a power line, both the public nature of the asset, as well as the fact that the asset is vital infrastructure for the modern world, means that there is a responsibility to ensure that such damage is repaired.
What would happen if a road or electrical line were privatized and then no longer deemed profitable? What would occur if the private company that managed the road or power line went bankrupt? These outcomes are all possible under the infrastructure privatization scenario.
It's giving a monopoly away to private interests
One of the steadfast rules of a healthy market is the need for competition. Competition helps to ensure that no one company has so much power that they'll be able to dictate whatever price they want. And unlike in a government monopoly, where the benefits go to a public who can kick the government out if things go sour, a private monopoly legally serves only its shareholders.
In the past, governments have gone to war with powerful corporations over this key principle. In the early 1900s, the State of New Jersey took Standard Oil all the way to the US Supreme Court, which found that the company had forcefully created a national monopoly on a vital commodity: gasoline. The Court ruled that Standard Oil had to be forcefully seperated into competing firms.
If Wynne privatizes Ontario Hydro, the entire electrical transmission system would be privatized into a single company that would be beholden to shareholders rather than to the public.
"Sure", you might say, "But the people of Ontario would still be shareholders. After all, they would own 40% of all Ontario Hydro shares."
That may be true. But what happens when the 60% of majority of private shareholders don't like a particular policy of the government that holds a 40% minority stake? Or the 60% majority of private share holders don't like the CEO that the government proposes and has someone else in mind?
It's potentially deadly for Ontario's Renewable Energy Growth
One of the best policies enacted by the previous Ontario Liberal government was the Green Energy Act. It has turned Ontario into a renewable energy powerhouse. Now Ontarians have many different options to buy and sell electricity to the grid, including many, many, many fossil-free alternatives. Further, your individual house can, if it produces more energy than it uses, sell electricity back into the grid. That's a fantastic thing.
But the sale of Hydro One could bring all that to question. What happens if, say, Exxon Mobil comes in and buys a 51% stake in Hydro One. Will Hydro One charge certain customers more than others? Will certain kinds of energy producers have precidence over others? If I wire my home with a solar panel to sell energy back into the grid, will that be allowed? How easy will it be to install a electric vehicle charging station on the side of the road? And what if power outages constantly uccur in the same remote community again and again and again and an upgrade would be deemed not a financially profitable investment, will a private Hydro One leave the community in the dark, forcing it to resort to diesel generators?
What Wynne Should Do
Instead of selling off Hydro One like it's a penny stock, she should see Hydro One as what it is: the administrative arm of a vital network of Ontario infrastructure. And like Ontario's roads and bridges and transit systems and bike lanes, Ontario's electrical lines need care and thoughtful upgrading.
The electric age, which we've been living in for more than one hundred years, is in the midst of a major revolution. More and more buildings are feeding electricity into the grid. Cars and massive batteries are set to be major consumers and contributors to the electricity grid. Networks of charging stations for electric vehicles are being built across the continent. How we use electricty in fifteen years will look nothing like how we use it now.
Upgrading the network to allow for these activities will cost money. But guess what? These are all potential new income generators. If Hydro One remains in public hands, it gives the people of Ontario a say as to what those grid connection fees might look like. If it goes into private hands? Well... let's say my phone bills haven't exactly been reasonable since Bell Canada was privatized.
When cars first became popular, we didn't privatize all the roads. Instead, we recognized that there was a value in ensuring public access to high quality transportation infrastructure. Roads were expanded. Paved. Improved for public safety and ease of access (also, it's harder to trip on pavement than it is on cobblestones).
Now is the perfect time to invest in a 21st century electricity highway that has high quality, public access at its core. Selling Hydro One won't guarantee any of that.
Thankfully, Wynne has some help from the incoming Prime Minister elect who has promised $20 billion in infrastructure spending over the next three years. Wynne's 60% sale of Hydro One was expected net a one-time amount of $9 billion. But since nearly 40% of all Canadians live in Ontario, I would expect that the province would receive at least a third of $60 billion that the new federal leader has promised. And meanwhile she'll get to keep all the three-quarters of a billion dollars (and growing) that the Ontario government currently recieves in Hydro One profits. That should solve her financing problem right there.