Toronto mayor John Tory presented his case for the sale of Toronto Hydro to CBC’s Matt Galloway on September 22. Every element of Mayor Tory’s argument justifying the sale is nonsense. Yet, the very weakness of the mayor’s case makes a strong argument that Toronto Hydro should be sold.
Toronto Hydro should be privatized because Toronto city council has proven itself over a long period to be utterly incapable of properly overseeing the utility.
Mayor Tory’s interview with CBC can be found here.
His points were:
“If Hydro is going to have to money to fix its infrastructure, there are only three ways to do it. One, we can put taxpayers money into it…Two, we can stop the dividend coming to the Toronto taxpayers…Three, you can look for ways to find that money…There are no other options.”
“If you don’t want to have power failures…in condos…approved without upgrading our electricity system since the 1950s then there’s ways we’re going to have to find to pay for that.”
“The alternative is not fixing their plant. Do you think that’s responsible? I don’t.”
“(in addition to Toronto Hydro’s dividend paid to the city) the Hydro needs to invest hundreds of millions of dollar in fixing up its plant so they don’t have power failures.”
“We could finance the upgrading the hydro system, hundreds of millions of dollars, on property tax. It would involve a 4% or 5% increase just for that.”
The mayor is feeding the public a line of garbage about the fundamentals of Toronto Hydro financial structure.
In Ontario, utilities like Toronto Hydro take their capital budgets to the Ontario Energy Board for approval. In recent years, those budgets are mostly rubber stamped. Several years ago, the OEB allowed Toronto Hydro’s capital spending to rise from about $100 million per year to about $500 million per year. This spending is financed in part by borrowing. In 2006, Toronto Hydro had long-term debts of $0.96 billion. In 2015, the corresponding figure was $1.89 billion. The utility’s financing costs and other costs like depreciation, operating costs and taxes are recovered in rates. In 2006, a residence consuming 700 kW/month paid $23.46 for the core of their Toronto Hydro service costs whereas in 2016 the same usage cost $35.94. In 2006, a small business consuming 10MWh/month paid $201.31 and in 2016 $312.27.
On its face, Mayor Tory’s statements would appear to indicate that he doesn’t understand that the money to fix Toronto Hydro’s infrastructure is already coming from consumers (not taxpayers), and that the utility’s annual spending has multiplied in amount several years ago to about $500 million per year and has continued at a historically very high rate of spending for a sustained period. Toronto Hydro is not underfunded.
Tory has experience in running regulated businesses, so he must know that his talking points are garbage. Tory also has a history of parroting the messaging of Toronto Hydro’s chairman David Williams and its CEO Anthony Haines. Check out this radio interview where Tory attempts to whitewash Haines’ history of perjury at regulatory hearings.
With the mayor spinning junk about the financial structure of the utility, he is clearly unfit to address the real causes of Toronto Hydro poor reliability performance.
Every time the lights go out, Toronto Hydro repeats its sales pitch about aging assets, attempting to even further increase its budgets. (Executive bonuses are indexed in part to capital spending.) Often the actually causes or duration of the outage are the result of the utility’s neglect and sometimes negligence. Neglectful failure to follow good utility practices was the root cause of the CityPlace Labour Day blackout and the Thorncliffe Park blackout of March 2013, to pick two examples of many.
Mayor Tory is riffing off the public’s concern about the utility’s poor reliability. The public is right to be concerned. Toronto Hydro’s reliability has not improved despite many years of massively increased capital spending.
However, Tory’s clueless financial tall tales about the utility’s capital programs points to a wider problem. Toronto City Council is unfit to supervise this asset. Toronto City Council has proven itself unable to even identify where deficiencies exist at the utility and its board of directors, let alone to act constructively to improve things.
The citizens of Toronto would be better off if our power distributor was owned and operated more like our gas distributor. Regulation of gas is far less politicized in Ontario than the regulation of electricity.
Privatization would eliminate the conflict of interest that prevents Toronto’s city council from acting effectively in support of consumers in the city. Council depends on dividends from Toronto Hydro and therefore never holds the utility accountable for high costs and low performance, let alone the continuing truth deficit in its public pronouncement.
What private utility owner would tolerate a CEO who can’t appear before any regulatory body for fear of being called out on his career-long practice of lying about his credentials under oath? What regulator would tolerate a regulated private utility quintupling its capital spending for a sustained period without demonstrating improvement in reliability? What city council would stand idly by as a private Toronto Hydro jacks up rates but fails to improve service?
I suggest that the key issue in any potential sale of Toronto Hydro is ensuring that the proceeds are used to pay down debt rather than being diverted into fresh spending programs. John Tory’s nonsense about taxpayers being at risk for capital needs at Toronto Hydro is a clear indication that Tory can’t be trusted to manage the transaction.
(Mayor Tory is not the only source of junk claims about the situation at Toronto Hydro. Check out this clip of president Scott Travers of The Society, a management union representing some of the engineering staff at Toronto Hydro, claiming Toronto Hydro is a “well-run utility”.)