The case for privatizing Crown utilities

Selling slow-moving, inflexible Toronto Hydro would benefit both taxpayers’ pocketbooks and the service they receive

By Ian Madsen
and Alexandra Burnett
Frontier Centre for Public Policy

Increasingly, Toronto Hydro Corp. poses an expensive risk to all Toronto citizens. The century-old electricity distribution company’s aging equipment is breaking down, and the utility can’t keep up with the building boom in the Greater Toronto Area. It can take months for a new building to get connected.

Ian
Madsen

Last week, the Frontier Centre for Public Policy released a research paper in the Public Choice Alternatives series on the valuation of Toronto Hydro. It found that Toronto Hydro could be worth $2.61 billion or more in a competitive auction. If sold, the utility could provide Toronto citizens with approximately 15,000 teachers, paramedics or nurses. These are only a few of the potential benefits.

Toronto Mayor John Tory has proposed selling part of the electricity utility but nothing has happened. According to Toronto Hydro CEO Anthony Haines, the mayor’s idea to privatize the corporation is a political gesture and not a rational decision. Haines said it will take billions of dollars to simply keep up with the needed infrastructure repairs.

Toronto Hydro’s infrastructure is beginning to show its age. Not surprisingly, the building boom in the region has strained the utility’s capacity and ability to adapt and grow with the city. This could force the provincial government to borrow billions more to maintain the existing infrastructure.

According to the valuation study, the proceeds of the sale would benefit all citizens. That’s a good reason to privatize the massive corporation.

Alexandra Burnett
Alexandra Burnett

Privatizing Crown corporations has proven to be extremely beneficial for taxpayers and ratepayers. Governmental corporations can be slow to react to changes in business conditions. But when the corporations are in private hands, they more often operate with improved performance and decreased costs. Taxpayers and ratepayers reap the results.

Torontonians can ponder how the sale of this slow-moving, inflexible corporation would benefit both their pocketbooks and the service they receive.

We know that privatization can improve the effectiveness and the efficiency of such corporations. By removing government meddling and allowing private investors to manage the corporation within the discipline of free-enterprise markets, everyone benefits.

Examples include Nova Scotia PowerAccording to the Nova Scotia Power Inc. website, “the debt of the Crown corporation grew as it sought to limit the impact of rising costs of generating and supplying electricity on its customers.” By the 1990s, the debt had reached a level that the provincial government didn’t want to deal with. By 1992, the power company was privatized; “operations were streamlined, and customers benefited from relatively stable electricity costs.” The benefits were realized quickly.

Soon enough, Toronto citizens and the Ontario government may not want to bear the escalating debt of Toronto Hydro. To save that anguish, city council should begin talking about privatizing Toronto Hydro now.

Ian Madsen is a senior policy analyst with the Frontier Centre for Public Policy. Alexandra Burnett is a junior research associate currently enrolled in the internship program with the Frontier Centre for Public Policy.


Toronto hydro

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