Risk begins with the false notion that Crown corporations are essential, providing services that the private sector can’t.
It’s a sensitive topic in Manitoba, which has a long history of Crown corporation service delivery. And Crown corporations certainly made sense when there were less developed capital markets, and when the technology favoured monopoly provision of power or telecommunications.
Yet Canada now has several private power companies. And when private-sector utilities get in trouble, they’re a problem for just their owners and creditors, not for taxpayers.
Crown involvement, however, puts the public at particular risk. Manitoba Hydro’s restructuring could devastate ratepayers and taxpayers.
Government ownership is not inherently more virtuous than private ownership. All firms pursue goals: profit, in the case of the private sector, and something wider and more nebulous for a Crown corporation such as Manitoba Hydro. There’s clearly a social-welfare aspect for Manitoba Hydro, with efforts to train and develop local Indigenous staff and contractors. It also finances non-utility goals, to serve its master (the government).
Creators of Crown enterprises are not necessarily astute or experienced in finance, industry or commercial enterprise. Founders and planners typically come from the civil service, non-profit advocacy and policy organizations, and government-supported agencies. So do many of their subsequent directors.
The non-taxable status of Crown corporations means low profit thresholds, tempting these enterprises to invest in projects with low returns, which too often end up in the red. Crown corporations also often have weak or inappropriate compensation and performance targets, making it difficult to attract productive, effective and superior staff.
Without profitability and strong solvency as goalposts, Manitoba Hydro’s current mess is unsurprising.
Crown ownership has or implies a government guarantee. This has enabled Manitoba Hydro to borrow excessively for the dubious Keeyask dam and Bipole III projects. Related to this is hubris: the expansion of Manitoba Hydro was, at its core, an attempt to lever costly hydroelectric potential for the export market. Management and politicians erroneously believed they could outwit market forces.
Crown corporation directors often over-invest. Manitoba Hydro, for example, sought to develop the north and assist Indigenous communities despite the financial risks.
Stewardship of Crown corporations, in theory, lies with boards of directors who are responsible to politicians. But rarely do elected officials have the requisite expertise to direct large, complex companies such as Manitoba Hydro.
In addition, the financial reckoning for Crown corporations often means expensive restructuring after excessive debt loads develop. Manitoba Hydro’s debt wasn’t on the province’s ledger, which gave taxpayers a false sense of independence from its deteriorating condition. However, its debt – now expect to reach $25 billion – endangers the province’s finances, compelling budget cutting that hurts individuals, families, industries and economic growth.
There is no free lunch. Yet politicians will kick the can down the road as far as possible, so Manitobans can expect large power bill increases to fund the Keeyask/Bipole III folly.
Manitoba’s Crown corporation monopoly model is obsolete and the government needs to take action:
- Sell off Manitoba Hydro’s Centra Gas division to pay down debt.
- Take the remaining debt onto the government’s books to be paid off by ratepayers through a modest monthly surcharge over 30 years.
- Separate the transmission and generation services of Manitoba Hydro. Transmission, a natural monopoly, could be transferred to municipally-owned co-operatives. Generation could be opened up to competition, allowing new services onto the grid.
Then again, Manitoba could just plod along with increasingly costly power provided by an archaic Crown corporation.
Ian Madsen is senior policy analyst at the Frontier Centre for Public Policy.
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