New Brunswick and Toronto follow Fentie’s lead

Premier Dennis Fentie seems to have started a trend with his attempts to sell, privatize or (choose your euphemism) rationalize Yukon Energy...

Premier Dennis Fentie seems to have started a trend with his attempts to sell, privatize or (choose your euphemism) rationalize Yukon Energy.

Since then, both New Brunswick Premier Shawn Graham and Toronto mayoral candidate Rocco Rossi have brought up selling New Brunswick Hydro and Toronto Hydro respectively.

If both spent more time reading the Yukon News and less on rags like the Globe and Mail, they probably would have thought twice before springing the idea on the populace.

Rocco Rossi is merely a candidate, and has brought up the idea thoughtfully as a way to fix Toronto’s $2.4-billion debt problem. He even cites quotes from legendary civic activist and urban thinker Jane Jacobs to insulate himself from charges that he is a right-wing loonie.

“I haven’t seen anywhere in Jane Jacob’s work that to build a great city you have to own a utility,” he says.

Torontonians haven’t tarred and feathered him, at least not yet (the campaign is still in early days).

But it is a different story in New Brunswick. Graham appears to have surprised even his own cabinet when he announced the deal to sell New Brunswick Hydro to Hydro Quebec. Fentie only lost one cabinet minister over Yukon Energy, while CBC News reports that three New Brunswick ministers announced they would vote against Graham’s scheme.

Graham has handled the communications poorly, as did Fentie. Again like Fentie, he neither prepared the populace for the need to sell the utility nor ever campaigned on the idea. Graham failed to crisply define the benefits of the Hydro Quebec deal, which revolved around Quebec sharing its lower-cost hydro power and taking over New Brunswick Hydro’s multi-billion-dollar debt.

The debt is a burden for a small province, as are the future investments required to upgrade the province’s power infrastructure and – even worse – fix the Point Lepreau nuclear power station. The $1.4-billion refurbishment of the plant is 18 months behind schedule, according to the Daily Gleaner, and buying replacement power while it is out of service is costing $1 million per day.

But the only benefit for voters that came across was a five-year freeze in rates, which didn’t seem worth giving up the “family jewels,” to most citizens. The public reaction was also driven by a suspicion that Hydro Quebec was taking another Atlantic province for a ride, a common fear in a region where the 1968 Churchill Falls power deal can still start a barfight, and the fact the Irving conglomerate and other industrial users were getting a 30 per cent reduction in power rates.

Graham has now renegotiated the deal, with New Brunswick retaining ownership of the distribution assets as one notable change. While this may have dialled back public reaction from outrage to mere disgust, the deal is still widely opposed.

Many economists shake their heads at this kind of controversy. They would question why a government needs to own a power utility, especially since power rates would be regulated anyway by a public utilities board even if private capital were involved. Many have noted the tendency for public utilities to have poor cost control and difficulty obtaining capital from governments for expansion, although we have to remember that some private-sector utilities have not performed that well either.

So, are voters just being irrational when they oppose privatization … or are they actually cannier than economists? Probably the latter. They sense that deals like the Yukon Energy transaction – apparently now on hold – or the New Brunswick deal, involve giving up a valuable asset in return for cash that will just be frittered away by politicians. Or that the main beneficiaries will be well-connected industrial users.

Which probably explains why Rocco Rossi is talking about using the money from Toronto Hydro to dramatically improve the city’s overwhelmed public transit system.

He also proposes to auction Toronto Hydro off to the highest bidder to make sure citizens get the most value for their asset. Even Argentina has used auctions to get the best price for privatized electrical utilities. It is baffling why Fentie and Graham didn’t take this approach once they had decided that getting rid of the public asset was a good idea.

It’s not clear that voters in any province in Canada will ever react positively to selling a power utility, so deeply is public ownership ingrained. At least if there’s not a fiscal crisis hitting hard. But if they do, Fentie and Graham have shown us how not to do it.

Now we’ll see if even Rocco Rossi’s smarter approach is a winner with voters.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.