Wynne’s public-asset reform a sign of the times in Ontario

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Ontario has unveiled sweeping plans to privatize a major hydro utility and overhaul its monopolistic beer retail system as the province searches for funds to build transit lines and other infrastructure.

The heart of Premier Kathleen Wynne's plan is the sale of 60 per cent of Hydro One, which the government estimates could fetch $9-billion – $4-billion toward a transit-building fund and $5-billion to pay down debt.

The plan also includes allowing 450 grocery stores to sell beer, a beer tax to raise $100-million annually and new rules obliging the privately owned Beer Store to sell more craft brews and submit to the scrutiny of a "beer ombudsman."

"Yesterday's public assets are structured in a way that traps value today and strips us of the ability to invest and build the assets that we know we need for tomorrow," Ms. Wynne said at a news conference unveiling the changes with her asset adviser, former banker Ed Clark. "We are going to shake things up."

Ontario's decision to ride headlong into public-asset reform is in part a reflection of its circumstances. The province faces a $10.9-billion deficit and one of the largest subsovereign debts in the world. Ms. Wynne has committed to the twin objectives of putting the province's fiscal house in order while also undertaking a $130-billion infrastructure plan.

But the move is also a response to a common problem in modern governance: how to pay for anything new amid a shaky economy, aging infrastructure and few available sources of new money.

The province plans to start the Hydro One sell-off with a 15-per-cent initial public offering, and get to the 60-per-cent mark in four years. No private investor will be allowed to own more than 10 per cent, leaving the government with a plurality of shares. One small piece of Hydro One, its Brampton distribution unit, will be sold separately for $607-million in a sole-source deal with three other local utilities.

Privatization could be a hard sell in Ontario, where previous private power deals have added costs to electricity bills. The province also sits in the shadow of the sell-off of the 407 toll highway in the late-1990s, widely derided as a deal that left government with significantly less money than it could have made.

Unions and the NDP immediately warned a Hydro One sale would lead to higher prices as private companies pushed for greater profits with the province's electricity regulator. They also pointed to the fact Hydro One would be taken out of the purview of provincial Ombudsman André Marin, who has taken the corporation to task repeatedly on behalf of consumers.

During the daily Question Period – which unfolded as Ms. Wynne was across the street briefing reporters on the changes – the New Democrats banged their desks for 15 minutes, bringing proceedings to a standstill as Speaker Dave Levac ejected them.

"This cannot go private because it has to be the public interest that comes first when it comes to hydro," NDP Leader Andrea Horwath said later.

Mr. Clark argued the incremental sell-off is cautious enough that it can be done without hurting consumers: "We think we've got that right balance, and we think the market will accept it."

But in a tacit acknowledgment of the political battle they will face over hydro, the Liberals played up the more popular changes to beer retail instead. During her news conference, Ms. Wynne stood before a massive sign that touted beer in grocery stores but made not a single reference to Hydro One.

"The Beer Store has grown into a de facto monopoly, controlled by a very small number of companies. This system has stifled competition, it's kept craft and small brewers from growing and it's limited the consumer experience," she said. "When it comes to the sale of beer in Ontario, I'm here to announce that the status quo is over and the days of monopoly are done."

The beer changes themselves will likely only raise enough money to compensate for the dividends the government will lose from privatizing Hydro One, but Liberal insiders said the province felt the measures would be popular with the public.

The plan will grant 450 grocery stores the right to sell beer, levy a tax that works out to $1 per case and loosen some Beer Store strictures. The company, currently owned by three multinational conglomerates, will be made to allow all Ontario brewers to become owners, give 20 per cent of shelf space to craft beer and let smaller restaurants and bars pay retail prices instead of the higher cost they are currently charged.

The reaction was significantly better than on hydro.

"It's creating a lot of buzz and it's going to end up increasing the overall industry," said Cam Heaps, co-founder of Toronto's Steamwhistle Brewing and chair of Ontario Craft Brewers. "[It will] give some wings to our sector will increase sales."

Added James Rilett of Restaurants Canada, which last year lodged a complaint against the Beer Store at the competition bureau: "The Wynne government has shown the fortitude to begin to address a decades-long problem. Rather than continue the status quo of a broken system, they chose to act."

Beer Store president Ted Moroz promised to co-operate with the province's plans. "We will continue to work with the government now to implement our next generation of changes," he said in a statement.

But Progressive Conservative finance critic Vic Fedeli pointed out the changes are relatively minor, and said they were only meant to distract from the Hydro One sale and the province's fiscal woes.

"The whole Beer Store discussion … is to get us talking about the shiny bauble here of the Beer Store when the real issue is they have a $10.9-billion deficit," he said.