Most Canadians rely on provincially owned utilities to keep the lights on – and they're getting burned. Mired in politics and empire-building, our big electricity providers have racked up a rap sheet of bad investments longer than their longest transmission lines.
Taxpayers and ratepayers – usually one and the same – are left to pay off ballooning hydro debts with nothing to show for it but politically driven white elephants. Bad planning and stubborn mismanagement in the face of cratering market prices for electricity have left no good options available to limit the financial fallout.
A couple of decades ago, privatization might have been a solution. Back then, wise investments in legacy hydro dams by earlier and more responsible generations of politicians produced juicy cash flows. Private investors would have lined up to pay a premium for shares in these utilities. Since then, years of political meddling and investments in economically dubious new hydro assets mean the only way to attract private capital would be to hive off the bad debts these entities currently carry, leaving taxpayers to foot the bill anyway.
The Ontario government's partial privatization of Hydro One is a special case. Principally a transmission company, with a stable of local distribution companies, Hydro One doesn't own power-generation assets but only delivers power to wholesale and retail consumers. That makes it a low-risk utility, as close to an old-fashioned blue chip as you can find in today's stock market.
The same can't be said of Ontario Power Generation. A recent C.D. Howe Institute study pegs OPG's equity value at between zero and $5-billion. But that is before taking into account unknown billions in potential nuclear cleanup liabilities and decommissioning costs that will be incurred when older reactors, such as the Pickering nuclear station, must shut down for good.
Then there are the billions in new debt that Premier Kathleen Wynne's government is piling onto OPG's balance sheet with its pre-election scheme to cut power rates by 25 per cent in the short term. That plan will require OPG to borrow an extra $14-billion by 2027, according to the province's Financial Accountability Officer, further weakening the company's balance sheet.
Indeed, the only power entity truly worthy of privatization consideration is Hydro-Québec. It accounts for the lion's share of the $31-billion to $45-billion in equity that provincial governments have tied up in their electrical utilities, according to the C.D. Howe study by Steven Robins. But selling off this proud symbol of the Quiet Revolution is taboo in Quebec. In the words of Hydro-Québec's current chairman: "There's a better chance Egypt would privatize the pyramids."
Were Quebec ever to change its mind, it might be too late. Even Hydro-Québec, which owns among the best legacy assets on the planet and has 24 years left on its contract to buy power from Churchill Falls at a fraction of its market value, faces unattractive returns on its newer dams and weak export prices in U.S. markets for years to come.
But at least it's not Newfoundland-owned Nalcor Energy. Nalcor's 824-megawatt Muskrat Falls hydro project is now slated to cost $12.7-billion, up from an original $7-billion estimate, and produce electricity at 23.3 cents a kilowatt-hour, or about 40 times the spot-market price on any recent day in Ontario. Bankruptcy increasingly looks inevitable. Privatization is a pipe dream.
The same goes for Manitoba Hydro, which has whittled away its once-envied reputation. Its 695-megawatt Keeyask dam project is now expected to cost $8.7-billion, about twice original estimates. An accompanying transmission line has followed a similar cost trajectory. With its debt set to have doubled to $23-billion once these projects are complete, Manitoba Hydro now wants to raise power rates by 46 per cent over five years. "Without the rate increases, the company will not have enough cash flow to pay for its core operations," it says.
BC Hydro's prospects aren't looking much better. The recently defeated Liberal government pushed ahead with the 1100-MW Site C dam project – exempting it from a formal review by the province's independent utilities commission – promising jobs and economic development in remote ridings. But the business case for the $9-billion project (based on BC Hydro cost projections) was always weak, with power demand in the toilet and export prices going down the drain. The New Democratic-Green alliance now set to form a government has vowed to review the project. But delay would only drive up construction costs while cancellation would still leave ratepayers on the hook for money already spent.
A decade or more ago, privatization might have saved BC Hydro, Manitoba Hydro, OPG and Nalcor from themselves and the destructive meddling of their political masters. Now, taxpayers and ratepayers can only clutch their tax and hydro bills and feel the burn.