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Hydro One sale could cost Ontario $500-million a year in lost revenues: budget watchdog

National Post | Ashley Csanady | October 29, 2015

Hydro One workers inspect a piece of equipment at the Frontenac Transformer Station on Division Street in Kingston, Ont. on Tuesday, Oct. 27, 2015. Elliot Ferguson/Kingston Whig-Standard/Postmedia Network

Hydro One workers inspect a piece of equipment at the Frontenac Transformer Station on Division Street in Kingston, Ont. on Tuesday, Oct. 27, 2015. Elliot Ferguson/Kingston Whig-Standard/Postmedia Network

The Ontario Liberals’ plans to sell Hydro One could cost the treasury $500-million annually and will eventually increase the province’s net debt, the financial accountability officer has found.

Stephen LeClair’s inaugural report slams the Liberal government’s plans to sell 60 per cent of the utility — which transmits most electricity in the province — as a short-sighted cash grab that will cost more than it makes in the long run. The report notes that, in the short term, the sell-off will make it easier for Ontario to balance its budget by its planned deadline of 2017/18, but the lost revenues will hurt the bottom line over the longer term and make it harder to balance future budgets.

Julia McKay/The Kingston Whig-Standard/Postmedia Network

Julia McKay/The Kingston Whig-Standard/Postmedia NetworkThe Hydro One Gardiners Transformer Station in Kingston, Ont.

The plan is to sell a 15 per cent stake in the Crown corporation each year until 2019, when the province’s stake will be reduced to 40 per cent.

“Once the full 60 per cent has been sold, the province would experience an ongoing negative impact on budget balance from foregone net income and payments-in-lieu of taxes from Hydro One,” the report notes, putting that number at $100 million annually. The treasury will also forego 60 per cent of the current $750-million dividend Hydro One pays the province each year — or another $450 million

That means the province will lose hundreds of millions a year in revenue from selling 60 per cent of Hydro One for less than $9 billion. The report says just $3.3 billion to $5.8 billion of that would make it into the province’s Trillium Trust to build infrastructure — the whole point of the sell-off.
“The minister of finance will face a reduction in revenue associated with Hydro One as early as next year. The revenue shortfall could end up being around $300-500 million annually,” LeClair said.

Though Ontario’s debt would initially be reduced, at least in part because the sale would lower the “stranded debt” in the electricity sector, that too would rise in the long run.

“Net debt would eventually increase as a result of the partial sale as the costs of forgone revenues from Hydro One begin to exceed the initial fiscal benefits,” the report states.

Finance Minister Charles Sousa said the report affirms the government’s $9-billion valuation and will help pay for infrastructure. He also implied the government will push ahead with the sell-off despite the lost revenues.

“The final price will be set very soon and at that time we will be in a position to know exactly how our estimates and those of Mr. LeClair measure against the market,” Sousa said. “I look forward to continuing to work with Mr. LeClair and continue to be open, transparent and accountable to the people of Ontario.”

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