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The push for the privatization of Toronto Hydro

The Toronto Star reports today that, “John McNeil, president of BDR NorthAmerica Inc., doesn’t shy away from saying some city assets should be sold. His firm advises players in the electricity and natural gas sectors on mergers and acquisitions, regulatory issues and planning.”

“(McNeil says) the city should look at dealing Toronto Hydro. ‘It would command a feeding frenzy in terms of investor interest.'”

“There’s a tax problem to be solved, he conceded. The province levies a 33 per cent tax on the sale of municipal electric utilities if they’re sold to private operators. That makes them much less attractive – and he thinks the city should be pressing the province to change the rule. But McNeil said the city could try selling a modest 10 per cent stake through public offering. He figured it could bring the city up to $150 million, and get the public used to private involvement in the utility. The federal government eased into the sale of Petro-Canada in much the same way.”

CAW economist Jim Stanford counters McNeil’s Toronto Hydro privatization argument by saying, “The city typically earns an annual profit of about 10 per cent on its equity investment. Some of that (but not all) is paid to the city as a cash dividend; but even the profits that are retained inside Toronto Hydro are still new wealth for the City. If you sell off an asset that earns 10 per cent, in order to pay down debt (or avoid new debt, which is equivalent) on which you pay 5 or 6 per cent interest, have you made a good decision? Obviously not. Your balance sheet is no stronger: debt is lower, but so are your assets.”

“There are also public policy considerations, said Stanford. Toronto Hydro is more willing to subsidize energy conservation or long-run investments in green energy than a private firm, he said.”

The Toronto Star article also highlights that Dana Levenson – “the man who put management of some of Chicago’s prized (public) assets under private management – comes to town on Thursday to share his perspective with the Toronto Board of Trade.”

The full article is at http://www.thestar.com/mobile/business/article/763019.