The Ottawa Citizen
November 1, 1998

In 1992, General Motors swallowed a $20.8 billion accounting loss to bring its books into line with what the company was actually worth. It was the biggest writedown in corporate history.

Ontario Hydro is about to take an even bigger hit to prepare itself for the competitive environment it will face in 2000.

Although the crown corporation has $39 billion in outstanding debt, the provincial finance ministry estimates that Hydro’s generating plants and power grid are worth only $15.8 billion – or $23.3 billion less than the Hydro debt.

With help from New York investment banker Goldman Sachs, the finance ministry calculated the market value of Hydro’s transmission wires at $10.5 billion; its 68 hydroelectric stations and 28 fossil-fuel-fired units at $5 billion; and its nuclear plants to be worthless.

As Goldman Sachs vice-president Edward Chapman put it, nuclear plants “basically sell for nothing. The market value, if it were to be sold today, is very close to zero.”

But unlike the case at GM, Hydro’s shareholder – the government of Ontario – has no plans to absorb the $23.3 billion excess debt. It doesn’t believe taxpayers should have to pay.

So the burden falls to someone else. That someone else is the electricity user – who just happens to be the taxpayer wearing his or her consumer hat.

But not to worry. Queen’s Park says consumers won’t see any increase in their electricity costs because existing rates already cover the costs of interest on Hydro’s total debt.

Under competition, the two new companies that are to be carved out of Hydro to generate and transmit electricity will pay the government money in lieu of taxes. Over time, this money will allow Queen’s Park to pay off $15.4 billion of the $23.3 billion debt. And since the companies will be paying this money instead of paying interest on a debt they will no longer have to carry, the cost of electricity to the consumer won’t have to increase.

The rest of the excess debt – about $8 billion – will be financed through a charge added to everyone’s electricity bill. Again, consumers will simply pay this charge directly rather than having it buried in their electricity rates.

So far, so good.

In fact, if competition leads to lower electricity prices, consumers would see smaller electricity bills.

In theory, at least.

In reality, however, what happens to your electricity bill will depend on whether the finance department gets the numbers right and whether competition works the way the government says it will.

As for the numbers, we take little comfort in the caveat issued by the finance ministry when it released its estimates last week. It said: “These estimates will almost certainly change in the future as more information becomes available.”

Indeed, there appears to be plenty of room for error. For example, based on recent sales elsewhere, Thomas Adams, the executive director of Energy Probe, believes the hydroelectric and fossil-burning stations could be worth $12 billion to $21 billion, compared to the department of finance estimate of $5 billion. If he’s right, the debt that needs to be taken off the companies’ books could be as low as $7 billion.

Our second concern is that even if competition reduces the average price of electricity, all the benefits could be captured by the big industrial users, leaving residential customers to pay more for the electricity they use.

All that the Harris government has given us so far is a plausible theory of how much electricity will cost consumers two years from now. But if the theory doesn’t work out in practice, don’t blame the theory. Blame the government that has turned its theory into a promise of how much better off we will all be.