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City hall briefings not about privatization, Hydro says
Toronto Hydro is telling city councillors about capital needs ahead of a privatization debate.

TheStar.com
Nov. 17, 2016
David Rider

Toronto Hydro executives are meeting privately with city councillors to show them a “confidential” presentation suggesting the utility has a dire need for cash to spend on the electricity grid.

Toronto Hydro spokesman Brian Buchan, who has been giving the presentations along with executive vice-president Chris Tyrrell, said they are routine updates for representatives of the electrical utility’s sole shareholder — the City of Toronto.

“Under no circumstance are we lobbying for privatization or lobbying of any kind. That is absolutely false. . . ” Buchan said in an emailed response to questions from the Star.

“Toronto Hydro is financially strong and well-run. Because Toronto’s electricity system has such extensive reinvestment needs and because we are a city that is growing at a uniquely healthy pace, capital flexibility is a focus.”

Independent energy analyst Tom Adams, shown a copy of the 19-page presentation obtained by the Star, said it does not provide a full picture of Toronto Hydro’s financial picture. The focus on capital investment begs the question of privatization, he added.

“This is sophisticated work — every slide is torqued,” Adams said in an interview. “The claim from (Mayor John) Tory and Hydro that they need private capital to fund the necessary refurbishment of the system is not correct.”

In a September speech Tory pointed to blackouts and argued council must look at “unlocking” value in Hydro while maintaining majority ownership.

Hydro chief executive Anthony Haines recently told the Globe and Mail that access to private investment “gives us a clear line of availability to cash necessary to meet the challenges of the corporation.”

The presentation makes no explicit mention of possible privatization, the groundwork for which Hydro has long been laying, the Star revealed in January. Hydro consultants include Nick Kouvalis and Bob Richardson who both worked on Tory’s 2014 mayoral campaign.

The presentation says Hydro has a need for “capital rebalancing” to address “continued investment in aging infrastructure, support for unprecedented growth and demand” and “effects of government policies,” including Hydro’s annual dividend to the city budget that was almost $60 million last year.

Toronto Hydro’s board announced Monday it has voted to reduce that dividend to $25 million for at least three years, blowing a $35-million hole in plans for the 2017 city budget.

The presentation also highlights a “funding gap” in investments to “address aging infrastructure and help improve reliability, growth and policy changes.”

A page titled “In the news” shows a Hydro press release, a downbeat credit report and part of a Toronto Sun article with a photo of the mayor and the headline “City needs to unlock Toronto Hydro: Tory.”

Adams, a former board member of the provincial agency overseeing Ontario’s electricity market, pointed to a slide highlighting Toronto’s “unprecedented city growth” including 287 highrises under construction, approved or proposed.

Hydro isn’t telling councillors that electricity demands from downtown population growth are being more than offset by energy conservation efforts including low-consumption appliances, he said.

The amount of electricity delivered by Toronto Hydro dropped between 2007 and 2015, Adams said.

David McFadden, a Hydro board member soon to become chair, acknowledged in an interview the load is dropping but argued Toronto’s highrise growth means “you still have to put wires in it . . . We’re going up and that requires a lot of capital invested to meet the new demands.”

An energy analyst, who asked to remain anonymous because he is not authorized to speak to reporters, said one slide, showing Hydro’s debt-to-equity ratio, does reveal a worrying increase to 63.3 per cent.

“What has the board been doing for the last couple of years? What has city council been doing?” the analyst said.

Buchan rejected any suggestion the presentation is misleading.

He said Hydro has invested heavily in the grid, and money going out the door as dividends is common for municipal utilities, but those factors combined with city growth have created a “measure of imbalance.”

Compounding the imbalance is the fact that Ontario Energy Board approves rate hikes to pay for past capital spending as opposed to future need, he said.

“This challenges our ability to continue making crucial investments to address aging infrastructure, unprecedented growth and greater demand through government policy.”

Councillor Ana Bailão, a member of Tory’s executive, got the Hydro presentation and noted she has had similar briefings in the past.

She is not a “huge fan” of selling a stake in Hydro and doesn’t want to consider selling assets until councillors have debated proposed new taxes that could also help bridge the fiscal gap.

City manager Peter Wallace is expected to release separate reports soon on the possible sale of city assets and so-called revenue tools to boost the city’s spending ability.

“Let’s have the revenue tools debate before we jump on Toronto Hydro privatization,” Bailão said.