Toronto Hydro will face billions in expenses if it wants to keep up

theglobeandmail.com
By Marcus Gee
Sept. 27, 2016

Anthony Haines won’t talk about privatizing Toronto Hydro, except in generalities. Mayor John Tory is exploring the idea of selling part of the century-old electrical utility. Mr. Haines says that’s a political decision and, as Hydro’s chief executive, there is a limit to what he can say.

He will say this, though: Hydro has a problem. It faces billions in expenses if it wants to keep the lights on in the booming, changing metropolis that it serves. Those billions will have to come from somewhere. “Listen,” he says, “I have to worry about where we’re going to get our money from and these large amounts of capital investment ahead of us.” Having access to private investment “gives us a clear line of availability to cash necessary to meet the challenges of the corporation. But that’s probably as far as I want to talk about today.”

In Hydro’s art-deco headquarters on Carlton Street, Mr. Haines lays out the extent of his problem - “the what-keeps-me-up-at-night stuff.” He breaks it into three parts.

First, there is aging infrastructure. The wires, poles, transformers and cables that transmit electricity to Toronto homes and businesses are wearing out. About a third are at or near the end of their natural life. To illustrate what a big job it is to fix them, he points out that Toronto Hydro has enough wire to go from coast to coast three times. Fixing its buried wires alone means the equivalent of digging a trench from Halifax to Victoria.

The second part of his problem is Toronto’s building boom. As recently as 2008, Toronto had about 100 big buildings - those 30 or 40 storeys and more. The number has more than doubled since then, he says. That is going to soar yet again in coming years as more buildings rise. As Mr. Haines put it, “there are more buildings under construction than there are buildings.”

How does Hydro get power to all those new towers that are lighting up the skyline? Around the city, “everyone is saying, ‘Can you hook me up?’” The grid is already showing the strain. When power failed at the giant CityPlace complex downtown, Hydro had to replace 250 metres of underground cable. Mr. Tory brandished a melted piece of the old one to help make his case that Hydro needs new investment.

But these, says Mr. Haines with a smile, “are just the beginning of my nightmares.” The third big challenge for Hydro is adapting to a new low-carbon economy. The provincial government has set ambitious targets for weaning Ontario off fossil fuels. That means more electric cars and more electric heat to take the place of gasoline and natural gas. It’s a noble project, he says, but the scale of the transformation is staggering. To stop using natural gas for heating in Toronto would mean building seven new nuclear reactors or installing a solar panel that would cover about two-thirds of the city of Toronto.

He isn’t complaining. “It’s kind of fun to have these challenges because we’re shaping the world of our kids.” The worry kicks in when he thinks of how to make it all happen.

Critics of the privatization idea say that Hydro can pay for its repairs and its growth by applying to provincial regulators, who set the rates it can charge customers. Mr. Haines argues that rates don’t pay for Hydro’s capital costs, just the carrying costs. In effect, they help Hydro meet its mortgage payments. They don’t cover the down payment on the house.

“Commercial enterprises often raise capital in equity markets,” he says. “Our ownership model is a different one.”

He also argues - without saying he is in favour of it - that privatization would not affect Hydro’s rates, service levels or commitment of conservation. All of those are overseen by regulators, “whether you are owned by the city or not.”

Mr. Haines insists he isn’t overwhelmed by the challenges. He says that in many ways, with conservation efforts making progress and a thriving city illuminated up by electric power, this is Hydro’s “finest hour.” He likes to solve puzzles and, in his head, he is always playing with the puzzle of how to give Hydro the capacity to meet the needs of the future. It is just that, “Right now it doesn’t fit together for me.”