TORONTO — Ontario's new budget watchdog warns the Liberal government's plans to sell Hydro One will ultimately have a negative impact on the province's finances.
"The province's fiscal position will deteriorate compared to if they didn't undertake this sale,'' Stephen LeClair, Ontario's financial accountability officer, said Thursday as he released his first-ever report to the legislature.
LeClair found the province would see an improvement in its budget in the first year after an initial sale of 15 per cent of shares in the utility. But the impact could be positive or negative in subsequent years as more shares are sold, and will ultimately be negative once the Liberals sell the 60 per cent of the Hydro One they plan to privatize.
"If Hydro One is sold for a high valuation, and the debt retirement charge is maintained, then the partial sale will have a positive impact on the fiscal balance of the province through to fiscal year 2018-19,'' said LeClair. "After that, the impact will be negative. In other scenarios we modelled, the negative impact begins next fiscal year.''
LeClair also said the government "should be clear on whether or not the sale will impact the debt retirement charge,'' a fee on every electricity bill that is supposed to go to pay off stranded debt from the old Ontario Hydro.
Hydro One turns over about $750 million a year to the province, which will be reduced as private owners take their share of the profits.
"A partial sale will mean an ongoing loss of income to the province, because the government will receive less of the share of net income from Hydro One, and lose the proportion they currently receive in lieu of federal corporate income tax,'' said LeClair.
"The net income effect cannot be understated.''
LeClair estimates the total value of Hydro One at between $11 billion and $14.3 billion, and says based on that, a 60 per cent sale would generate $6.8 billion to $8.9 billion, "a wider and somewhat lower range'' than the government's estimates.
"There is significant uncertainty over how much the province will take in in proceeds from the partial sale,'' he said. "This uncertainty feeds its way through the entire analysis.''
But LeClair couldn't tell how the government came up with its valuations for Hydro One because the Liberals won't tell him their methodology.
"I am disappointed not to get the information, but I also recognize that this is an ongoing process in which we'll have to work together for a number of years,'' he said.
Without knowing how they made their calculations, LeClair said "it is not possible'' for him to offer a definitive opinion on whether the partial sale will help the government eliminate a $10.3 billion deficit by 2017-18 as promised or not.
But Premier Kathleen Wynne said she needs to sell 60 per cent of the utility to raise money for public transit and infrastructure projects.
"In terms of the long term, we thought this was the right way to go,'' Wynne said Thursday at an unrelated event in Niagara-on-the-Lake. "The other factor is that the benefit, the economic benefit of the investments we're going to make, I'm convinced that they will outweigh that long-term change in the revenue.''
NDP Leader Andrea Horwath called the Hydro One sale "ludicrous'' and "insane,'' and told the legislature that LeClair's report shows the government will get only a fraction of the money it was hoping to raise by selling the utility.
"Without the FAO, Ontarians would never have known that the selloff of Hydro One would earn billions of dollars less than what the premier has promised,'' said Horwath. "He clearly says this is a bad deal for Ontarians.''
The actual share price for the Hydro One initial public offering was expected to be made public after the close of markets Thursday.
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