David Soknacki presented a strong yes argument on getting needed cash by selling Toronto Hydro as soon as possible.
Without looking deeper and wider, a reader might be seduced to support a quick sale (or 100 per cent privatization, which is what the Toronto Hydro board/management wants).
It might seem that Soknacki has rightly rebuffed all possible counterpoints and provided all the relevant facts.
Toronto Hydro is a regulated municipal electric utility, a special type of corporation in Ontario whose shares are 100 per cent owned by the City of Toronto.
As of October, certain advantages of a quick sale will terminate (for reasons that are too technical and long for a letter to the editor) for all municipal electric utilities.
Readers might have read recently about Mississauga's council reviewing its majority-owned municipal electric utility due to its management difficulties and poor investment return. Some other municipalities, however, see their municipal electric utility's as quality public investments to hold and cherish (such as those strong cities to our north, Vaughan and Markham).
While Toronto Hydro has a book value in the range of $2.5 billion, Soknacki apparently forgot to mention that more than $1.7 billion (2006) is debt. He also didn't mention that about $1 billion of that debt is owed to the City of Toronto since cities traditionally took out debt to build their municipal electric utility predecessors.
Now Toronto Hydro, starting in 2007, will repay the city debt in addition to paying debt interest by issuing its own instruments.
That is by 2013, our city will have been paid about $225 million a year in the form of dividends and debt repayment. We might expect this is ample to start light rapid transit projects and some other infrastructure items.
Current annual dividend streams have been running about $65 million based on a 50 per cent formula payout from net income. We should hope the mayor and council put this return on capital to capital and not operating uses.
Obviously, Toronto Hydro is delivering needed cash now without a drastic change in public policy.
It might sell off a sub such as "green" Enwave but the mayor has requested it take a pause on looking at a sell-off of Toronto Hydro Telecom since this should be part of any future digital strategy of a modern IT city. He is thinking smart meters for electricity, water and natural gas as well as providing a communications network for city services personnel on the road.
As a regulated utility, Toronto Hydro needs to maintain a financial performance to be of interest to private investors. While electricity prices are set by a regulatory board, readers might notice that the delivery part of their Toronto Hydro bill exceeds the kilowatt per hour price part.
Much of this is what it costs to run Toronto Hydro, which includes debt charges and a return to shareholders. Recently Toronto Hydro requested increases due to the diligence of Toronto residents in conserving electricity and reducing bills.
Selling off Toronto Hydro might cost us all more in the long run due to the requirements of new investors. This is a reverse of any "short pain for long-term gain" incentive.
As the fiscal review panel pointed out, it is important the City of Toronto gets on top of all the assets (buildings, land, equipment) that the city and its agencies own and control. Land control especially allows the city to direct future city ventures and redevelopment for the better social good.
Until the city has a better picture of its long-term financial status and asset portfolio it would appear the best current decision is to keep Toronto Hydro going the way it is now. It reflects a good public policy decision that has done us well for over a century. Toronto Hydro sits as a strategic player in setting a future public economic/investment environment.
The October sunset on current municipal electric utility financial practices is no reason to rush a decision. Toronto Hydro is now a good cash cow that will keep giving back and giving back part of what we pay to keep our computers and lights on and our food and homes cool.
Instead of a sell-off should our mayor and council suggest that its municipal electric utility look at acquiring Mississauga Mayor Hazel's McCallion's problem child? Other municipalities have found that a municipal electric utility empire bears fruit like an ever-blooming money tree.
Brian V. Ralph