Privatizing Power

The cynics among us might describe politics as the delay between the identification of a problem and the action taken to do something about it.

You might forgive NWT electricity customers for feeling that way after NTPC’s most recent rate hike went into effect April 1. Despite months of churning debate over the NWT’s cost of living, the role of utility prices in the same, and the convening of a much-ballyhooed energy charrette to talk about possible solutions, power rates continue to climb.

To be fair, this most recent increase was approved by the Public Utilities Board back in 2012. More precisely, it is the last of four installments of a 28 percent hike approved by regulators at the time. Spreading out the increase may have spared ratepayers the most acute pain, but it has done little to ease public grumbling.

Meanwhile, the GNWT has said it wants to spend more on energy infrastructure, the idea being to reduce power costs over the long term. The government does not, it hardly needs to be said, have that cash lying around. Nor does it have anything close to the hundreds of millions needed available under its $800-million debt cap. Premier Bob McLeod and finance minister Michael Miltenberger are optimistic the territory will eventually get the okay from Ottawa for an additional billion in credit, for what it’s worth.

This is where an infomercial announcer would tell us that there’s got to be another way. Range Lake MLA Daryl Dolynny has a suggestion, and not everyone’s going to like it: privatizing some of NTPC’s assets.

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The power corporation currently owns some $340 million in assets including $285 million worth of power plants. It’s also carrying around $177 million of long-term debt which counts against the territory’s overall cap. To Dolynny, those assets are a potential golden egg from which the government could fund the expansion of renewables. NTPC assets are an “albatross with a stranglehold on our borrowing capacity,” Dolynny said. “If we could take that debt load, imagine what $350 million of borrowing capacity could do for infrastructure development.”

Dolynny points to the Ontario Liberal government, which is mulling whether to sell off a share of Hydro One, the provincial Crown corporation that distributes electricity, to help pay for a $29-billion infrastructure scheme. Obviously, a comparison between Ontario and the NWT can only go so far: apart from the sheer difference in size, Ontario also runs perennial budget deficits in the billions, carries around $270 billion in long-term public debt, and has massive public pension obligations. Gloomy as the NWT’s fiscal situation may be, it’s nowhere near as dire as Ontario’s.

And the NWT’s electrical distribution system is already partially privatized, with Northland Utilities holding transmission rights in Hay River and Yellowknife. (Also of note, Denedeh Investments Inc. last month upped their share in Northland from 14 per cent to 50.)

Privatization, ever since its origins in Margaret Thatcher’s UK in the 1980s, has been a controversial concept. It’s variously hailed as the solution to every problem of public administration or as “predator economics.” A quick glance at the history of privatization in Canada reveals a wide-scale downsizing of government over the past three decades and decidedly mixed results. You’d be hard-pressed to find anyone who thinks the federal government should be in the business of owning hotels, gas stations and airlines anymore. Conversely, the joint-stock privatization of Nova Scotia Power, which owns both the province’s generation and transmission systems, is now widely reviled by the public there. And how do you feel about the performance lately of another former federal Crown asset, namely Northwestel?

Dolynny said Nova Scotia Power is “an example of what not to do.” Instead, he argues that NTPC’s generation capacity should be divided in some way and sold to more than one company. “I would like to design it so you have some competitive features in there so it allows some competitive nature and keeps that cost down [for ratepayers],” he says. At the same time, any investors are going to want a return, which Dolynny acknowledges. “Nobody’s going to want to do this for nothing.”

That’s what gets critics of privatization going: as soon as you introduce the profit factor, there is the incentive to reduce costs and maximize revenues. In theory, that means pressure to defer maintenance and capital spending, and to increase rates. Dolynny says it would remain the Public Utilities Board’s job to regulate rates.

NTPC does not sound particularly interested in this idea. While noting that any decision to sell assets rests solely with the GNWT, spokeswoman Pam Coulter said it’s generally cheaper for utilities to fund new construction with debt than by selling assets, as long as the ratio of debt to equity is kept under control. “Utilities will typically carry a 50/50 to 60/40 debt-to-equity structure,” Coulter wrote in an email. (NTPC is at 50/50 right now.) “Privatizing NTPC would mean that those who owned the Corporation’s assets would most likely expect a profit and/or dividend as well as a higher return on equity which the customer would ultimately have to pay for through rate structures.”

But the GNWT is, by its finance minister’s own admission, careening towards a “fiscal cliff” even as the territory’s infrastructure wish list grows ever longer. Rightly or wrongly, privatization is often viewed as a magic bullet by cash-poor governments. The current government may not be interested now, but the temptation may grow as the cliff approaches.



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