In a city struggling to achieve a 0% tax increase, while simultaneously hoping to enact a grand vision for downtown, the need to find cash (or credit) is strong. And when the need is strong, every asset starts to look tempting as a potential infusion of cash. You may recall last October when there was a consideration of selling London Hydro to an Albertan company, as covered well in this post by Gina Barber. This prompted a request by Council for a shared services utility model review, which has now been outlined and approved, and can be seen here. You may be interested to note that just performing the review is going to cost $700,000, which was pointed out by Councillor Usher, with many other councillors and the Mayor not believing him on this figure as they had clearly not read the report.
The presentation from London Hydro on their annual report was very informative in terms of considering utilities. Some key facts:
- London Hydro returns the City an annual dividend of $3M
- Only 14% of electricity rate is set locally
- London Hydro runs very efficiently and has decreased outages
- Large capital investments are made annually to enhance our system
In a nutshell, London Hydro functions very efficiently, keeps our rates as low as possible (though there is a predicted 40% provincial increase over the next 8 years), and returns a significant dividend. The Corporation of the City of London is the sole shareholder. After this presentation, even Councillor Van Meerbergen was clear that it would make no sense to sell it.
Overall, the selling of utilities is a scenario in which government wins, and citizens/ratepayers lose. There are two benefits to the government: firstly, either selling the utility or rolling it into a private corporation allows the government to remove any existing debt from their own books, enhancing access to credit (hence the ‘Debt retirement charge’ on your bill that the City was able pass off). Secondly, there can be a large and immediate infusion of cash used to either hold tax rates or build legacy projects. The problem for citizens is the inevitable increase to rates, or loss of service quality. When you add a requirement for profit to the equation, it’s like adding an extra line to expenses (ie. payout to shareholders), and the money has to come from somewhere. So, the corporation owning the utility will either have to decrease expenses (ie. infrastructure development) or increase revenues (ie. rates). (Note: I didn’t include the option of increasing effeciencies as it is clear that our utilities are already very well managed.)
I am very much in favour of minimizing our utility rates, as we currently are. I am very much afraid of increase dividends paid to the Corporation of the City of London, at the expense of increased rates for we the people. These are our utilities, and should benefit us the most, and cost us the least.