Hydro One: 6 reasons why the sale is going to happen

Whether you're for or against selling Hydro One — and polls suggest most of you are against — its privatization is effectively a done deal.

No date has been set for selling the first tranche of Hydro One shares in an initial public offering (IPO) on the stock market. But Ontario's Liberal government is promising it will take place no later than March, and this is one promise you can count on them to keep.

The last time an Ontario government moved to privatize Hydro One was 2002. Back then, it was a PC government led by Ernie Eves pushing privatization, with a Liberal party under Dalton McGuinty against it. That bid, however, never came to fruition.

• Hydro One sale inches closer 
• Liberals defend Hydro One sale
• Most oppose Hydro One sale: poll
• Hydro One faces class action lawsuit
• CUPE protests sale of Hydro One

Things are different this time. For one, the Liberals and PCs have switched positions, with Patrick Brown's party thundering against privatization and Premier Kathleen Wynne leading the charge.

And a lot has changed since 2002; changes that would suggest the sale of Hydro One is all but a done deal. Here are six reasons why, followed by the only conceivable reason why a sale might stall.

1. Unions co-opted

Perhaps the government's smartest — or, depending on your perspective, most devious — tactic to make sure the privatization goes ahead is its move to buy Hydro One employees' support with the very shares that will be offered on the market.

The deal gives members of the Power Workers' Union shares worth 2.7 per cent of their salaries every year, while members of the Society of Energy Professionals get shares worth two per cent of their salaries annually.

This has weakened the labour movement's opposition to the sell-off. There's big irony here: PWU is affiliated with CUPE, making CUPE Ontario's campaign against privatizing Hydro One ring a little hollow.

2. Bay Street wants a piece

The government issued a Hydro One "preliminary prospectus" on Sept. 17.  This 300-page document contains pretty much everything the stock market wants to know about this $6-billion-a-year corporation.

One crucial section in this prospectus shows just why Bay Street is keen to sink its teeth into this lucrative pie. It lists Hydro One's annual "return on equity" — what you and I call "profit". It comes in around seven to nine per cent every single year, numbers that would satisfy just about any capitalist.

The thing is, this return on equity isn't subject to the whims of a competitive free market; it's guaranteed. Hydro One's biggest source of income comes from selling electricity at a price that is set by a regulatory body. That regulatory body sets the price of electricity by factoring in return on equity for Hydro One.

Put simply, Hydro One's profits are effectively guaranteed, built right into the price you pay for power. What investor wouldn't want to buy shares?   

3. A kinder, gentler privatization

Premier Kathleen Wynne doesn't like to say she's "selling" or "privatizing" Hydro One. Her preferred phrase is "broadening the ownership." It's quite a euphemism, because right now Hydro One's ownership is pretty darn broad: the 13.7 million taxpaying residents of Ontario all own a slice.

Wynne also likes to pitch this as a kind of privatization lite. The message is: don't worry, the government will remain the largest single shareholder, she's only selling 60 per cent of Hydro One, and all the proceeds will go to building nice, important things like transit.

The Liberals are trying to create a narrative that what they're doing is more responsible than a wholesale fire-sale privatization.

4. Failings of a publicly-run Hydro One

This utility itself provides some pretty strong ammunition to those who believe the public sector does a poor job of running corporations. The Hydro One billings scandal ruined its customer-service reputation.  

Seeing 8,000 Hydro employees pop up on the Sunshine List every year for earning more than $100,000 sure makes the average ratepayer resentful.

And the argument that your hydro bills will go up under a privatized Hydro One doesn't necessarily resonate, given how much bills have gone up under publicly-owned Hydro One.   

5. If you don't like the law, change it

Unions derailed the PC privatization drive back in 2002 with a court case, arguing successfully the government did not have the legal right to sell Hydro One.

That legislation has since changed. The Wynne government has also removed another legal hurdle by rewriting a law that would have required it to put all profits from selling Hydro One toward its debt.  CUPE President Fred Hahn tells me the union's lawyers are poring over the prospectus to look for grounds for legal action, but don't count on them finding it.

6. The election cycle

This might be the biggest reason this privatization will go ahead despite the public opposition. The PCs faced similar opposition back in 2002, but then an election was imminent.

The Wynne Liberals have their majority, and three more years until they have to face the voters. By that time, the privatization of Hydro One will have become a reality, and the Liberals are counting on voters to shrug it off as no longer important.

1 reason why privatization might not happen

The only scenario I can see that would stop the privatization is a stock-market crash. If the market is so skittish that Hydro One is unlikely to attract the share price the government is hoping for, the IPO could be withdrawn. But that may merely delay the sale, rather than derail it entirely.