Tuesday, April 21, 2015

Power, Profits and the Public Good

I can understand the urge for many people to privatize government agencies, assets and services. The government can be inefficient and clumsy. Some services are better provided by the private sector. However, there appears to be a category of services that seem roughly to be a draw between public and private provision. The Northwest Territories has dealt with substantial problems regarding power generation and distribution. There are various systematic problems dogging the system. In public meetings on the topic it is not unusual for people to say "We should privatize the power corp," or "It's the government's fault, they need to get out of it." This suggestion, often rooted in frustration, is understandable but entirely inappropriate.

In the particular case of the Northwest Territories the problem is multifaceted. The territory's power grid is complicated. Most of the communities are isolated from one another and must have its own independent power generation, especially in the smaller and more northern areas. That means diesel generators burning expensive fuel in the scattered communities. The problem became more severe in Yellowknife this year when low water levels meant that the hydro system was rendered ineffective and had to switch to its diesel generators at enormous cost. The cost to extend power to Yellowknife from the South Slave or connect the South Slave to the national grid stands in the billions and therefore out of the government's reach.

Privatizing the Northwest Territories Power Corporation would do nothing to address this problems. If anything the additional costs to anticipate this risk would simply be put on the consumer pushing the prices ever higher.

In the province of Ontario Premier Kathleen Wynne (OLP - Don Valley West) has announced her government's intention to sell 60% of Hydro One. Martin Regg Cohn laid out the government's case in his most recent piece. Basically there is no better time to borrow money. The continuing sluggishness of the world economy has resulted in very low interest rates. Capital markets are seeking somewhere to invest their money to make it work and therefore the cost of borrowing money is much lower than usual. This is why you are hearing people suggest that this is a good time to use deficit spending to improve the economy. The plan is to use the capital from the sale of existing power transmission lines to construct new transmission lines and, from what I read elsewhere, pay for other infrastructure.

The government of Ontario has convinced several key people that the sale is for the better. The simple fact is that the provision of power is not a service like retail, it is a utility and unlike other utilities (internet and cable) it is fundamental to the health and well-being of citizens. Virtually every home is connected to the grid. Aside from remote homes/cabins pretty much everyone has access and I do not think anyone in good conscience would deprive people of electricity. That being the case it is not a market good that can conform to the flexibility of prices. It would be better then to treat power utilities like they are - a public good. Complete ownership by the state allows for greater control and management and no waste or poor maintenance for the sake of profit.

While Ontario might be in a favourable position to sell hydro assets today the market will inevitably change. What happens when the province wants to buy back these assets? How inflated will the costs be then? How will this impact changes needed to the dismal electricity situation in Ontario? For the betterment of society as a whole I think we would be better off understanding that electricity is expensive, complicated and infrastructure heavy while also being essential to deliver. This makes it a perfect candidate for public ownership and any tinkering with that may only result in more difficult challenges in the future. 

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