TORONTO—A new report from the C.D. Howe Institute recommends cities across Canada take a serious look at selling off one set of infrastructure assets to pay for another.
With many cities scrambling to find funds to pay for much-needed transit, the Toronto-based think tank says municipalities should sell off their electricity distribution companies (LDCs) to bankroll new roads, bridges and mass transit projects.
Though various crown corporations make up 54 per cent of the country’s distribution network, city-controlled LDCs, which remain particularly prominent in Alberta and Ontario, deliver electricity to about 27 per cent of all Canadian customers, the study says.
These municipal holdings are worth between $15 billion and $20 billion and represent a significant opportunity for their owners, the C.D. Howe said.
“There’s huge potential in Ontario and Alberta for cites to hold equity sales in electricity distribution to jumpstart other infrastructure investments,” the report’s author, Steven Robins, said.
“Additionally, both provinces have regulators that have demonstrated their ability to protect consumer interests, by setting the rates for both municipally and privately owned electricity distribution,” he added.
While privatizing electricity distribution has proved a divisive issue—the Ontario government’s partial privatization of Hydro One has caused significant backlash—the think tank says there is “no compelling” public policy rationale for cities to hang onto their LDCs.
“Alberta and Ontario have regulatory environments designed to protect consumers from the abuse of market power by distributors and to regulate private LDCs elsewhere in their jurisdictions,” the report notes, meaning public or private ownership will not affect electricity prices.
But as another part of the equation, Robins said Canada’s current tax structure distorts incentives for municipal LDC ownership, which encourages them to retain the companies. While city-owned LDCs make payments-in-lieu of taxes to their respective provincial government, private electricity companies pay corporate income tax.
Currently, just 10 per cent of Canada’s LDCs are 100 per cent privately-owned.
You can read the full study here.