Prominent economists challenge rationale for privatizing Hydro One

May 31, 2002

(Toronto) In a report released today, three prominent economists throw cold water on the "business case" that the provincial government has offered for privatizing Hydro One.

The authors, Myron Gordon, Doug Peters, and Mike McCracken, examine the arguments being made for selling the province's electricity and distribution systems to private investors and find them wanting. They conclude that, "by any objective measure, abandoning public control of this vital public infrastructure simply makes no sense."

The study also challenges the government's theory that private sector "discipline" is needed in order the ensure the prudent management of Hydro One's affairs. It points out that the IPO filed by Hydro One de- scribes its ambitious plans to expand operations into the United States - precisely the business plan that was ruinous for many more experienced private sector corporations in the telecom sector. In the wake of these disasters, the authors wonder what ïprivate sector discipline' the government is referring to. Their analysis warns that privatization will set the stage for the ultimate takeover of Hydro One by US investors.

The report concludes that the the fair value for Hydro One is more in the order of $9 billion rather than the $5.5 billion reported as the likely proceeds from the IPO that would now be underway but for the intervention of the Ontario Superior Court.

Dr. Douglas D. Peters is the former Chief Economist of The Toronto-Dominion Bank. He was the Secretary of State (Finance) in the Chretien government from 1993 to 1997.

Dr. Myron J. Gordon is professor emeritus of finance at the University of Toronto. He is a past President of the American Finance Association, and is a Fellow of the Royal Society of Canada.

Michael C. McCracken, Chair and CEO Informetrica Limited.He has served as president of the Canadian Association for Business Economics (1979-81 and 1988-90) and Chair of the US Conference of Business Economists (1994).