May. 20, 2009 - Issue #709: RIP
Right out from under us
Sale of Epcor's power generation highlights the danger of corporatizing public utilities
On April 17, without any public debate, consultation or input, Edmonton's city council voted to completely privatize one of the city's most important and lucrative assets. In fact, the people of Edmonton—the ones whose tax dollars built the asset and who benefit from its revenues—were not even informed until May 8, a full three weeks after the decision was made.
I am referring, of course, to the city's decision to fully privatize the power generation side of Epcor. They will do this by creating a new private company called Capital Power Corporation, and handing over all of Epcor's electricity generation capacity in North America and its 30.6 per cent interest in Epcor Power LP. Epcor will then proceed to sell off 25 per cent of the shares in Capital Power through an Initial Public Offering (IPO) in the next couple of months, with the rest of it being sold off in the years to come. It is very clear from Epcor's communications around this deal that their ultimate goal is to eventually sell all, or at least most, of their stock in Capital Power. The result will be a fully privately owned power-generating business where once there was a publicly owned utility.
Let's begin with a bit of background. Epcor is an arms-length corporation that has the city of Edmonton as its only shareholder, meaning it is 100 per cent owned by the citizens of Edmonton. Its function was to provide electricity generation, transmission and distribution, water services and, since January, wastewater treatment services. The main market for these services has historically been the city of Edmonton, but in recent years Epcor has ventured out to privatize utilities in other cities across North America as well.
As its only shareholder, when Epcor's business generated profits, those were passed on to the city as dividends. In 2008 the dividend paid to the city was in the neighbourhood of $130 million, which goes a long way to funding programs and services in Edmonton and keeping property taxes in the city relatively low. Most of that dividend, 85 per cent or $110 million to be exact, comes from the power generation side of Epcor—the side that has just been privatized.
Epcor CEO Don Lowry suggests that Edmontonians need not worry, however, as
Epcor will be able to make up that lost revenue by selling its water and
wastewater treatment services to municipalities outside of Edmonton.
Something that he says is made possible as a result of the city's decision in
January to hand over the Gold Bar Wastewater Treatment Plant to Epcor at a
huge markdown. Handy coincidence, isn't it?
In fact, it's nothing of the sort. Epcor Board Chairman Hugh Bolton told the
Edmonton Journal that this move to privatize the power generation side of
Epcor has been under consideration since May 2008. In other words, the plan
to privatize and sell off a significant chunk of Epcor was already on the
table in January 2009 when city council debated transferring the Gold Bar
plant to Epcor. This despite Mayor Stephen Mandel saying during that debate
"Epcor is not for sale and it won't be for sale," and accusing those who
suggested otherwise of "talking through their hat." It's sad when politicians
live up to the stereotype that they are disingenuous.
The reality here is that there is no guarantee that Epcor will be able to replace their power generation revenue with revenue from water and wastewater operations outside Edmonton. In recent years communities all over the world have started to fight back against initiatives to privatize their utilities, and in particular their water and wastewater services. Even in Canadian cities like Nanaimo, Epcor's attempts to take over water services have been met with strong resistance from citizens and municipal districts. Making the kind of money that Epcor is suggesting it can off of water and wastewater these days is nowhere near the slam dunk they seem to think.
If Epcor is unable to generate their projected revenues from water and wastewater expansion, they will have to find some other way of delivering on their promise of an increased dividend. Sadly, the only options available to them will be to either sell their stock in Capital Power more quickly, or find some other city asset to sell. Neither of those prospects are particularly appealing.
Both Mayor Mandel and Don Lowry are currently trying to appease
Edmontonians by focusing their public comments on the fact that the city has
a "golden share" in Capital Power, which ensures that the new company's
headquarters will remain in Edmonton for at least the next 25 years. That is,
frankly, little consolation. The issue is not where the operations are based,
but rather who owns and controls what they do.
For years groups like the Parkland Institute have argued that moving public
utilities to corporations like Epcor reduces transparency, accountability and
democratic control by citizens. The fact that council was able to sell an
asset out from under us all without us even knowing just reinforces this
argument.
In January I wrote in this column that the city of Edmonton should move to re-municipalize Epcor and bring our utilities back under direct control before it was too late. Apparently, by the time I wrote those words it was already too late—the plan was in motion and just needed council to sign off on it.
It is also disconcerting that only two of the city councillors at the
closed-door secret meeting actually stood up and voted against privatizing
one of the city's most important assets. Given the number of councillors who
have repeatedly said during elections that they are opposed to privatization
(some quite vehemently), it is reprehensible that this deal was so
overwhelmingly supported. Because the shareholder meetings happen behind
closed doors under a veil of secrecy, we may never know for certain who cast
the two opposing votes. It is critical, therefore, that all Edmontonians
contact their councillors to express their concern about how and why this
decision was carried out.
The bottom line is that although this deal may be good for Epcor it is not
necessarily good for Edmonton or Edmontonians. In voting on the deal, it
seems that city council's responsibility to protect and promote the public
interest took a back seat to their responsibility as the shareholder of
Epcor. It is critical that we take a good look at how this deal was
conducted, and take action today to ensure that no more of our collective
assets are sold out from under us behind closed doors. While it's now too
late for power generation, it's not too late for water, wastewater treatment
and power distribution. We need to bring these services back under direct
municipal control, and we need to do it quickly. If we don't, we risk losing
all of them—all it takes is a closed-door meeting and the stroke of a
pen. Aren't these services too valuable, and haven't we invested too much in
them, to let that happen? V
Ricardo Acuña is executive director of the Parkland Institute, a non-partisan public policy research institute housed at the University of Alberta.
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