The government is looking into privatizing publicly-operated local utilities, including Hydro One and what are called “local distribution companies” or LDCs. These are the utilities that receive electricity from power plants and bring it from the major transmission lines to every home and business in our community. The sell-off is being considered to put more money in government coffers. But does the available evidence support privatizing local hydro? Are private distribution utilities more efficient or lower cost than publicly owned ones?
The answer is no.
Will public or private cost you more?
We have compared publicly disclosed data on Ontario’s public and private local utilities (called “Year Books,” in energy sector jargon), including both financial and performance measures. This includes Ontario’s two 100% privately owned utilities; four utilities in which private ownership has a 10% interest, and the province’s publicly-owned utility.
|Ownership Model||Total Cost per Customer|
In every case, the group of (partly or wholly) privately-owned utilities performed worse than the wholly publicly-owned utilities. There is no evidence of private ownership leading to cost savings. And if it costs more to serve each customer, each customer – like you and your family – can expect to pay more for their electricity.
The US experience
A US study by John Kwoka, Jr. reviewed 15 surveys of public and private LDCs, and analyzed data collected from 182 private and 454 major public utilities. Of the 15 studies Kwoka surveyed, 8 found public firms to have lower prices or higher efficiency; four found public and private firms to have equal costs or efficiency; two found mixed results, and just one found private firms to have higher efficiency. This evidence therefore tends to show that public firms are more efficient or have lower costs than private ones.
Kwoka’s own research showed residential customers of publicly-owned LDCs paid lower prices than their private counterparts.