Behind-the-scenes work is ongoing for the possible sale of a minority stake in city-owned Toronto Hydro to help fund the city’s massive capital needs including Mayor John Tory’s SmartTrack plan, the Star has learned.

The privatization proposal, if it goes to city council, could spark a public battle fiercer than last year’s east Gardiner Expressway fight. The outcome could define Mayor John Tory’s first term in office.

The payoff, however, could be huge — up to $1.5 billion, by one energy expert’s estimate, to fund Toronto transit, social housing and other infrastructure, as well as a desperately needed cash infusion for a utility struggling with its own infrastructure demands and rising debt levels.

Sources say senior staff and advisers to Tory started mulling a partial sale of Canada’s biggest municipal electricity distributor, which pumped $60.6 million into city coffers in 2014, even before he took office 13 months ago.

More recently, Tory’s office took a keen interest in council appointments of new members to the Toronto Hydro board. They include lawyer David McFadden, chair of the pro-privatization Ontario Energy Association, and Tamara Kronis, a lawyer-turned-goldsmith who was operations director for Tory’s 2014 mayoral campaign.

Toronto Hydro senior executives have looked at privatization scenarios in the past, sources say, but over the last year initiated extensive financial analysis and research on the case for a partial sale.

That research includes polling on public support for the sale of a minority stake that would retain city control, reduce the annual dividend and unlock a one-time windfall. No sale could happen without the votes of a majority of Toronto’s 45 council members.

Tory himself has not participated in detailed discussions, the sources say. The mayor recently told the Star the issue was not on his personal radar, and did not come up in his discussions with Toronto Hydro chief executive Anthony Haines.

A request to interview Haines was answered by Toronto Hydro spokesman Brian Buchan, who said: “It is our policy to not comment on market speculation or rumour.”

Deputy Mayor Denzil Minnan-Wong, noting he was speaking as a councillor and not as a recently reappointed Hydro board member, said: “There’s a great deal of unmonetized value in Toronto Hydro that could be used for anything from transit to building more affordable housing.”

Last month, city manager Peter Wallace sounded the alarm about the lack of funding sources for $23 billion in planned capital projects, including TTC long- and short-term needs and Don River flood protection.

Tory was elected promising to build a 53-kilometre, 22-stop commuter rail line. He said Toronto’s $2.7-billion share of the estimated cost would come from a scheme — untested on this scale — to borrow against future tax revenues from high-growth zones.

One energy finance expert, not involved in the discussions, estimated a 49 per cent sale of Toronto Hydro could yield between $1 billion and $1.5 billion. He added, however, that tax ramifications would eat a significant portion unless the city convinced the province to reduce the rate charged on such a utility sale.

Bob Huggard, Ontario Energy Association chief executive, stated in an email that there were other advantages to a partial privatization: “Cash-strapped municipalities cannot be expected to contribute new funds to distributors, or accept cuts in their dividends. Opening up the sector to private investment will be the quickest and best way to lead to the modernization of Ontario utilities, which will result in better service for customers and stronger, more resilient distribution grids.”

Councillor Gord Perks warned Tory that the Gardiner fight would pale compared to one on hydro privatization.

“The opposition will be much more substantial and much more concentrated,” said the Ward 14 Parkdale-High Park representative. “It’s a fight that the mayor would be unwise to take on.

“Effectively, to solve today’s problems you are hurting tomorrow’s taxpayers. Why would you shift control of electricity and the profits from it from public to private hands?”

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John Camilleri, president of CUPE Local One representing about 1,000 Toronto Hydro workers, said his members would lobby councillors to keep the utility completely public.

“It gives the city a very good dividend every year, and could probably give more,” he said.

The hydro haul

The dividend from Toronto Hydro paid to the city of Toronto in recent years:

2010: $25.0 million

2011: $33.1 million

2012: $48.0 million

2013: $43.0 million

2014: $60.6 million

Total since 2010: $209.7 million

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