Public Values

Edmonton illustrates perils of corporatized water

People of Edmonton have no accountability or oversight over the workings, service and decision-making of corporate water-provider Epcor.

Ricardo Acuna of Parklands Institute.by Ricardo Acuña

As the City of Winnipeg moves forward with its plan to corporatize Winnipeg's water and waste department, city residents would do well to look at the experience in Edmonton since the amalgamation of that city's water and electrical utilities under the corporate banner of Epcor back in the 1990s.

Winnipeg's current plan is to structure its new water and waste municipal corporate utility (MCU) along the same arm's-length corporate model used in Edmonton, where Epcor exists as a private for-profit corporation that has the city as its only shareholder, but with no representation from city council or city management on its board of directors or senior management team.

Epcor's own governance principles articulate this relationship very clearly: "Epcor's board operates independently of the shareholder with the full authority to make strategic business decisions." In other words, there is no accountability to or oversight by the people of Edmonton over the workings, service and decision-making of Epcor.

The same would be true in Winnipeg: the new utility would operate at arm's length, with complete authority to make all strategic business decisions. Winnipeg city council, and by extension the residents of Winnipeg, would have no say whatsoever in those decisions.

In theory, city council would retain the authority to appoint and fire board members, but in reality this would amount to council rubber-stamping a list of candidates pre-selected by the corporation itself. The role of the shareholders in this type of relationship is typically to approve annual statements and long-term plans as presented by the corporation, not to actually have a say in developing those plans.

This loss of control is exacerbated by the fact that as a private business, all of the corporate utility's plans, dealings and major decisions are covered by protection of privacy legislation. Operating as a private entity in a private marketplace, all strategic decisions are considered proprietary and as such are made beyond the oversight of the public at large. In Edmonton, this has meant citizens cannot even access the master shareholder agreement that spells out the relationship between city council and Epcor.

What's more, shareholder meetings would not be conducted in public, but behind closed doors, and the decisions made at those meetings would be confidential, preventing the citizens of Winnipeg -- the supposed owners of the utility -- from having access to them.

This is exactly what has happened in Edmonton since the city decided to fully corporatize its water and electricity utility Epcor in 1999. When Edmonton's city council in April 2009 voted in a secret meeting in favour of a recommendation from Epcor management to privatize and sell off all $5 billion of its electricity generating infrastructure, the people of Edmonton were completely unaware privatization was even being considered, and were not told about the decision until three weeks later, when it was already too late to do anything about it.

It is important to point out that Winnipeg's corporate utility would be structured as an independent corporation rather than a Crown corporation like Manitoba Hydro. Crown corporations are significantly more accountable in that they respond directly to a minister of the legislature, they follow the relevant policy direction of government and have public interest objectives prescribed in their founding documents. None of this would be the case with a municipal corporate utility, particularly the direct reporting and the public interest objectives.

The Edmonton example highlights the shift from public interest to profit maximization. A private corporation is bound by law to maximize return to its shareholder and cannot legally undertake any activities that will knowingly have a negative impact on its dividends. Where a city-managed and controlled utility can make strategic decisions to benefit the environment or the public interest even though it might lose money, a private corporation cannot. Imagine the impacts when dealing with municipal development, urban sprawl, water quality, environmental concerns and other pressing urban issues.

This is exacerbated by the ability of the corporation to set up subsidiaries that can be privately owned and traded on stock exchanges. As long as the corporate utility retains 51 per cent ownership, any subsidiary it creates, and its accompanying assets, can be up to 49 per cent privately owned. This is one way in which a corporate utility could privatize significant portions of its asset base without contravening regulations against privatization. This is what allowed Epcor, until recently, to trade shares in one of its subsidiaries on the Toronto Stock Exchange.

Furthermore, as Epcor has demonstrated, the focus on profit demands that these corporate utilities be expansionary in nature. The City of Winnipeg has already stated that one goal for the utility would be to move into other communities outside Winnipeg. Winnipeg residents should stop for a moment to consider what that would mean for people in those communities. Privatization of utilities is rarely well-received by the population at large, as demonstrated by the well-organized fight-backs in places like Stockton, Halifax and Nanaimo. In this case, though the utility would be owned by Winnipeggers, the impacts would be no different than if it were Vivendi or Bechtel moving into a city and privatizing its public services for profit.

As the experience in Edmonton highlights, there are many reasons to be concerned about corporatization of municipal services. It is critical that citizens keep these realities in mind and communicate with their elected representatives about this important issue. Once the deal is done, it is difficult to turn back.

Ricardo Acuña is executive director of the Parkland Institute at the University of Alberta. Parkland's report EPCOR: A study of Ownership, Accountability, and the Public Interest is available at www.ualberta.ca/parkland.

Links and sources
  Parklands Institute

Posted: April 13, 2010

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