Last week’s article in the Toronto Star takes a misleading and simplistic one-sided look at the City’s sale of street lights to Toronto Hydro back in 2005.

Here are the facts:

The Toronto Hydro Corporation (THC) is wholly owned by the City of Toronto.

Therefore, any profits made by THC are ultimately a value to the City, either in dividends or an increase in the value of the company. Selling the street light asset to a corporation owned by the residents of Toronto means the money the City pays to the corporation benefits the residents of the city.

Before the asset sale, the City was paying $14 million to outside contractors each year to maintain the lights. This included the replacement of the bulbs, upkeep of the poles and wires. At the time of sale, the City negotiated a three-year freeze of these costs. Ongoing operating costs have nothing to do with the sale of the asset.

The sale also meant that the operation of street lights was rationalized across the city and efficiencies achieved by having them managed through one corporation – Toronto Hydro.

The City of Toronto purchased the street lights for $1 on January 1, 1989 and sold them to Toronto Hydro in 2005 for $60 million (which was market value at the time). By any measure, the return on investment to the City was more than adequate.

The most misleading part of the article is that the Star attempts to compare the ongoing $14 million cost over a period of 30 years with the funds received from the sale of the asset without ever acknowledging that there is a cost to Toronto Hydro to maintain the system. Either way the cost of operating the system must be paid for.

The benefits of the sale are easy to identify:

• generated cash up front ($60 million) on an asset that the City had purchased for $1 in 1989

• allowed THC to create new value through its street lighting business, which facilitated telecommunications business growth leading to its sale for $200 million (and from that a special dividend to the City of $75 million and which did not include the street lighting assets)

• effectively transferred the existing operating and capital budgets for street lights to Toronto Hydro, with a three-year freeze on the operating budget portion (i.e. builds in permanent efficiencies with no new City costs)

• to the extent that profits are generated, the City participates in half of those profits through dividends.

The Star story fails to account for the fact there are costs that go along with owning street lights (such as repairs to poles, new poles, changing bulbs and fixtures) that would have had to been paid on an ongoing basis if the City had kept ownership of the street lights.