John Spears
Toronto Star
November 17, 2001

Hydro One, the provincial government corporation that owns Ontario’s main electricity transmission grid, could be turned into a non-profit operation.

Current policy calls for Hydro One to become a “commercial electricity company” that would likely be privatized.

But a behind-the-scenes battle at Queen’s Park and on Bay Street is now being waged over its future.

Advocates of a non-profit structure are arguing that it would allow the province to raise more money to pay off the debts left behind by the old Ontario Hydro, and would help give the province made-in-Ontario rates.

But opponents say it would in effect turn control of Hydro One over to big businesses that use a lot of power, and they wouldn’t necessarily make decisions in the interests of consumers.

And it could leave Ontario businesses open to attack by U.S. interests in much the same way as Canadian softwood lumber producers.

Until now, the provincial government had planned at some point to sell Hydro One, either to a private buyer, or by offering shares to the public.

The non-profit proposal has emerged as a third option, though no one yesterday wanted to take ownership.

Officials at the ministry of energy and at SuperBuild, the province’s agency co-ordinating public-private infrastructure projects, each pointed fingers at the other as being responsible for the proposal. They declined to answer detailed questions, beyond confirming that idea is on the table.

Hydro One has been working hard to become more commercial, in part by branching into new businesses. It currently has annual revenue of $3 billion, and assets of $10 billion.

In a speech last month, chief executive Eleanor Clitheroe said Hydro One wants to expand by buying U.S. transmission companies.

Hydro One has also charged into the gas and electricity retailing sector, and into telecommunications through its network of fibre-optic cable.

Clitheroe also said Hydro One wants to build more interconnections with neighbouring states and provinces, allowing for more electricity imports and exports.

The future of those profit-making enterprises would be in question if Hydro One goes the non-profit route.

Stanley Hartt, who heads the Canadian arm of Salomon Smith Barney, and has advised Hydro One, has circulated a letter criticizing the non-profit proposal.

In an interview yesterday, Hartt acknowledged that the province would get a short-term economic gain by turning Hydro One into a non-profit corporation. In that model, it would probably issue bonds worth about $10 billion, turning the cash over to the province to retire the billions of dollars of unpaid debt left by Ontario Hydro.

The alternative is to privatize, either by selling to another company, or, as Hartt prefers, sell shares to the public. He estimated that would raise about $8.5 billion.

But going the route of selling outright ownership would leave a stronger company, Hartt argued, because it would still be able to issue debt for expansion into the U.S., or into new ventures. A non-profit company with $10 billion of debt on its balance sheet would be unable to do that, he said.

The non-profit company would be unable to expand Ontario’s import and export links, he noted. That leaves the province vulnerable to supply shortages: during last August’s heat wave, the province’s system was stretched to the limit, and there was little capacity to import more power from Quebec, Manitoba or New York.

Expanded links with the U.S. would also allow Hydro One to act as a conduit for Quebec to export power to the midwestern sates, he said.

The shares would be a good investment vehicle for Canadians, he added.

“I think we could use an addition to our stock markets, instead of always having our companies lost through buyouts,” Hartt said. “I think we need head office jobs and head office personnel and all the ancillary services that surround head offices. Ontario needs that boost to its economy.”

Tom Adams, executive director of Energy Probe, said the board of directors of a non-profit Hydro One would be dominated by companies that are big power users, and they’ll try to set rates that suit them.

“We’ll have a few big power guzzlers deciding how much of their transmission bill the rest of us should pay for,” he said.

Hartt said that if a non-profit Hydro One board sets rates favourable to Ontario industry, it will open the province’s businesses to attack under trade law.