Canadian Press
Toronto Star
December 1, 2001

In what promises to be the largest privatization in Canadian history, Ontario will sell its monolithic electricity transmitter and open its $10-billion electricity market to competition.

After months of intense speculation by political and industry insiders, Premier Mike Harris announced today his government will take the controversial plunge “as soon as possible” to sell Hydro One – a public remnant of the old Ontario Hydro utility – in an initial public offering.

The dollar figure attached to the deal will surpass the sale of Highway 407 and the Canadian National Railway, and will help pay down the province’s $38-billion hydro debt, Harris told reporters.

“The value of the offering remains to be determined by SuperBuild (an agency of the Finance Ministry) and its financial advisors, however I can assure you that the sale that I have announced today will be the largest privatization ever in Canadian history,” he said.

Harris insisted the move won’t mean soaring costs for consumers, despitedisastrous initial results in Alberta and other jurisdictions that have deregulated power industries and sold public utilities.

“Our goal is to not only privatize and sell Hydro One … it’s also to do so in such a way that we believe will give the biggest incentive to have the lowest price for consumers,” he said.

While the province has retained control of its generators for now through Ontario Power Generation, deregulation will allow private companies to enter into the generating and selling business alongside the Crown corporation.

Some critics said Wednesday that selling off Hydro One and opening the market could very well mean soaring prices similar to those in California, where rates tripled and forced a national crisis last winter.

“The announcement today doesn’t steer us clear of shoals with the words California written all over them,” said Tom Adams, head of Energy Probe, the province’s energy watchdog.

“There are clearly major problems in Ontario’s electricity restructuring. Consumers are looking at substantially higher prices because of a series of mistakes that have been made so far in electricity restructuring. But the good news is our problems in our power restructuring haven’t gotten worse.”

Breaking up Hydro One into smaller companies and selling them off piecemeal would have been a better option, Adams added.

“By pursuing an (initial public offering) of the existing business rather than breaking the business into pieces and auctioning the pieces, we get stuck with the existing management at Hydro One,” he said.

Liberal energy critic Sean Conway said the public is still largely in the dark on the deal.

“Are there going to be limits, for example, on who can bid on this very important public asset? Is there going to be any constraint around foreign ownership? Is there any limit to how much any group or individual can own? Most especially, how is this going to be designed to protect the consumer interest?” he asked.

Harris said bidding options would be determined by SuperBuild.

But Conway argued that while “hundreds of millions” of dollars in fees and services were in the offing through the sale, the average consumer did not necessarily stand to benefit.

“Bay Street is going to be delighted, Main Street is going to be very worried because they will be looking for protections and the (previous sale of Highway 407) indicates that those protections are not always there.”

Major wholesale electricity users such as auto makers and steel plants had lobbied for an alternative plan which would have turned Hydro One into a not-for-profit entity.

They argued the plan would stop taxes from flowing to the federal government, helping to pay off the debt and keep wholesale electricity costs down.

A spring deregulation date will fall no later than May, 2002, and will be announced before Christmas, Harris said.

Liberal Leader Dalton McGuinty said privatizing the company was the right move, but should have been done following an open debate in the legislature.

“There are good public-private partnerships and bad public-private partnerships, and my concern is this government’s track record,” he said.

The Conservative government had initially promised deregulation by November 2000, but got cold feet after initial deregulation attempts in Alberta and California led to doubling and tripling of rates, blackouts and, in the case of California, near-bankrupt utilities.

In Alberta, more than $1 billion in consumer rebates were issued this year alone after rates soared and some businesses were forced to operate at night, when power costs were lower.

But that situation has improved: California has a glut of excess electricity and prices have been falling sharply in recent months, while in Alberta higher production and low gas prices have made power costs fall.

Ontario Hydro was the largest public utility in Canada before the Conservatives split it into three entities – Hydro One, which manages the distribution of electricity through the hydro grid, Ontario Power Generation, which produces the province’s electricity, and the Independent Electricity Market Operator.

Hydro Quebec is now the largest public utility in Canada, and British Columbia, Saskatchewan and Manitoba still run Crown corporations in the electrical industry.

Several other provinces already have private companies operating power transmission or production companies, including Atco, Transalta and the TransCanada Pipelines power generation division in Alberta.