Paul Vieira with files from the Canadian Press
National Post
December 13, 2001

The Ontario government is embarking on the biggest privatization in Canada’s history, the sale of the monopoly responsible for the province’s electricity transmission and distribution.

Mike Harris, the Premier, announced yesterday that Hydro One Inc. will go on sale “as soon as possible” in an initial public share offering expected to bring $5.5-billion.

That figure would easily surpass the province’s $3.1-billion sale of Highway 407 and the federal privatization of Canadian National Railway, which brought $2.26-billion.

“The value of the offering remains to be determined … however I can assure you that the sale that I have announced today will be the largest privatization ever in Canadian history,” Mr. Harris told reporters.

The privatization will also dwarf the country’s previous stock offerings. The largest initial public offering to date was for Manulife Financial Corp., which fetched $2.4-billion.

The money raised by the hydro sale will be earmarked to help pay down the $21-billion debt run up by the company’s predecessor, Ontario Hydro.

Ontario Hydro was broken up into five separate bodies in 1999.

“That debt needs to be paid down. It’s the responsible thing to do for a government, for the ratepayers and for the future of electricity growth and investment in the province,” Mr. Harris said.

The date of the offering has yet to be determined, but the move, announced in the provincial legislature, ends weeks of debate about the future of the utility. Industry watchers say it will go a long way to dispel uncertainty about the opening up to competition of the $10-billion electricity market, scheduled for next spring.

The Premier said the province, through the Ontario Energy Board, will continue to regulate the power market and electricity prices to ensure a fair and open market.

“This IPO will go hand in hand in providing more choice and more competitive energy prices for Ontario consumers,” Mr. Harris said.

“This move will encourage investment in Ontario, it will help stimulate economic growth and it will ensure the continued supply of safe, reliable power.”

Critics pointed to problems caused by utility privatizations in other jurisdictions, particularly the soaring prices and power shortages seen 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 the watchdog group Energy Probe.

“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.”

Mr. Adams said he would have preferred that the government split up Hydro One’s assets and sold them piece by piece, which he said would have raised more money.

However, he said the share offering could benefit consumers by reducing the time required to pay off the $21-billion Hydro debt – which costs consumers 0.7¢ per kilowatt hour to service.

Mr. Harris also said that the opening up of the electricity market will fall no later than May, 2002, and will be announced before Christmas.

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.

Dalton McGuinty, leader of the opposition Liberals, said it is impossible to determine whether the deal is good or bad because there has been no debate of the issue 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.

Howard Hampton, the NDP leader, said he fears electricity rates will skyrocket after the sale.

Eleanor Clitheroe, the president of Hydro One, said she welcomes the announcement. “Access to public [markets] will greatly enhance Hydro One’s ability to realize new growth opportunities,” she said in a statement.

Hydro One, one of the largest power transmitters in North America, delivers electricity through 30,000 kilometres of high-voltage lines and 115,000 kilometres of low-voltage lines.

It has $10-billion in assets and generated about $3-billion in revenue last year. It also owns 88 municipal utilities.

The privatization ends weeks of questions about Hydro One. It was assumed the government would privatize it until a few weeks ago, when it emerged that the province was considering a proposal to turn Hydro One into a not-for-profit entity.

Proponents of the idea – including major power customers and RBC Dominion Securities – said it would raise $3.8-billion more than a public share offering by setting up a $10-billion bond issue.

The not-for-profit company’s board would be made up largely of industrial firms, the province’s biggest power users. Manufacturers would have held five of the 12 seats on the board, but backers of the idea said they would have an interest in keeping rates down for consumers.

Gord Forstner, a spokesman for the Hamilton steelmaker Dofasco Inc., said the company – one of the largest power consumers in the province – wanted assurances that the money raised through the public offering would be used solely to pay down debt.

Ontario Hydro was the largest public utility in Canada before the Conservatives split it into three entities. Hydro-Québec is now the largest.