April Lindgren
Ottawa Citizen
June 13, 2002

 TORONTO — Ontario Premier Ernie Eves killed a key initiative of his predecessor Mike Harris with the announcement yesterday that the Tories would not turn over control of Hydro One to the private sector through a share offering on the stock market.

In a flat rejection of Mr. Harris’s commitment last December to privatize the electricity distribution and transmission company through an initial public offering, Mr. Eves said that having "listened to the people of the province of Ontario, the government has decided that it is not going to part with control of Hydro One."

Mr. Eves told reporters the government believes it can still bring "private-sector discipline to the corporation without parting with more than 50 per cent of the entity."

Three options highlighted by the premier include some form of strategic partnership with a private sector firm, an income trust arrangement, or selling less than 50 per cent of the company shares on the stock market so the government retains control.

"We’ve taken a different position than Mike Harris did," Environment Minister Chris Stockwell told reporters. "I don’t know if I want to use the word ‘wrong,’ but certainly our . . . decision today is different than the one he took."

Mr. Eves and Mr. Stockwell, who have been dithering over the fate of Hydro One ever since a court decision in April put the initial public share offering on hold, insisted that bringing in private-sector partners will improve the performance of the provincially owned enterprise even though the government will remain the principal shareholder.

"It means we are going to have the private sector involved in an ongoing day-to-day basis to put some discipline in place that we couldn’t do as politicians," Mr. Stockwell said.

"We ran up a $38-billion debt with $17 billion in assets. We clearly mismanaged it. We need some discipline out there from the private sector to ensure affordable (electricity) rates, but not huge debt."

Some critics, however, questioned whether the government will be able to resist using its majority-shareholder status to meddle for political reasons in the company’s future.

"What Eves has signalled is that a key piece of Ontario’s power system will remain under political control for the foreseeable future," said Tom Adams, executive director of Energy Probe, an energy sector watchdog group.

Mr. Adams noted that in the past two years, the government meddled twice with Ontario Energy Board rulings that would have boosted the company’s revenues. In one case, he said, the Tories intervened to ensure some major industrial customers would receive transmission service at a discount and on another, the government insisted that rate increases approved by the board be implemented over a longer period.

"Why would investors want to jump in when they would be second fiddle to a controlling government shareholder that has proven it will put short-term political considerations ahead of the well-being of the firm?" Mr. Adams said.

In a further illustration of its willingness to flex its shareholder muscles, the government last week introduced legislation that would allow it to fire Hydro One’s board of directors after members were reluctant to reduce lavish pay and perks for senior company executives.

Just hours after the legislation was presented, the board resigned en masse and was replaced earlier this week by directors much more closely tied to the political process.

Bay Street sources immediately suggested the new board, chaired by Tory insider Glen Wright, lacked autonomy from the provincial government.

Mr. Eves’s announcement yesterday did little to allay those fears. "If they try to do an IPO selling 49 per cent, I wouldn’t be thinking of investing because you are going to have potentially thousands of investors none of whom will be able to influence the board," one Bay Street banker said. "So you have the status quo more or less, which is public ownership of the utility.

"If they want the private sector to put the money in, then they have to make sure they don’t meddle in the affairs of Hydro One."

Mr. Stockwell himself did little to quell such fears when he said it was "possible" the government would intervene again in the future if it felt Hydro One executives were being compensated too generously.

Opposition leader Dalton McGuinty, who has fought the privatization of Hydro One, said the government’s refusal to make a final decision on the utility’s fate has been "very effective in introducing uncertainty and unpredictability in terms of what this government plans to do with the single biggest public asset that we have here in Ontario."