Robert Benzie and Paul Vieira
National Post
May 30, 2002

 The Ontario government tabled legislation yesterday giving it the power to sell Hydro One Inc. – but the future of the largest privatization and public stock offering in Canadian history remains uncertain as Ernie Eves, the Premier, maintained that a final decision on the transmitter’s future has not been made.

Mr. Eves said the Reliable Energy and Consumer Protection Act was made necessary by last month’s Ontario Superior Court ruling that said the government lacked the legal authority to sell the company.

"All the legislation today does, quite frankly, is provide the government with the ability to choose options as to the future of Hydro One," Mr. Eves said.

The Premier acknowledged that his administration, which is also appealing the court decision, is undecided on what it is going to do with Hydro One – even though his predecessor, Mike Harris, said the utility would be sold through an initial public offering. Financiers estimated that the IPO, which Mr. Eves supported as recently as April 25, would have fetched as much as $5.5-billion.

"Who said we were selling Hydro One? There is no specific sale of Hydro One; there is no specific IPO of 100% of the shares of Hydro One; there is no specific thing that we are proposing in this legislation," Mr. Eves told the legislature during Question Period.

Speaking to reporters outside the legislative chamber, the Premier emphasized that an IPO was no longer off the table – as he had suggested on May 1, the day before two provincial by-elections in which the Hydro One issue appeared to be hurting the Conservatives.

Mr. Eves said the IPO is still an option for dealing with the utility. Others options include transforming the transmitter into an income trust, making it a not-for-profit entity, such as Nav Canada, or leasing it to the private sector.

Bay Street financiers were cautious about the prospects for a Hydro One IPO.

"Hopefully, it will happen, but who knows," a Bay Street source said. "The process forward isn’t clear. . . . But at least it leaves them with an open playing field to figure out how they want to get to the end zone."

"I’d call it a facilitation bill, that’s all," he added. "This just keeps all the government’s options open."

"I’m kind of at my wit’s end," said another Street insider familiar with the Hydro One file. "I believe the government should privatize Hydro One. I believe it should do it by an IPO. I believe the government should do this soon, and stop crapping around and get on with it."

Tom Adams, executive director of Energy Probe, said the legislation is a disappointment because the government has failed to set a path for Hydro One.

"The government has provided no additional clarity on where they intend to go. The government has spoken before they really know what to say. We are no closer to knowing where they want to go," said Mr. Adams, an advocate of privatizing Hydro One.

While he applauded some of the elements of the legislation, such as its strengthening of the regulatory agencies, he remained critical. "This business of, ‘We don’t know what we want to do, but we are going to leave our options open, so this just gives us carte blanche,’ is no contribution at all."

Advocates of privatizing Hydro One say the utility needs to be privatized so it can get access to cash through the capital markets. It needs that cash because it needs to upgrade its ageing infrastructure, complete interconnections among its neighbouring jurisdictions, such as Quebec, New York and Michigan, and make acquisitions in the United States so it can becomea North American transmission player.

Industry observers suggest that the income trust and not-for-profit structures being recommended restrict the utility’s ability to execute its strategy. For example, in an income trust, the bulk of the cash flow must be distributed to unitholders.