Jeffrey Hodgson
Reuters
January 20, 2003

TORONTO — Ontario Premier Ernie Eves scrapped plans on Monday to sell a minority interest in Hydro One, the government-owned power grid, citing the need to protect energy consumers in Canada’s most populous province.

The decision hammered another nail in the coffin of the province’s experiment with electricity deregulation. A court decision last year scuttled plans to sell the entire transmission operation in what would have been Canada’s biggest initial public offering.

Eves said in a statement that his Conservative government had made an extensive search for a 49 percent minority partner, but that it was not prepared to relinquish control over key decisions affecting consumers. "We want to bring private-sector discipline to Hydro One, but not at the expense of protecting consumers," Eves said in the statement.

"Last November I announced a plan to lower your hydro (electricity) bill and we are sticking to that plan."

Ontario’s government announced in November it would freeze electricity prices and hand cash back to angry consumers whose costs had soared during five months of California-style deregulation,

Critics at the time warned the rate freeze, reminiscent of California’s attempt to cope with skyrocketing prices during its own deregulation, would likely kill the proposed sale of part of the publicly owned Hydro One electricity grid.

Brainchild of former premier

Deregulation, the brainchild of Eves’s predecessor, Mike Harris, was hugely unpopular in Ontario. Many consumers were angered when prices jumped more than 25 percent after the province opened the market up to competition on May 1.

In August, the Ontario government picked advisers to hunt down buyers for a minority stake in Hydro One, after a court quashed an earlier plan for a C$5.5 billion ($3.6 billion) initial public offering. The court had ruled the government did not have the authority to sell the system whole.

The premier’s press secretary, Derek Tupling, said Eves had made it clear that consumer protection, rather than ideology, was the top priority in the government’s handling of the issue.

"What the premier had said all along is we weren’t just going to sell it, just for the sake of selling it," Tupling told Reuters.

"There were some issues around control and decision-making processes that obviously the government wasn’t prepared to relinquish just for the sake of selling it. That is where the consumer-protection part of the announcement is."

The statement said the provincial budget continues to be balanced for a fourth consecutive year and the announcement has been factored into the government’s fiscal planning.

Industry watchdog Energy Probe said there should be little surprise at the announcement, as Eves had hinted at the move for several months. The group’s executive director, Tom Adams, said the value of the utility has plunged since the rate freeze decision in November.

"My interpretation of these events is that the premier has simply pulled the plug on the fire sale, having previously set the asset on fire," Adams told Reuters.

"The value to buyers kept going down and the numbers started to look unattractive to the government. They probably started to get embarrassed about what kind of a value-erosion was going to be demonstrated."

Election, budget issue

Adams said the potential buyers of a Hydro One stake included SNC-Lavalin Group Inc., Britain’s National Grid Transco, and two big pension funds: the Ontario Municipal Employees Retirement System and the Ontario Teachers’ Pension Plan Board.

An SNC-Lavalin spokeswoman said the firm had no comment on the Ontario government’s decision.

Opponents of the government’s energy policies cheered the decision but said they were wary the government could change its mind after an election, which many expect will happen this spring. Ontario NDP Leader Howard Hampton described the move as an "election dodge."

Ratings agencies also expressed concern at how the canceled sale would affect Ontario’s budget outlook. The government had said the sale of the minority stake could add about C$2 billion to its coffers.

"Without the sale of Hydro One, or without some revenues from a partial sale or whatever, it just creates a tremendous amount of pressure for this fiscal year and a significant challenge for them," said David Rubinoff, a senior analyst with Moody’s Investors Service in Toronto.

With additional reporting by Charles Grandmont in Montreal.