Ontario will block Hydro bid to increase debt

Daniel Leblanc
The Ottawa Citizen
May 9, 1998

Ontario’s energy minister says the government won’t let Ontario Hydro increase its debt level — exactly what the utility is requesting.

Ontario Hydro is set to ask the provincial cabinet to approve $4.7 billion in loans this year, which would add $800 million to its $31-billion debt.

Ontario Hydro is looking at the government to co-sign these loans. Getting approval, however, won’t be easy.

"We have told them that we would be very prudent as a cabinet, and that we are not inclined in approving borrowing beyond the current debt level," says Jim Wilson, minister of energy, science and technology.

"They are borrowed to the limit now. If they were a private sector company, they’d be bankrupt."

Ontario Hydro holds more debt than what its assets are worth.

Under its plans to borrow $4.7 billion, $800 million would be used for badly needed repair to nuclear plants, while the rest would be used to refinance maturing debt.

In a white paper released last November, the government said Ontario Hydro’s loan-guarantee arrangement with the province will end by 2000 — the point at which competition comes to Ontario’s electricity market.

Some groups, however, say now is the time to stop feeding public money to Ontario Hydro.

"The Ontario government should say, ‘No, thank you (to the loan request). Our taxpayers have enough burden as it is,’ " says Tom Adams of Energy Probe, a nuclear energy watchdog.

"This is a basic taxpayer protection issue, and that’s something the Tories can understand."

Ontario’s Power Corporation Act states that loans incurred by Ontario Hydro must be approved by the provincial cabinet.

Requests for the $4.7 billion in loans still need to make their way through the Ministry of Finance before they get to cabinet. Once there, the government will be pressured to refuse their approval by groups such as the Independent Power Producers’ Society of Ontario, the Municipal Electric Association and the Association of Major Power Consumers in Ontario.

These groups have stated that the sooner the Ontario government stops co-signing Ontario Hydro’s loans, the better.

When they are guaranteed, loans are easy to obtain on financial markets, because the Ontario government shares the ultimate responsibility for repayment. With competition looming, private players in the electricity market say Ontario Hydro should have to fight for its dollars like any other company — and probably pay higher interest rates.

"Ontario Hydro has to start paying the real market rates for its loans," says Arthur Dickinson, president of the Association of Major Power Consumers in Ontario, which represents automotive, mining and other electricity-intensive industries.

Ontario Hydro’s critics say the $4.7 billion in loans would help the utility continue to dominate the electricity market even after the arrival of competition. And they point to Ontario Hydro’s dream of being a huge player in the North American market.

In a speech last March, Hydro chairman William Farlinger said his corporation’s goal was to become one of the top 12 electricity producers on the continent.

"While we will still want to generate electricity for the people of Ontario, we will be looking to compete for power contracts throughout North America, especially in the northeast," he told the Toronto Board of Trade.

Many electricity analysts, however, fear that in order to achieve this position, Ontario Hydro will have to dump $10 billion to $20 billion of its debt on Ontarians, who would pay it through increased hydro bills or taxes.

In its current debt-riddled situation, the utility would struggle to survive in a competitive environment. That’s why the Ontario government might be forced to "strand" a portion of the utility’s debt, by taking it off its books and paying it off through a rate increase.

But Ontario Hydro spokesman Terry Young says that if the corporation cannot obtain the $4.7-billion loan, it could be forced to shut some of its remaining nuclear reactors. The move, he says, would only add to the stranded debt.

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