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Key Details about the Province’s Plan to Sell Off Portion of Hydro One

Earlier today, the Government of Ontario announced a series of measures on the heels of the release of the final report from the Advisory Council on Government Assets. Most notably, the government announced that they will proceed with the sale of a portion of its interest in both the transmission and distribution components of Hydro One, Ontario’s largest distribution utility. With a valuation of $13.5 to $15 billion, the sale will raise an estimated $4 billion that will be invested in transit and infrastructure through the Trillium Trust. However, the majority of the sale – $5-billion – will be used to pay down the utility’s debt.

The divestiture of a portion of Hydro One will be staged over time in order to protect the public interest. The first step will be an initial public offering of 15 percent on the stock market. Over time, government will sell the remaining shares, retaining 40 percent of ownership.

In response to concerns over the impact of the sale on electricity rates, the government has committed to ensuring that the sale of a portion of Hydro One will not lead to higher rates.

In addition to the sale of a portion of Hydro One, the Government announced further changes to the utility sector:

  • Hydro One Brampton will be sold separately to a consortium of local distribution companies: Powerstream, Enersource, and Horizon. All four companies will merge and the government will receive a 17 percent stake in the new company.
  • The sale of Hydro One Brampton will represent a major step forward in catalyzing LDC consolidation in Ontario. In order to spur further consolidation, the government will support a temporary three-year reduction starting in 2016 in the 33 percent transfer tax on the value of electricity assets sold to the private sector.

 

OCC Position

For the past several years, the OCC has been calling on the provincial government to ensure it is maximizing the value of its assets, including Hydro One. Today’s announcement is a bold step that will allow the provincial government to pay down a portion of its stranded debt and make much needed investments in transportation infrastructure. However, the announcement also raises key questions to which the OCC will be seeking answers:

  • Can government guarantee that the sale of Hydro One Brampton and a portion of Hydro One will not affect electricity rates?
  • While the short-term impact of the sale of 60 percent of Hydro One will generate short-term revenue, what will be the long term impact on government’s fiscal situation?
  • Will strategic buyers be given the flexibility to implement private sector discipline that will allow for an eventual reduction in electricity rates?

While we are cautiously optimistic about this announcement, it is clear that there are details that have yet to be determined. Ontario’s economic growth is dependent on our ability to create a competitive business climate. Rising electricity rates have been cited by our membership as a consistent problem that hinders businesses’ ability to compete on a level playing field with our North American counterparts. According to OCC survey results, 4 percent of businesses will either shut their doors and/or move to another jurisdiction in the coming years due to these rising rates.

The Government of Ontario must ensure that any steps taken to pay down the debt not adversely affect the cost of doing business in the province. We are committed to remaining an active participant in any discussions about the future of Ontario’s electricity system.

Photo by cking | CC BY

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