Hydro One could be forced to book $885-million charge
TORONTO Hydro One Ltd. said Friday that it will have to book an $885-million loss if it is unable to overturn a ruling made by Ontario’s energy regulator with regards to expected savings generated by going public.
The company, Ontario’s largest distributor and transmitter of electricity, has been locked in a regulatory battle over $2.6 billion in expected tax savings triggered by the company’s November 2015 initial public offering.
The Ontario Energy Board issued a ruling in September on Hydro One’s 2017 and 2018 transmission rates that would give some of the anticipated savings to ratepayers, not just shareholders, as Hydro One had proposed. Hydro One said in its third-quarter management’s discussion and analysis that the decision could cause a one-time drop in net income of up to $885 million, “resulting in an annual decrease to (funds from operations) in the range of $50 million to $60 million.”
Hydro One, however, is fighting the Ontario Energy Board’s ruling, and filed a motion to review and vary the decision in October. It is also appealing the decision to the Divisional Court of Ontario, with the case stayed pending the outcome of the OEB motion, said Chris Lopez, Hydro One’s senior vicepresident of finance, on the firm’s third-quarter conference call.
“With respect to the Deferred Tax Assets, in both the Motion and Appeal, the Company’s position is that the OEB made errors of fact and law in its determination of allocation of the tax savings between the shareholders and ratepayers,” said Hydro One’s MD&A.
Mayo Schmidt, president and chief executive of Hydro One, said on the conference call that “we feel strongly about our position.”
Lopez said Hydro One would defer any impairment charge until the appeals of the tax dispute are decided.
Shares of Hydro One closed down 1.17 per cent at $22.71 in Toronto on Friday. But issues like the tax fight and executive pay at Hydro One have attracted political attention from Queen’s Park, as the company’s largest shareholder remains Ontario.
As of Friday, the province’s Liberal government had sold just over 50 per cent of Hydro One to other investors.
Hydro One included some of the effects of the OEB’s transmission rate decision in its third-quarter results, saying it had provided $55 million in “catch-up” revenue for the year. Quarterly revenue net of purchased power was up by 1.3 per cent, to $847 million, mostly because of higher transmission revenues brought on by the OEB’s rate decision, Hydro One said.