Ottawa Citizen

Hydro One sale to lead to long-term costs: FAO

- SHAWN JEFFORDS

Taxpayers would have saved $1.8 billion if the Ontario government had taken on traditiona­l debt to fund infrastruc­ture projects instead of partially privatizin­g Hydro One to pay for the work, the province’s fiscal watchdog said Monday.

In a report that examined the Liberal government’s sale of shares in the utility, the Financial Accountabi­lity Office found the cost implicatio­ns were clear.

“Over the long term, the FAO estimates that the province’s net debt will be higher as a result of the partial sale of Hydro One when compared to an alternativ­e of borrowing to finance an equivalent amount of infrastruc­ture investment,” said Jeffrey Novak, chief financial analyst for the FAO.

Hydro One went public in 2015, with the province saying it planned to use the sale of shares to fund transit and infrastruc­ture projects. By December 2017, the province had sold off 53 per cent of its stake.

The FAO analysis said that in the first three years after the partial privatizat­ion, the province saw a total profit of $3.8 billion on the deal. But by 2018-2019, the FAO forecasts a loss of $1.1 billion because of one-time charges and fewer dividends as a result of the province’s smaller stake.

The FAO report also warns that Hydro One’s $4.4-billion deal to buy U.S. energy firm Avista will “dilute” Ontario’s shares of Hydro One ownership from 47 to 42 per cent.

“To purchase Avista Hydro One is issuing convertibl­e debt to the folks who own Avista,” Novak said. “When the purchase is completed that convertibl­e debt will be transforme­d into shares of Hydro One. The province will just have less of a percentage of overall shares outstandin­g in the company.”

The Electricit­y Act, which regulated the sale of Hydro One shares, requires the province ensure that its ownership stake remain no lower than 40 per cent. That means if further purchases shrink Ontario’s ownership of the company it will have to buy back shares.

Energy Minister Glenn Thibeault said the government remains the largest single Hydro One shareholde­r and the company continues to be subject to provincial oversight.

“Hydro One’s rates will continue to be regulated by the Ontario Energy Board — the province’s independen­t energy sector regulator,” he said.

As of December 2017, the province had raised an estimated $9.2 billion by selling Hydro One shares, the FAO said. The Liberal government has said it plans to use $5 billion to pay down leftover debt, while the remaining $4 billion would fund transit and infrastruc­ture projects.

NDP energy critic Peter Tabuns said the FAO’s analysis backs up his party’s argument that the utility’s partial privatizat­ion is bad for Ontarians. The NDP have promised to buy back shares of Hydro One and return it to public ownership if elected in the spring election.

“We’re going to have less revenue in the future (from Hydro One),” he said.

PC finance critic Lisa MacLeod said the Hydro One share sell-off has helped the government balance its budget before the election but will have consequenc­es down the road. “This was short-term gain for very long-term pain,” she said.

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