Hydro One can now focus on its main job

Hydro One’s grandiose expansion plans have suffered a severe blow. Good. Maybe now the utility can concentrate on its real job, which is to transmit cheap and reliable electricity to Ontarians.

Wednesday’s decision by Washington state regulators to disallow Hydro One’s proposed takeover of U.S. energy firm Avista Corp. should be no surprise. The Americans are jealous of their economic sovereignty and wary of foreign, state-controlled enterprises.

As my colleague Jennifer Wells has written, the proposed takeover also faces a rough ride in Idaho, another of the five states in which Spokane-based Avista operates.

American regulators were particularly spooked by Premier Doug Ford’s decision this summer to force out not only Hydro One CEO Mayo Schmidt but the utility’s entire board of directors.

The Ontario government could exert that influence because even after privatizing Hydro One it remains the utility’s controlling stockholder, with 47 per cent of the shares.

When Ford fired Schmidt critics — including me — dismissed his action as a political stunt. And in some ways it was that.

But it was also a signal that Ontario’s government would continue to take an active interest in a company that holds a monopoly over electricity transmission in this province.

Perhaps the government will use that interest to rein in the utility’s obsession with becoming a North American energy behemoth.

Indeed, while U.S. regulators delved into the question of whether the proposed merger with Avista would serve U.S. interests, few asked what the deal would do for Ontario rate payers.

Taking over a company that provides electricity and natural gas to Oregon, Idaho, Washington, Alaska and Montana might work to the benefit of Hydro One shareholders (including the Ontario government), but it would do nothing to improve the electricity transmission and distribution systems Hydro One owns in Ontario. Nor would it reduce the steep rates Ontarians pay.

In fact, acquisitions like the Avista deal risk shifting Hydro One’s focus from Ontario to the much more lucrative American market.

But that, of course, was always the aim behind the ill-fated decision to privatize Hydro One, a decision that otherwise made no economic sense.

The shortcomings of former Liberal premier Kathleen Wynne’s Hydro One privatization fiasco are well known. After paying down debt, the Liberals netted only $4.5 billion from the sale — a relative pittance for a government that spends $150 billion annually.

Even then, as the province’s Financial Accountability Office pointed out, this wasn’t much of a deal. Over time, the government was set to lose more than $4.5 billion in foregone dividends.

What privatization did do, as the utility explained in regulatory filings at the time, was lay the groundwork for expanding aggressively into the U.S.

The $6.7-billion Avista deal was to be the first foray. Had it succeeded, there would almost certainly have been more.

Just as the 1990 privatization of Alberta Government Telephones produced telecommunications giant Telus, so the privatization of Hydro One was supposed to produce an energy leviathan. That was the expectation.

Ironically, it was business cheerleader Ford who put the kibosh to this expectation.

Ford is being blamed for the merger’s failure and the attendant $103-million kill fee that Hydro One must pay Avista. Fair enough. But the Progressive Conservative premier also did Ontarians the service of clipping the utility’s wings.

Hydro One was set up to service the electricity ratepayers of Ontario. It has a monopoly over transmission provincewide and is charged with distributing electric power to most of rural and northern Ontario. The Liberals had no business privatizing it. The newly privatized company had no business engaging in imperial overreach. For all of his faults, Ford seems to get that.

He has reminded Hydro One that when it comes to electricity in Ontario, government is always more than a passive investor. That is a useful lesson. Thomas Walkom is a Toronto-based columnist covering politics. Follow him on Twitter: @tomwalkom