Going private without drama

No meddling for Hydro One

Last time around — and we are talking 13 years back — the process to privatize Hydro One seemed much murkier than the 2015 version

The Ontario government announced on Wednesday that Bank of Nova Scotia and RBC Capital Markets will be the bookrunners on Hydro One’s initial public offering that will see 15 per cent of the transmission and distribution arm sold to the public. That sale is expected to generate about $2.25 billion for the province. With the fee schedule far below the industry norm at one per cent for institutional buyers and three per cent for retail.

Those two firms were selected by a review panel comprised of government bureaucrats and outside industry experts whose fairness was overseen by Denis Desautels, a former Auditor General of Canada and, for the past few weeks, a special adviser to Ontario’s energy minister. In the selection process there was no role for Ed Clark, the former chief executive at Toronto-Dominion Bank, and now chair of the Premier’s Advisory Council on Government Assets, the group that recommended selling off part of the utility.

“We want to be open and transparent,” said a spokesperson for the Minister of Energy when explaining the decision process in which eight firms were invited to submit their claims.

In the winter of 2002 bigger stakes were involved because the government decided to sell all of Hydro One, and raise at least $5 billion. And the fees were much larger as the sale was set to generate more than $100 million in revenue to the dealers. Those dollar dreams quickly disappeared when the courts ruled the government didn’t have the power to sell the utility.

BMO Nesbitt Burns, Goldman Sachs (with Mark Carney, who would later become Bank of Canada governor, playing a key role as an investment banker) and RBC Dominion Securities were chosen to lead the IPO. The process was overseen by Superbuild, now known as the Ministry of Infrastructure, but then part of the Ministry of Finance. The late Jim Flaherty was provincial Finance Minister at the time and he was also a candidate to replace Premier Mike Harris, who was set to step down in April 2002.

There was some surprise about those selections. For instance, prior to the beauty contest only Goldman had either advised the seller or the company. Many

There were all sorts of allegations about political interference

felt that because of their long time advisory roles to the government and the company CIBC World Markets and Scotia would get the nod.

As well, RBC was a surprise choice given that during the process it put forward a not-for-profit model, a structure that’s used at the Greater Toronto Airport Authority. When that plan was rejected, RBC re-entered the fray. There was also talk that RBC’s case was helped because certain of its staffers were backing Flaherty for the premier’s job that was won by Ernie Eves. And BMO was also something of a surprise until it was pointed out that one of its bankers used to be a senior provincial bureaucrat.

Indeed, at the time there were all sorts of allegations about political interference and backroom lobbying — all of which culminated with a brown envelope that arrived in the newsroom of this paper.

Among the allegations included in that package was that Goldman and BMO were allowed to change their submitted bids even though they were higher than more qualified firms; that the selection process was “hijacked by carefully selected plants who knew nothing about electricity, Hydro One or equity issuance,” and that “many obvious credentials of some unsuccessful applicants were manipulatively ignored to generate a desired result.”

In the end, those allegations were never proven.