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

Ottawa Citizen - - CITY - 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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