Panel urges hydro mergers

Merging Ontario’s 75 local hydro utilities into eight to 12 units would save a typical household about $70 a year in electricity bills within 10 years, says an advisory panel.

But the panel’s report ducked the question of whether private-sector firms should be given a chance to play a larger role in the restructured sector, saying it takes no position on the question.

A heavy tax on private firms buying local hydro utilities has effectively stalled privatization in the sector, with most utilities still owned by municipal governments.

While the panel said it has no position on privatization, it did recommend eliminating the tax on private sales — a move that would open the door for private deals.

While soft-pedalling privatization, the panel of three ex-MPPs — one from each major provincial party — concentrated on urging consolidation in the sector, leading to savings they said would reach $1.7 billion over the first 10 years.

Offset by $500 million in transition costs, there would still be a net saving of $1.2 billion, the panel said — most of that from slashing administration and maintenance costs.

The province’s big utility Hydro One would also be part of the restructuring. It runs two main businesses: Operating the high-voltage wires that carry power from generating stations to local hydro utilities; and operating lower-voltage lines that deliver power directly to customers, especially in rural areas.

Those low-voltage wires would become part of the merger process; in fact, the panel hopes Hydro One would be the catalyst for the voluntary formation of the dozen or so regional utilities.

But the panel said that if the process is stalled after two years, the province should take “mandatory action” to make sure it happens.

The panel is purely advisory; the government can accept or reject its recommendations.

Cost is one of the big factors in the recommendations. The panel found that bigger utilities have lower costs.

“In 2011, operating, maintenance and administrative costs per customer for small LDCs (local hydros) were, on average, 75 per cent higher than for large LDCs,” the report says.

The panel figures there should be two utilities in Northern Ontario, and six to 10 in southern Ontario, each with a minimum size of 400,000 customers.

The only utilities in the province with that customer base at present are Hydro One — which would be broken up in the process — and Toronto Hydro.

Hamilton’s Horizon Utilities, which serves Hamilton and St. Catharines, currently has about 237,000 residential commercial and industrial customers

Most utilities are owned by municipalities, who are accustomed to getting dividend payments from their hydro companies. In the proposed mergers, the current shareholders would get shares in the merged company in proportion to the assets they bring to the merger.

Panel chair Murray Elston said doesn’t anticipate big layoffs if the province accepts the recommendations and consolidates utilities. Many hydro utilities have an aging workforce that’s due to shrink by attrition over the next decade, he noted.

They also have aging equipment, and Elston said the new structure would help renew it. “We know we need capital investment. It gets us into a position where we can streamline and rationalize capital investments to save everybody borrowing money for what might become redundant capital investment,” he said.

The report brought quick criticism from the Electricity Distributors Association, which represents local hydros.

The panel looked only at consolidation and ignored other areas for efficiency gains, said Charlie Macaluso, who heads the association.

Local hydros could drive big efficiency gains by merging their metering and billing with sewer and water utilities, for example, he said, but the panel didn’t consider that.

“We’re really disappointed how a panel looking for efficiencies went on a unilateral, single issue only when there are so many ways to get efficiency,” he said.

Macaluso also questioned whether it’s wise to give utilities a tight, two-year timeline to find their own mergers, or be forced into them.

“Sometimes the business case isn’t there,” he said in an interview.

Energy minister Chris Bentley thanked the panel, but was non-committal about the recommendations, saying he wants to hear from the public.

“My hope is that people will look at the recommendations and give some time to consider so we as a government can benefit from their good advice over the months to come,” he said.

Conservative energy critic Vic Fedeli said his party agrees that mergers should be voluntary, and wants to see the tax on private takeovers removed.

He worried that the proposed regional hydros might be too remote from local customers.

“Anything that helps reduce rates to families is something that should be looked at, as long as there’s local input to continue to make those decisions,” he said.

Peter Tabuns of the New Democratic Party worried about privatization.

“The most important thing and the worst thing in this report is the opening of the door to privatization,” he said. “That’s bad news for Ontario. It’s going to mean higher costs, less local control.”

Tabuns was also skeptical about consolidation

“I went through the whole process of municipal amalgamation,” he said. “I didn’t see any great savings there.”

Toronto Star

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The household savings per year if utilities across the province are merged into a dozen large utilities.