Hydro asset sales could generate $10 billion
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Apr 12, 2014  |  Vote 0    0

Hydro asset sales could generate $10 billion

OurWindsor.Ca

Selling off some of Ontario’s key hydro assets could easily raise $10 billion for the province, and probably more, says the province’s former hydro czar.

But it wouldn’t all be simple, warns Jan Carr, the first chief executive of the Ontario Power Authority.

Ontario Finance Minister Charles Sousa avoided using the word “sell” when he announced Friday that the province is looking at options for Ontario Power Generation and Hydro One.

Sousa said the province wants to “improve efficiency and optimize financial performance” of the companies, and to “maximize value for Ontarians.”

The most recent attempt at a hydro sell-off ended in tears, when the former Conservative government of Mike Harris tried to privatize Hydro One.

Two unions took the matter to court, where Mr. Justice Arthur Gans ruled in 2002 that the legislation governing Hydro One didn’t give the province the authority to sell it.

Until Friday, no government had taken another run at it. Now it will be up to a council headed by TD Bank chief executive Ed Clark to make suggestions.

The two companies issued terse, identically worded statements Friday: “We welcome the work of the council and we will fully participate in the process.”

But the process for the two companies is likely to be different, says Carr, now a corporate director and consultant in the energy sector.

Hydro One is fairly straightforward,” Carr said in an interview. “I wouldn’t think that would be difficult to privatize. Just auction the whole thing off.”

Both the business and regulatory models are well-known, and the return on investment is stable.

It operates in two sectors. One is the high-voltage, long-distance transmission lines carrying power across the province. The second is the lower-voltage lines that distribute power directly to homes, farms and businesses, mostly outside urban centres.

Those businesses could be split and sold separately, Carr said.

An advisory panel has proposed widespread consolidation of local utilities, which run the same kind of low-voltage distribution business as Hydro One.

Splitting Hydro One’s distribution business into a dozen or so operations, perhaps merged with local utilities in larger centres like London and Kingston, is one way of doing that.

OPG is more complex, and a tougher sell, says Carr.

It has two nuclear plants, and a wide range of hydro-electric facilities — some big, some small.

The rates from the nuclear stations and the biggest hydro facilities — at Niagara, and on the St. Lawrence River — are regulated by the Ontario Energy Board.

OPG’s nuclear rates are lower than the rates awarded to Bruce Power, which operates the Bruce nuclear station under a long-term lease from OPG.

Earlier this week, Duncan Hawthorne, chief executive of Bruce Power, proclaimed an interest in taking over OPG’s nuclear plants during a session with the editorial board of the Toronto Sun.

Joining the nuclear operations makes sense on one level: Both companies are embarking on major reactor overhauls, OPG at its Darlington station, and Bruce at its Bruce B station.

The two projects will be competing for suppliers, contractors and skilled workers; Hawthorne argues that a single management could rationalize the process.

On Friday, Bruce Power had no comment on Sousa’s speech.

OPG’s hydro assets are a thornier question, says Carr.

“Niagara and Saunders are two good business units. They’re sellable,” he said.

“The issue there might be tugging at the heartstrings — selling Niagara Falls. Talk about a tough political thing.”

“And if there’s a case to be made for public ownership, it’s in the hydro-electric area. Why? Because it’s very long-lived and the markets and the private sector doesn’t price long-lived assets properly. It’s not good at looking 100 years ahead.”

As for the smaller, non-regulated hydro stations, Carr says they’re unlikely to find buyers in the current market, because the wholesale price of power is unrealistically low.

“My high-level thought would be split off the nuclear in a rationalized nuclear sector under private management. And I’m not sure what else you could do.”

“So you’ve got what, $10 billion of stuff there you could sell, looking at Hydro One plus the nuclear. And they still own Niagara Falls.”

Toronto Star

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