Selling off Hydro One’s distribution assets, as recommended by the Ed Clark panel, would take a big bite out of the company as it is today.
The company’s distribution business — which delivers electricity directly to 1.3 million homes and businesses in most of rural Ontario and some larger centres — accounts for 75 per cent of Hydro One’s revenue, and 36 per cent of its profit.
Clark recommends that Hydro One should keep the long-distance, high-voltage network that transmits electricity from generating stations to local hydro networks.
He’d then spin off — and partially privatize — the distribution business in a two-pronged strategy.
The company’s latest annual report shows Hydro One’s distribution sector had revenue of $4.484 billion last year, and delivered $452 million in pre-tax profit.
Its assets are listed on the books at $8.8 billion.
And it’s a complex company. It has some big, urban units like Hydro One Brampton. It also services vast, thinly populated areas of the province that are far more expensive to service.
There has been a recent offer for the distribution business. The Electricity Distributors Association, which represents local hydros across the province, recently hired PricewaterhouseCoopers to advise it on a possible bid for some parts of Hydro One’s distribution business.
(Hydro One was not amused. It promptly quit the association.)
To divest and consolidate, the Clark panel picks up on the two-year-old recommendations of another panel that urged consolidation of Ontario’s 70-plus local hydro companies into a dozen big, regional operations.
That panel, headed by former cabinet minister Murray Elston, estimated that consolidating local hydro utilities could lead to operating savings totaling $1.2 billion over 10 years — slicing a typical household’s utility bill by $70 a year.
But the Liberal government promptly said it wouldn’t force any local hydros to consolidate, and little has happened since then.
Clark recommends using Hydro One Brampton as a catalyst for consolidation “by merging it with one or more GTA-area distribution companies and then bringing in private capital to give it the financial capacity to undertake further consolidation.”
The rest of Hydro One’s distribution business would be hived off in a separate unit, in which private investors could take a minority stake. This unit would encourage further consolidation across the province.
In an interview, Elston said he still believes in consolidation.
“I think there are big savings to be made,” he said. “I think it can be done reasonably over a period of time that makes sense for the strength of the distribution system.”
He cautioned that the local utilities need to invest substantially in their systems in the coming years to modernize them.
Charlie Macaluso, who heads the Electricity Distributors Association, said in principle it’s a good idea to separate Hydro One’s distribution sector from the rest of the business.
The question is how it’s done, he said.
“We’d look forward to a chance to speak with the panel about the best way to go about bringing a more efficient distribution sector to Ontario.”