With the provincial government’s panel studying options and tabling recommendations for managing government assets, the question of whether electricity distributors should be broken up, amalgamated, sold, restructured or just left to their own devices has become quite topical. Potentially an issue for the upcoming provincial budget, ownership changes can be more divisive and impactful than may appear on the surface. Restructuring has been tried before and arguably the easy changes have already been made. However this time the government seems determined not only to complete unfinished business but seems to feel there will be some kind of public support for extracting cash from the power system that may be used for other priorities like public transit.
Ed Clark, Chair of the Ontario Government’s Advisory Council on Government Assets, released initial recommendations in October 2014 for restructuring government-owned assets, including the Liquor Control Board of Ontario (LCBO), Hydro One and Ontario Power Generation. Although most discussion in the media has concentrated on the potential for privatization of Hydro One and the LCBO, some of the longer term implications for the electricity sector revolve around the potential for restructuring distributors (LDCs).
In this section IPPSO FACTO presents analysis from different perspectives of the options for managing Ontario’s LDCs as public assets. Bryne Purchase, a former deputy minister of finance and currently adjunct professor at the School of Policy Studies, Queens University, explains the problems of privatization, and the Electricity Distributors Association presents its perspective. Expect more to come as the province tables related budget proposals. See also “Distribution under debate: Proposals for LDC reform raise hopes and hackles,” IPPSO FACTO, February 2013.
BLG reported in a bulletin released in October 2014 that the Council will consider the various barriers and disincentives to the consolidation of the distribution sector and make further recommendations to remove those barriers in its final report in the Spring of 2015.
BLG summarized the initial recommendations related to Hydro One as follows:
• Hydro One’s transmission and distribution businesses should be divided into two separate businesses.
• Hydro One should continue to operate and manage the transmission business.
• Hydro One Brampton could be used as a catalyst for the merger of a number of greater Toronto area (GTA) utilities; the merged entity could bring in private capital and the Ontario Government could sell down its interest.
• Hydro One’s distribution assets should be used to facilitate but not force the consolidation of other municipally-owned electricity distribution companies (“LDCs”).
• “[T]he Council is recommending the separation of the transmission and distribution businesses currently within Hydro One Networks. We would then dilute the government’s interest in that resulting distribution business by bringing in private capital. We would retain a minority share. This new company would then have the capacity to undertake further consolidations…. We would expect other municipalities to respond by joining these entities or seek their own new partners –public or private.”
• Maintain Hydro One Networks distribution whole – it will have the capacity to undertake other consolidations and it should not be broken up or merged with other LDCs unless there are clear benefits to ratepayers and the overall value of Hydro One Networks distribution is not materially impacted.
• The Province will be sensitive to labour issues resulting from these changes but expects to find mutually acceptable solutions.
• The Province would have unspecified control rights over future changes in ownership.
• Distribution rates cannot go up as a result of any sale; savings from greater efficiencies and economies of scale to be passed on to distribution customers.
• The Province of Ontario will realize less income from Hydro One and OPG but improvements being recommended will be greater than the lost income.
See also “The EDA view on LDC restructuring ,” and "Privatizing electricity distribution is bad advice ," commentary by Bryne Purchase, elsewhere in this issue.