04/16/2015


Today Ed Clark spoke to two reports coming out of the Premier’s Council, Improving Performance and Unlocking Value in the Electricity Sector in Ontario, and Modernizing Beer Retailing and Distribution in Ontario.
 

The mandate of this panel was to assess certain provincial assets to seek ways to maximize value, including possibly selling these assets, in order to generate money to allocate toward infrastructure investments.

Today, the government announced that it would implement the panel’s recommendations.
 
Use of Assets for Infrastructure
 
The government intends to introduce legislation that would, if passed, guarantee that net proceeds from the ownership changes to Hydro One and any net proceeds from the merger will go to the Trillium Trust and be used to finance transportation (transit, roads, and bridges) and other priority infrastructure projects across the province.  
 
Higher than anticipated revenues from assets, including GM shares, mean there will be an additional $2.6 billion for the Moving Ontario Forward plan for a total of $31.5 billion in dedicated funds available over 10 years. The government has indicated that about $16 billion will be allocated for infrastructure projects within the GTHA and about $15 billion in the rest of the province. These amounts are higher than set out in last year’s budget ($1.4 billion for the GTHA and $1.2 billion for elsewhere in Ontario). Municipal governments will be anxious to see the funds put to work across all of Ontario.
 
1)  Energy Assets
 
The report on the electricity sector focuses on extracting one-time capital plus ongoing financial benefits from Hydro One.  First, as the result of a mutual agreement, Hydro One Brampton will be merged with three local distribution companies (Enersource Corporation, PowerStream Holdings Inc., and Horizon Holdings Inc.) to create a new large-scale company (MergCo Inc.) serving the central/western portion of the Greater Toronto and Hamilton Area (GTHA).  
 
Second, Hydro One, as an integrated entity (both distribution and transmission) will be subject to partial sale through a phased Initial Public Offering (IPO) process.  There are a number of recommendations concerning how to maintain the interests of Ontario in terms of rates, service quality, governance, and impacts to pensions.
 
A third initiative is to suspend the transfer tax (which was to help pay down stranded debt in the sector) and the departure tax for municipal electricity utilities under 30,000 customers on a three-year basis to encourage and facilitate acquisitions and mergers between Local Distribution Companies.  
 
Clark argues that these steps will protect the public interest, stimulate LDC consolidation, and extract the best ongoing value for these assets. 
 
There is little detail on the recommendation related to strengthening the mandate and powers of the OEB so that upward pressure on rates as a result of these changes in the industry can be managed.  As well, the numbers provided in the report are theoretical; the market realities may alter the planned outcomes.
 
The AMO Energy Task Force will be meeting soon to examine today’s announcement in detail and to seek greater clarity around elements of implementation.  An update will be provided as further information is available. 
 
2)  Beer Store
 
The report outlines a new retail and distribution framework that is part of a negotiated agreement with The Beer Store.  Among other matters, the sale of beer will occur in up to 450 grocery stores across the province and in a segregated portion of grocery stores on top of the current outlets.  There are other elements of the agreement that focus on consumer convenience, pricing, supplier treatment, and The Beer Store governance.
 
The current bottle recycling program between The Beer Store and LCBO is being extended, although funded differently.  The impact of this change is not expected to change current recycling behaviours.  AMO is working with a number of organizations on recycling related issues and will be working to ensure that this change does not result in a greater amount of glass in blue boxes.