The plan to merge Hydro One Brampton with three other municipally-owned utilities will soon be at the mercy of several city councils.

At stake for the province could be more than $600 million, the government's estimated payday for selling the Brampton unit. And with no guarantees and no visible party lines, unlike with the Hydro One IPO, obtaining the approval of municipal politicians isn’t a slam dunk. One Hamilton councillor, for example, has said he will put forward a motion opposing the merger.

The Premier’s Advisory Council on Government Assets recommended in April that the province either sell or merge Hydro One Brampton to or with a consortium made up of Mississauga’s Enersource Corp., Hamilton and St. Catharines’s Horizon Utilities and Barrie, Markham and Vaughan’s PowerStream Holdings Inc.

The asset council’s report - endorsed by the Liberal government - declared that the three utilities would have a choice between paying $607 million in cash for the Brampton unit or giving the province, at minimum, a 17-per-cent stake in the new, consolidated company.

While the deal hasn't been consummated yet, the process appears to be grinding forward. Moreover, some details about the merger have begun to emerge.

“Over the next few weeks, the proposed merger of three Greater Golden Horseshoe Area electric utilities and joint purchase of a fourth, will be presented to municipal shareholders for approval,” stated a release sent out Tuesday evening by the three local distribution companies.

The release says the proposed merger would provide, on average, a reduction in annual customer distribution rates of 5.9 per cent. In addition, it’s touted that amalgamation would yield $355 million in operating savings over the first 10 years. The consortium also claims there would be a 24-per-cent increase in company earnings, which would boost dividends to the municipal shareholders.

"Shareholders of the existing utilities will be the shareholders of the new company. There would be no single controlling interest," adds the release.

The proposal also includes spreading the various offices and service centres of the new consolidated utility around its municipalities. The corporate head office would be in Mississauga, the utility head office would be in Hamilton and the “Sustainability and Innovation Head Office” would be sited in Vaughan.

"Our plan to merge our companies offers a winning scenario for customers, shareholders and communities," said Peter Gregg, president and CEO of Enersource in the release.

However, the merger and acquisition would have to be signed off on by the municipalities that own the three utilities. Barrie city council will likely debate the proposal Sept. 21, Mississauga will have its say on the merger on Sept. 30, and so forth.

Energy Minister Bob Chiarelli said the details released thus far are “very credible and very positive.” Chiarelli, the former mayor of Ottawa, also said municipal councils wouldn’t be doing their jobs unless they thoroughly scrutinized the deal.

“We think there’s a very good chance that all the councils will be approving it,” Chiarelli told QP Briefing on Wednesday at Queen's Park. “But we’re not prejudging that. My sense is that there’s cautious optimism with the mayors across the board.”

Another former municipal politician, NDP Leader Andrea Horwath, who served on Hamilton city council, said she has her doubts about the Hydro One Brampton deal.

“I know if I was still on city council in Hamilton, I don’t think I would be supporting this. I don’t know that there is justification for putting all of these utilities into one utility.

“My biggest fear, frankly, is that they’re fattening the cow so that at some point this will now also become completely privatized.”

The three utilities buying Hydro One Brampton were to have until the end of July to decide whether they would pay cash for Hydro One Brampton or issue shares of the newly merged utility. A decision has yet to be made public.

If and when the deal is done, the new LDC would be the second-largest in the province, behind only Hydro One. The company would be responsible for more than 900,000 customers in the Golden Horseshoe Area.

Earlier this month, Hydro One announced it had declared a dividend on its common shares and that the payout would be all shares of Hydro One Brampton. As the province is Hydro One’s only shareholder, it retained all shares of the Brampton unit, which were then transferred to a company wholly owned by Ontario.

The spinoff not only made it easier to part with Hydro One Brampton, but to proceed with the initial public offering of Hydro One. In return for an estimated $9 billion, the Liberal government is committed to selling off up to 60 per cent of the Crown corporation in stock offerings.

To contact the reporter on this story:
gzochodne@qpbriefing.com

Hydro One Brampton merger plan goes before municipalities

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