20-APr-2002 - Decision will spook investors: consultant
'Another speed bump'
Paul Vieira
Financial Post
Glenn Lowson, National Post
Eleanor Clitheroe, chief executive of Hydro One, has seen her plans to oversee the privatization of the utility blocked by a court ruling.
Yesterday's court ruling temporarily halting the privatization of Hydro One Inc. may initially deter other companies -- namely power generators -- from investing in the province's $10-billion electricity sector, industry observers warn.
"This will spook investors to some extent," said Jan Carr, managing partner of Barker Dunn & Rossi, a power industry consultancy. "This is another speed bump, and each one has dulled the interest of investors of doing business here in Ontario."
Tom Adams, executive director of Energy Probe, a watchdog for the industry, believes this latest setback is devastating.
"You can hear the sound of money moving out of the province," he said. "This is disruptive. It's just another reason for investors to stay away from the province."
Mr. Justice Arthur Gans of the Ontario Superior Court ruled yesterday the province lacked the legal authority to sell Hydro One in an initial public offering. The privatization of Hydro One was one of the key elements of the province's move to restructure its electricity industry.
Ontario prepared for deregulation by splitting the old Ontario Hydro monopoly into five pieces -- the most important two elements being Hydro One and Ontario Power Generation Inc. (OPG), the monopoly electricity producer which must reduce its control of the province's power supply from nearly 80% to 35% by 2012.
In two separate announcements in December, the government said it would sell Hydro One and open its market on May 1. Starting on that day, businesses and households are free to buy their power from whomever they chose.
The government hopes this will spur competition and lead to lower hydro rates. It is contingent on power producers coming into Ontario to build plants and compete with OPG.
Several big-name companies, such as TransAlta Corp., ATCO Power and Sithe Energies Inc. of New York, are, or have, committed to build multi-billion-dollar projects in the province. And others are looking to buy existing power plants. Boralex Inc. of Montreal says it wants to expand in the Ontario market, while Brascan Corp. recently paid OPG $350-million to buy a hydroelectric facility near Sault Ste. Marie,
Duane Cramer, a vice-president for Sithe, which has two projects underway in suburban Toronto, said yesterday the Hydro One ruling will have little impact on his company's strategy, because it is interested in power generation, while Hydro One is a pure transmitter.
"Our investments were never dependent on who owned Hydro One," Mr. Cramer said.
Before the government decided to privatize Hydro One, there was talk of turning the transmitter into a not-for-profit company. That idea drew sharp criticism from some prominent power executives -- most notably Stephen Snyder of TransAlta.
Mr. Snyder, whose company is building a $450-million power plant near Sarnia, Ont., warned he would not invest another dollar in the province unless the government cleared up the rules surrounding deregulation and the status of Hydro One.
A couple of weeks following his warning, the Ontario government announced the Hydro One sale and the opening of the market. Mr. Snyder declined to comment yesterday about the latest Hydro One development.
Mr. Carr, the consultant, was optimistic confidence can be restored, as long as the government deals quickly with the ruling -- either with an appeal or passing new law giving it authority to sell the transmitter.
"We need to get on with it and do it expeditiously."
pvieira@nationalpost.com
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