Apr. 25, 2002. 11:12 PM Hamilton Hydro to survive mergers: CEO
HAMILTON - A dramatic industry consolidation will see municipal electric utilities gobble each other up until there are barely more than half a dozen left, predicts the man who heads Hamilton-Hydro.
And Art Leitch says his firm plans to be one of those left standing.
"It doesn't make sense for there to be 94 separate wires companies in the province," he said. "There's just a lot of duplication and we just don't think that small entities, much smaller than us, are going to be able to get their costs down to the point where they need to be to compete."
In making his prediction, Leitch is one of a growing number of electricity- industry experts seeing a future for local hydros that will be unrecognizable to most Ontarians.
It wasn't long ago that the utilities were non-profit agencies that served local municipalities. There were more than 200 of them. The old Ontario Hydro served many rural areas.
But since the provincial government passed the Electricity Act in 1998, the local utilities have been re-organized as profit-making, quasi-private companies. Suddenly, they are looking for efficiencies of scale.
Hydro One Inc., one of five companies set up after the government split up Ontario Hydro, has already purchased 88 local utilities, including Brampton Hydro, and is looking to buy more.
A number of other urban utilities have also linked up. For example, the Ajax, Clarington and Pickering Hydro-Electric Commissions merged to form Veridian Corp.
It has literally become a dog-eat-dog world, and Leitch is pretty sure how many competitors will eventually remain in the game.
"I look at the map of Ontario and I see where the 94 are now and what would make logical grouping," Leitch said. "If you do something like that, you'll come up with the number of seven."
Leitch isn't alone in predicting major change. The bond-rating agency Standard and Poors, in awarding Hamilton Hydro an A+ stable rating last month, called the local distribution business "highly fragmented" and said there would be "significant" consolidation in the next few years.
Peter Budd, a prominent energy lawyer who sits on the board of the Independent Electricity Market Operator - it will run the new open electricity market beginning May 1 - believes the number of utilities will shrink by a third.
Whatever the end result, Leitch would like Hamilton Hydro, in some form, to be one of the survivors.
He believes the process will begin with co-operation agreements between existing utilities. Hamilton Utilities Corporation - the city-owned holding company that controls Hamilton Hydro - is already exploring shared billing with St. Catharines Hydro and Burlington Hydro. It is also studying how to share fibre-optics services with Guelph and Kingston utilities.
In the longer run, within about five years, Leitch believes the hydros will be formally merging. He envisages some kind of Horseshoe Hydro providing electricity to customers right around the Golden Horseshoe.
The Standard and Poors report says Hamilton Utilities Corp. "will likely have to participate in the industry consolidation to maintain its leadership position in the sector."
The report warns, though, that the Hamilton company will have to borrow money to finance acquisitions, and that could hurt its currently-strong financial position. Hydro customers will pay for any interest costs through higher rates.
Torstar News Service
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