Brief to
Honourable Chris Stockwell
Minister of Energy, Science & Technology 

May 3, 2002

Arnprior. Ontario 

By

Murray L. Moore, President of Ottawa River Power Corporation 

Subject:  IPO Hydro One

Mr. Minister and panel members, I wish to express my appreciation for the time today to present to you my views and the views of many citizens of Ontario.

First, it should be known that I have forty two years in management in the electrical utility business in Ontario having worked for both private and publicly owned utilities.  It is very challenging for me to revert back to the private industry concept of profit versus customer service.

Today I wish to address, if I may, what features the legislation should contain should the Government of Ontario permit Ontarians or others to invest directly in Hydro One and perhaps some reasons why.

The thought arises, should it even be considered under the circumstances?

Who owns Hydro One?  The people of Ontario. Like our roads, we have elected a government to manage it wisely for us.

Why is the Government saying they want to sell it off?  Because of the huge debt that Ontario Hydro incurred.  For this, they claim mismanagement.  This debt must be eradicated as soon as possible to improve the provincial financial picture.

What steps has the government taken to pay off this huge debt?  They have already added.7 cents to the price on every KWH sold to every customer in the province.  Whether they are twenty or ninety, blind, invalid, a pensioner or wealthy, everyone must pay for this debt.

Why then would the government wish to sell off more shares in Hydro One to raise capital?  Is it to permit Hydro One to purchase more utilities, to pay down the debt that Hydro One inherited from old Ontario Hydro, to possibly pay for the new debt they created by purchasing utilities, or for cash flow and pay bonuses? 

By increasing the equity position of Hydro One, would this not permit Hydro One to increase its debt?  Yes it would, as they are allowed a 60/40 debt equity ratio.  This is alarming as it could be, "here we go again".

Poor management has been blamed for the state of affairs – who was responsible for management?  Is it not the responsibility of the Board or, in this case, the Government who appoints the controlling body?  Why does the Government feel that if we privatize the utility that it will be better operated?  Is this a failure of the last several governments?  Is the management of Hydro One now different than that of old Ontario Hydro?  Has the leopard changed its spots? Is Hydro One still operating in the same manner as the old Ontario Hydro?

If we agree that the taxpayer or every customer of Ontario owns Hydro One and have been forced to guarantee the debt and in the past were unable to collect a dividend or reduced power rates, then by the sale of shares are we not forming two classes of people in the province?  The people who can and will afford shares after March, 2003 will be able to get a return on their investment of 9.88%.  Those who are not quite as fortunate and have to pay to the rich higher rates to pay this dividend while over the years invested in their public utility and receive no return on their investment.

If according to Bill 35 the new municipal owned utility company cannot sell off more than 10% of its shares without implications, then why is it that Hydro One, the provincial utility able to sell off 40% or more?  Is this a level playing field?

Speaking of playing fields - what is the purchaser of shares buying?  Is it in the distribution system or the transmission system or both?  Ontario cannot afford to sell off its transmission system.  Therefore, Hydro One must be split again, forming separate distribution and transmission companies.  We cannot permit a company to be in control of our transmission lines that is likely to be under foreign ownership in the near future.  If you do not look after your arteries, the body parts will soon fail.  In the case of the transmission lines, our distribution utilities and industry at the extremities will suffer.  The transmission lines are the lifelines; the main highways of getting the product to market. The government will be extremely negligent should they permit a profit motivated utility to be in control of the transmission system that is the lifeline of the province.  In addition, cross subsidization is too easy.

Why am I so concerned about privatizing the transmission system? I believe that the transmission system should be similar to the IMO as it has a similar function and is necessary for the overall welfare of the province.  In the privatized world, the managers of the system are "between a rock and a hard place".  On one side, you will have the OEB or Government calling for low or reduced rates; while, on the other side, you have shareholders that will be demanding a maximum rate of return.  Management has but one easy solution, reduce both capital and maintenance costs that will eventually reflect in outages and reduced service.

This brings the question - is bigger better? To date, it certainly has not been proven the case in Ontario.  The smaller utility can provide superior service, lower cost, more competition, accountability, reliable supply while providing local employment.

It was stated that Bill 35 was created to increase competition in the market and increase employment.  By permitting Hydro One to grow with the hope of being the single largest utility is certainly not increasing efficiency.  If so, why their rates?  Increasing employment has perhaps been achieved but this increases power costs. What have we actually achieved with Bill 35?

What would I stipulate in the legislation if we were to sell off Hydro One shares? 

• Make certain that the purchaser is very aware what they are buying.  A regulated distribution system with a maximum return, or a distribution and transmission system with a regulated return. 

• A level playing field with other utilities must be maintained.  Levels of service must be maintained and very heavy fines are mandated for transmission power failures should Hydro One is permitted to remain as one unit. 

• A developer received a letter from Hydro One which indicated that Hydro One requires contributed capital in a new subdivision, even if the developer installs the plant. The letter indicated that new residential customers provide no value to Hydro One.  The prospective share purchasers should be made aware that Hydro One is made up of mainly residential and rural customers.  Possibly, errors were made in purchasing customers from utilities based on $2,000 or more per customer, if indeed residential customers "provide no value to Hydro One". 

In conclusion, I was speaking to a group of seniors in Mississippi Mills this week. During the question period, a retired teacher asked the question, "what happened to the Hydro we used to teach our children about and the story of Sir Adam Beck?" She continued to recount the problems that Adam Beck had in convincing the government of the day to not sell off to the Americans but to join together and form a provincial utility for the benefit of the people of Ontario. We were so proud of Ontario Hydro. My answer was that the Government has stated to us, "it was mismanagement".

 If you sell your home today and want it back tomorrow, sometimes you can not buy it back; or you may have to buy it back at a greater price; or perhaps it is quite run down when you do get it back.  We urge the province to listen to the words of caution.  There are better solutions.  Some were recommended in the Macdonald report.

My personal advice to the Government is to think of it as you were standing on a bridge and you wanted to dive off.  Check to see where the rocks are before you jump. 

Once again, I thank you for this opportunity to be able to present to you a few concerns about our direction.