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OCTOBER 2014
ADVISORY COUNCIL ON GOVERNMENT ASSETS – INITIAL
RECOMMENDATIONS FOR HYDRO ONE AND ONTARIO
POWER GENERATION, AND UPDATES ON THE MERGER
OF THE INDEPENDENT ELECTRICITY SYSTEM OPERATOR
AND THE ONTARIO POWER AUTHORITY
ELECTRICITY MARKETS GROUP
BULLETIN
On Friday, October 17, 2014, Ed Clark, Chair of the Ontario Government’s Advisory Council
on Government Assets (“Council”), gave remarks at the C.D. Howe Institute on the Council’s
initial recommendations for restructuring government-owned assets, including the Liquor
Control Board of Ontario (“LCBO”), Hydro One and Ontario Power Generation (“OPG”).
The first part of this bulletin describes the mandate of the Council, summarizes the
recommendations for both OPG and Hydro One, and outlines the Premier’s reaction to the
initial recommendations of the Council. The second part of this bulletin provides a brief
update on the merger of the Independent Electricity System Operator (“IESO”) and the
Ontario Power Authority (“OPA”) which is scheduled to take effect on January 1, 2015.
THE COUNCIL ON GOVERNMENT ASSETS:
The Council was established in April, 2014 to
provide the Government of Ontario recommendations
designed to maximize the value of certain Ontario
Government owned assets, namely OPG, LCBO and
Hydro One.
and NDP cabinet Minister and Janet Ecker, President
of the Toronto Financial Services Alliance and
former Minister of Finance. Other members include:
David Denison, former Chief Executive Officer of the
Canada Pension Plan Investment Board and Ellis
Jacob, President and Chief Executive Officer of
Cineplex Entertainment.
This policy review was to consider the following:
CONSULTATION PROCESS:
• Improvements to customer service
• Increasing operational efficiencies
• Maximizing financial returns
The overall objective of the policy review is to
ensure that the Province is getting the most value
from these assets that provide significant revenue
used to support infrastructure development, health
care, education and other government services.
The one restriction on the Council’s mandate was to
assume continued government ownership of these
assets. In terms of timing, the Council was to release
its initial findings in the fall of 2014 and its final
report in the Spring of 2015 to inform the provincial
budget process.
Key members of the Council include: Ed Clark, Chair
and former Chief Executive Officer of TD Bank Group,
Frances Lankin, former United Way of Greater Toronto
The Council met over the course of the past several
months with various stakeholder groups and the
senior management of the LCBO, OPG and Hydro One.
These were private meetings arranged directly by the
Council. As the Council moves into phase two of its
analysis, additional consultations with stakeholders
will be conducted. This second phase begins
immediately.
RECOMMENDATIONS OF THE COUNCIL ON OGP
AND HYDRO ONE:
The following recommendations are taken directly
from the remarks made by Ed Clark at the C. D. Howe
Institute on Friday, October 17:
OPG:
• OPG contains two separate businesses: nuclear,
which is very complex and expensive and hydroelectric and thermal, which is more stable.
ELECTRICITY MARKETS GROUP BULLETIN | OCTOBER 2014
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• OPG needs to focus on the Darlington nuclear
facility refurbishment and on improving its
operations and lowering costs. OPG needs to
ensure that the Darlington project comes in on
time and on budget.
• OPG should create an internal structure, as
if nuclear and hydro-electric/thermal are two
separate businesses “this could lead to two
separate organizations—a nuclear company
with a board that has predominantly large
project management experience and a nonnuclear company”.
• Restructure existing labour agreements and
pension plans to lower costs and ensure that
they are stable over time.
Hydro One:
• Hydro One’s transmission and distribution
businesses should be divided into two
separate businesses.
• Hydro One should continue to operate and
manage the transmission business.
• Hydro One Brampton could be used as a
catalyst for the merger of a number of greater
Toronto area (GTA) utilities; the merged entity
could bring in private capital and the Ontario
Government could sell down its interest.
• Hydro One’s distribution assets should be used
to facilitate but not force the consolidation of
other municipally-owned electricity distribution
companies (“LDCs”).
• “the Council is recommending the separation
of the transmission and distribution businesses
currently within Hydro One Networks. We would
then dilute the government’s interest in that
resulting distribution business by bringing in
private capital. We would retain a minority
share. This new company would then have the
capacity to undertake further consolidations….
We would expect other municipalities to respond
by joining these entities or seek their own new
partners—public or private.”
• Maintain Hydro One Networks distribution
whole—it will have the capacity to undertake
other consolidations and it should not be broken
up or merged with other LDCs unless there
are clear benefits to ratepayers and the overall
value of Hydro One Networks distribution is not
materially impacted.
• The Province will be sensitive to labour issues
resulting from these changes but expects to find
mutually acceptable solutions.
• The Province would have unspecified control
rights over future changes in ownership.
• Distribution rates cannot go up as a result of
any sale; savings from greater efficiencies
and economies of scale to be passed on to
distribution customers.
• The Province of Ontario will realize less income
from Hydro One and OPG but improvements
being recommended will be greater than the
lost income.
NEXT STEPS FOR THE COUNCIL AND
GOVERNMENT:
The Council will consider the various barriers and
disincentives to the consolidation of the distribution
sector and make further recommendations to remove
those barriers in its final report in the Spring of 2015.
The Government’s official reaction to the remarks by
Mr. Clark were supportive and in line with the goals
set for the Council. As stated by the Premier,
[I] have asked the Council to build on its
work by entering phase two. As the Council
members move forward, they will broaden their
commitment to a collaborative and transparent
process and deepen the relationships they have
established with all parties…..I look forward to
receiving a summary of the council’s
initial findings in its interim report, and to
releasing this report prior to our government’s
Fall Economic Statement (press release
October 17, 2014).
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The Ontario Government intends to build the final
Council recommendations into its budget process for
the spring of 2015.
IESO AND OPA MERGER UPDATE:
On July 24, 2014, Bill 14, Building Opportunity
and Securing Our Future Act, 2014 (“Bill 14”) was
passed by the Ontario legislature and received royal
assent. Among other changes, Bill 14 amended the
Electricity Act, 1998 to amalgamate the Independent
Electricity System Operator (“IESO”) and the
Ontario Power Authority (“OPA”), which will cease
to exist as separate entities and will continue as the
Independent Electricity System Operator
(“New IESO”).
The Ontario Minister of Energy has stated that on
January 1, 2015 the OPA and IESO will be “formally
merged, to create a more efficient procurement and
planning system operator”.
The legislation provides that the assets, contractual
obligations and liabilities of the IESO and the OPA
will all be automatically assumed by the New IESO
as a result of the merger. Bill 14 provides for the
separation of the New IESO’s market operations from
its contract management and procurement activities.
The details of how the separation of market
operations and energy contract management will
be implemented are still in process. The legislation
also stipulates that there will be a new CEO and new
board of directors for the New IESO—all of those
appointments have not yet been announced.
A working group is addressing major implementation
issues and further details are expected to be
announced prior to January 1, 2015.
For further information, please contact Linda Bertoldi
at [email protected] or 416.367.6647, Mark Rodger
at [email protected] or 416.367.6190 or Shane
Freitag at [email protected] or 416.367.6137.
ELECTRICITY MARKETS GROUP
BORDEN LADNER GERVAIS
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