By Patrick Maloney, The London Free Press (May 16, 2016) – London Hydro is the seventh-largest utility in Ontario. But it’s harder and harder to see how it can get any bigger.
As they unveiled their annual report Monday, London’s electricity bosses say they went on a mini-shopping spree and put a “meaningful offer” on one small neighbouring outfit — Norfolk Hydro — only to be outbid by the now-privatized Hydro One.
That experience could serve as a reality check that, given the power behemoth’s deep pockets, London Hydro may be unable to grow.
Hydro One’s presence in the market, a landscape in which most Ontario municipal utilities have disappeared through mergers or buy-outs, was already imposing when the agency was soley in provincial hands, London Hydro chief executive Vinay Sharma said.
But with the Liberal government privatizing Hydro One, creating a more aggressive company and aiming for a 60 per cent sell-off to pay down Hydro One’s debt and raise money for public transit, the hurdle for London Hydro if it tries to snap up another utility is even higher.
“It’s going to be more challenging now,” said Sharma, who presented the utility’s annual report to city council, its sole shareholder, Monday.
“We still continue those efforts” to grow through acquisition, though there’s “nothing on the table right now,” he said.
Norfolk Hydro, which serves an area southeast of London that includes Simcoe, was bought by Hydro One for $93 million.
Before the Norfolk bid, London Hydro officials say they were in talks to buy Brant County Power, but not to the same extent. It was sold to what’s now Cambridge and North Dumfries Hydro for a reported $40 million.
London Hydro has a unique relationship with city hall: Unlike other assets, it’s a corporation whose sole shareholder is city council, representing London taxpayers.
Per the agreement, Sharma and his colleagues can make purchase inquiries without political approval, though any final deal needs council’s sign-off.
The number of power-distributing utilities in Ontario, like London Hydro, has fallen to 73 from 330 a generation ago, the fallout of mergers and acquisitions that followed the break-up of the former Ontario Hydro monopoly into separate power-generating and distribution companies.
Only six of the remaining municipal outfits are larger than London Hydro.
It has an estimated 325 employees, more than half of whom are unionized, and an annual payroll of $27 million. There are 153,948 customers.
As the shareholder, council gets a $5 million annual dividend — enough cash to offset roughly a 1 per cent tax hike. But London Hydro last year agreed to double that amount for 2015 and ’16, giving city hall an extra $10 million.
According to Sharma’s annual report, London Hydro’s corporate value is estimated at roughly $290 million. It’s growing by about 3.6 per cent a year, he said.
Council would have to give an all-clear before allowing London Hydro to take offers from a potential buyer like Hydro One, something the politicians haven’t done.
Nearly five years ago, council rejected even discussing a partnership between London Hydro and Epcor, killing talks before they could even begin in a move that blindsided the giant Alberta utility.