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Toronto Hydro eyes ending $60M yearly gift to city

Move comes as Toronto Hydro is facing questions about a controversial push to sell part of the city utility.
Nov. 6, 2016
By David Rider

Facing tough questions about a privatization push, Toronto Hydro’s directors are poised to vote on scrapping a dividend that pumps about $60 million a year into the City of Toronto budget.

City councillors who have received no warning from a Hydro board expected to vote Nov. 23 say it would blow a hole in the 2017 budget - triggering deep service cuts or an extra 2-per-cent property tax hike - and they question if the council-appointed board of a city-owned utility has the power to end the long-paid dividend.

“We are the sole shareholder and I believe we are the final decision-maker about what that dividend will be,” said Councillor Janet Davis after the Friday launch of the city’s 2017 budget deliberations.

“There is some jockeying going on between the city and Hydro and I assume it has to do with the potential sale of some or all of Toronto Hydro. We need to get this discussion out of the backrooms and the mayor’s office, and into the public. The people of Toronto need to understand what’s going on - the facts - as do councillors.”

Hydro’s argument that it needs to divert the dividend to urgent electricity grid work comes as Hydro chief executive Anthony Haines is poised to announce, sources close to Hydro say, hefty third-quarter profits thanks to rate hikes approved by the Ontario Energy Board last year to pay for, among other things, grid upgrades.

The Star revealed in January that advisers and senior staff to Mayor John Tory, as well as Hydro officials, were quietly preparing for a possible partial privatization of the electricity utility.

Tory said then he was not aware of any such plans but now argues city council must take a hard look at selling a minority Hydro stake to help fund grid work as well as Toronto’s pricey transit expansion. A city staff report on options to “monetize” Hydro and the Toronto Parking Authority is expected within weeks.

One argument against selling part of Hydro is it would reduce dividends to the city that totalled $241.7 million over the past five years. Scrapping the cash payment could potentially remove that obstacle.

But some observers speculate the board is sending a message that if council blocks privatization that would inject new capital into the electricity distributor, all its budget-boosting dividends will be diverted to grid upgrades.

Toronto Hydro declined to comment on the Star’s questions Friday.

Paul Ainslie, one of three city councillors on the Hydro board, confirmed the upcoming vote on scrapping the dividend, which was first reported by The Globe and Mail.

“Toronto Hydro operates as a private company even though the city is the only shareholder, and as board members we have an obligation to make sure the company is as financially sustainable as possible,” Ainslie said.

That might mean taking a second look, he said, “another option, it’s now well known, is some kind of an initial public offering (of shares in Toronto Hydro). I would not support any IPO unless it’s written in stone, unbreakable, that the City of Toronto remains the largest shareholder in Toronto Hydro.

“Wearing my councillor hat, politically I know it would be very difficult (for the city) to lose that $60 million a year.”

Councillor Gary Crawford, the city budget chief, said he believes staff proposals for 2017 spending assume a $60-million dividend from Toronto Hydro and he has no idea how council would plug such a big hole.

“That’s a significant amount,” he said. “The Hydro board will make decisions and we’ll have to act on it.”

Toronto Hydro’s shareholder agreement with the city, last updated in 2013, states that Hydro “shall declare aggregate dividends” each fiscal year equal to 50 per cent of Hydro’s annual consolidated net income, with a minimum dividend of $25 million.