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The Ontario Premier says the province is considering selling a stake in the provincial electricity transmission and distribution company

Kathleen Wynne, Premier of Ontario, said today that the province is considering whether to sell a stake in Hydro One Inc., the province’s electricity transmission and distribution company. A provincial advisory panel is continuing to explore the option of offering a minority stake in Hydro One as part of a plan to pay for new infrastructure, reports BNN. Wynne said that any sale of Hydro One would not change power rates.

“We haven’t got the final recommendations yet, but we’ve been clear that we are going to build transportation, transit infrastructure,” said Wynne. The government is “looking at assets that exist and leveraging those in order to be able to find those dollars to be able to invest in the infrastructure we need in 2015 and going forward.”

Reports indicate that Ontario was exploring selling a 10% to 15% stake in Hydro One, and could follow up with additional stock sales. The electrical transmission company has $22.6 billion in assets, recorded $6.5 billion in revenue in 2014 and 5,600 full-time employees, according to its website.

When asked for comment regarding the potential offering of Hydro One, Bill Harris, partner and portfolio manager at Avenue Investment Management, said that there were four problems with the possible deal, including:

  • The grid likely needs reinvestment and shouldn’t pay out dividends right away,
  • There was never an economic model built into Hydro One’s development to support a portion of it being sold on the public market,
  • There is a lot of debt associated with Hydro One, and
  • That 51% or more of Hydro One needs to be in the public market in order to encourage good management.

Despite those concerns, Harris believes that given the right price, there could be a market for this deal. “If you floated this (to the public market) you would find a price that balances in the risks.” However, he said an agreement between investors and the government on share prices may be another hurdle.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.