A Hydro One sign in downtown Toronto, on July 10, 2017.Fred Lum
Ontario’s largest electric utility, Hydro One Ltd., is seeking acquisitions worth up to $500-million to boost its customer base and consolidate the fragmented industry, a spokeswoman told Reuters.
The government of Ontario, Canada’s most populous province, is eager to bring down electricity costs for customers. To achieve that, the province is encouraging Hydro One to obtain customers through acquisition, according to sources.
“We believe this consolidation of our business benefits the community, Ontario and Hydro One as it makes the provincial grid more efficient, while reducing costs across the system,” the Hydro One spokeswoman said.
Deal making will mainly focus on expanding service areas and customers, replacing aging infrastructure and improving grid reliability, one of the sources said.
Ontario’s electricity distribution network is highly fragmented with 60 companies, 55 of which hold less than a 2 per cent share of the industry, according to data from provincial regulator the Ontario Energy Board (OEB).
Hydro One, which has a market value of $17.9-billion, declined to say how much it plans to increase its customer base from the current 1.4 million.
While the company has by far the largest market share in the province, with 35.5 per cent of the industry total, Toronto Hydro-Electric System Ltd. and Alectra Utilities Corp. are top competitors, with 21.8 per cent and 18.1 per cent of the market, respectively.
LOWER BILLS
Two of Hydro One’s smaller deals, worth a total $132-million, won regulatory approval last year, encouraging the company to hunt for more opportunities.
“I think government over time has been trying to encourage consolidation,” said Gavin MacFarlane, vice-president, senior credit officer at Moody’s.
The company, which had more than $2-billion in net cash as of Dec. 31, 2020, according to its last annual report, plans to fund acquisitions using its balance sheet, the spokeswoman said.
Hydro One last month estimated spending of $1.91-billion on capital investment for 2021, but the spokeswoman declined to comment on how much would be spent on mergers and acquisitions.
Deal making in Canadian power companies has accounted for $2.3-billion this year to date compared with $4.3-billion for the entirety of 2020, with Hydro One making up 2 per cent of deals, according to data from Dealogic.
Hydro One most recently acquired the business assets of Peterborough Distribution Inc. and Orillia Power Distribution Corp. for a total value of $104-million.
Hydro One told Reuters that customers in Peterborough and Orillia saw a 1 per cent reduction in the base distribution part of their bills after the acquisitions.
“We believe there are further opportunities in Ontario for consolidation and we are open to pursuing these opportunities as they arise,” the spokeswoman said.
Hydro One, 47.3 per cent owned by the government of Ontario, has been beefing up its mergers and acquisitions team by hiring experts from banks and other advisory firms, three sources told Reuters and the company confirmed.
Among Hydro One’s recent hires was new vice-president, growth Matt Vines, an investment banker hired from Bank of Montreal in August who previously worked in M&A for Canadian Imperial Bank of Commerce.
While the spokeswoman for Hydro One said the company was “strengthening” its corporate strategy team, she declined to share the size of the current team with Reuters.
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