Ontario to sell 60% of Hydro One, allow beer sales in grocery stores

Share

Ontario will sell off 60 per cent of electricity utility Hydro One to the private sector, allow 450 grocery stores across the province to sell beer and impose a new tax on the beverage.

And it will shake up The Beer Store – including by appointing a new "Beer Ombudsman" to handle complaints against the company – in a bid to make the private retailer more transparent and force it to sell more craft beer.

These are the centrepieces of Premier Kathleen Wynne's plan to find money to pay for her program of transit construction, unveiled Thursday morning by Ed Clark, the former banker advising the Premier on managing government assets.

The changes will raise an estimated $4-billion for transit, but the majority of the cash from the Hydro One sale – $5-billion – will actually be used to pay down the utility's debt.

"It's a good day for our economy and it's a good day for job creation," Ms. Wynne said at a news conference near Queen's Park. "It's a great day for people who like their beer cold and more conveniently available for purchase."

While the Hydro One privatization, one of the largest government sell-offs in decades, is certain to be politically fraught, the beer retailing changes will leave much of the status quo unchanged.

• The Hydro One sale will begin with an initial public offering of 15 per cent on the stock market. Over time, government will sell off 60 per cent of the company, which controls electricity transmission and a large chunk of distribution in the province. Private owners would be limited to 10 per cent of stock apiece, allowing the government to keep the largest single share. With a valuation of up to $15-billion, selling 60 per cent of Hydro One would raise $9-billion, of which most would be used to pay off debt and $4-billion put into the Trillium Trust for transit. Former Canada Pension Plan Investment Board head David Denison will take over as chair, replacing former cabinet minister Sandra Pupatello, who will remain on the board.
• Brampton Hydro One will be hived off from the rest of Hydro One and sold separately in a sole-source deal to a consortium of other local distribution companies: PowerStream, Enersource and Horizon. All four companies will merge. The government will receive either $607-million in cash or a 17 per cent stake in the new company.
• The province will grant 450 licences to grocery stores to sell beer in single bottles and six packs. The beer will be wholesaled to the stores by the LCBO, must be sold in separated areas that keep the same hours as The Beer Store, and must have the same prices as the LCBO and The Beer Store. The first 150 stores will be in place by May 2017, with others following after that.  (The Beer Store: The Globe explains the lucrative monopoly)
• The new beer tax will raise $100-million per year. The Beer Store will commit not to pass this cost on to consumers until 2017. After that, if it chooses to pass on the entire cost, it would amount to $1 per 24 case of beer.
• The foreign-owned Beer Store will keep its monopoly on selling 24-cases of beer. Under a new agreement with the province, however, it will have to give small brewers 20 per cent of shelf space in the stores, up from 7 per cent now. It will also have to open up ownership to all Ontario brewers.
• The Beer Store will also be obliged to create a new “Beer Ombudsman” to field complaints from customers. It must also spend $100-million to refurbish its largely warehouse-looking, no-frills stores
• About 9,000 smaller restaurants and bars across the province will now be able to buy up to 250 cases per year more cheaply from The Beer Store. They will be allowed to pay the retail price, when previously The Beer Store was allowed to charge them more.
• Mr. Clark will keep looking at reforms to the province’s wine retail system, with the goal of eventually getting wine in grocery stores as well. He is also pursuing further LCBO reforms, including more online retailing, specialty boutiques in such things as Scotch, and getting better deals with LCBO suppliers to pass the added money onto government.

Ms. Wynne put significantly more emphasis Thursday on the beer retail reforms, which are expected to be more popular than the Hydro One sell-off. As she made the announcement in a conference room at a government office building, she stood before a massive sign touting beer in grocery stores.

"The Beer Store has grown into a de facto monopoly, controlled by a very small numbers of companies. This system has stifled competition, it's kept craft and small brewers from growing and it's limited the consumer experience," she said. "When it comes to the sale of beer in Ontario, I'm here to announce that the status quo is over and the days of monopoly are done."

Craft brewers cheered the move, which will give them more access to the privately-owned Beer Store.

"It's creating a lot of buzz and it's going to end up increasing the overall industry," said Cam Heaps, co-founder of Toronto's Steamwhistle Brewing and chair of Ontario Craft Brewers. "[It will] give some wings to our sector will increase sales."

Restaurateurs, meanwhile, said the move to allow smaller bars and restaurants to buy beer at retail prices rather than inflated "licensee" rates, was a first step in the right direction.

"This is going to be a long journey, but it is an important first step," James Rilett, Restaurants Canada's vice-president Ontario, said in a statement. "The Wynne government has shown the fortitude to begin to address a decades-long problem. Rather than continue the status quo of a broken system, they chose to act."

Progressive Conservative finance critic Vic Fedeli, however, took aim at the tax, which could add $1 to the price of a 24-case of beer.

"I think we've heard loudly and clearly that hydro and beer prices are going up in Ontario," he said. "The whole Beer Store discussion, why she's got this massive backdrop of beer in grocery stores, is to get us talking about the shiny bobble here of the Beer Store when the real issue is they have a $10.9-billion deficit. The only way they can turn that around is to sell off some of the furniture."

Hydro One was much more politically thorny. Several unions promptly condemned the sell-off plan, and the NDP staged a raucous protest in the legislature.

During the daily Question Period – which unfolded as Ms. Wynne, Mr. Clark and several cabinet ministers were across the street briefing reporters – the New Democrats protested the fact that the government was not there to answer questions about the sell-off. They banged their desks for 15 minutes, bringing proceedings to a standstill as Speaker Dave Levac ejected them.

Later, Ms. Horwath contended that a private Hydro One will lead to higher rates as profit-making companies demand a bigger return on investment. She said she did not believe the Ontario Energy Board, which sets rates, could stand up to a privatised Hydro One.

"People are maybe going to have easier access to beer, but they're not going to be able to keep their beer cold because they're not going to be able to keep their fridge plugged in because they're not going to be able to afford hydro," she said. "That's why this cannot go private because it has to be the public interest that comes first when it comes to hydro, not the private interest."