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A government-appointed commission is preparing to call for a major overhaul of the province's energy sector that could offer hundreds of millions of dollars in annual savings, but incite rural and small-town fears that the province will take further control away from municipalities.

Appointed earlier this year by Energy Minister Chris Bentley, the cross-partisan three-member panel was charged with studying the future of the "local distribution companies" (LDCs) owned almost entirely by municipal governments. Sources say that it is set to release its report before Christmas – and that it will come out strongly in favour of major consolidation.

Those familiar with the panel's work say that, while the report is not yet finalized, it will likely recommend a "carrot-and-stick" approach aimed at leaving the province with fewer than 20 of the 80 existing utilities. Incentives would be suggested to encourage voluntary consolidation, and perhaps legislation to force it thereafter.

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That call would be welcomed by advocates of energy-sector reform, who argue that the current system is wildly inefficient with the prevalence of tiny LDCs in rural and northern Ontario – the smallest of which has fewer than 2,000 customers – driving up costs.

What consolidation would look like is something of an open question, and essentially boils down to three main options.

The first, and perhaps least contentious, would be straightforward mergers between existing LDCs; municipalities would then function as shareholders, splitting the revenues.

Another possibility would be for some of the LDCs to fold into Hydro One, the provincially owned utility whose distribution wing currently serves 1.3 million of the province's 4.8 million energy customers. An obstacle is that, largely because it serves remote areas with high costs, Hydro One customers currently pay some of the province's highest rates – making it an unattractive option.

Then there is the prospect of encouraging private companies to buy up the utilities, which has been a matter of some consternation for the panel. Sources say that former Liberal minister Murray Elston has had qualms about endorsing that option, as has his NDP counterpart, Floyd Laughren; Progressive Conservative David McFadden apparently does not want to put his name to a report that actively opposes it.

As a result, the report may hedge on the issue – explaining how tax barriers could be removed to encourage sell-offs, without actively embracing such measures.

Regardless, consolidation and the ensuing reductions in overhead costs could make the companies more attractive assets, increasing private-sector interest down the road. And in addition to any administrative savings, depending how those were split with consumers, that increased value could be a small boon to some municipalities' books.

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Nevertheless, it would require intestinal fortitude for any politician to make that case in a province where those outside big centres already feel like they have lost their clout, and the recent history of energy-sector reform is checkered at best.

Outgoing Premier Dalton McGuinty lacks either the time or political capital to take on anything so ambitious. NDP Leader Andrea Horwath can be counted upon to come out flatly against the recommendations, given at least the whiff of privatization. And while it appears exactly the sort of policy toward which Tim Hudak would naturally gravitate, pressure from his heavily rural and small-town PC caucus could give him pause.

As for the Liberal leadership contenders vying to replace Mr. McGuinty, the fact that the Liberals are not currently competitive in much of rural Ontario would not make the issue any less risky, since all ridings will have equal representation at their late-January convention. Tellingly, all seven candidates steered clear of anything remotely controversial when appearing alongside each other this past weekend at a forum devoted mostly to rural issues.

For prospective premiers looking for ways to help cash-strapped governments and lower the cost of living, however, the opportunity to nudge the province toward a more streamlined energy sector could be difficult to dismiss credibly. As early as next week, they will need to have answers ready for the questions that will greet them upon the report's release.

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