A major opponent of the Ontario government's decision to sell Hydro One is asking financial regulators to halt the multibillion-dollar deal, saying it contravenes securities law.
In a letter to the Ontario Securities Commission, lawyers representing one of the electricity utility's unions say the government has blocked Hydro One's board from having any oversight of the sale, which goes against basic tenets of the Securities Act, while also violating other laws.
"It appears that the government is attempting to improperly interfere with the mandatory duties of the board," says the letter from securities lawyer Joe Groia, whose firm represents the Canadian Union of Public Employees (CUPE). "Our clients urge the commission to not allow this abusive transaction to proceed without meaningful oversight from a properly constituted board."
The letter was sent to the OSC and to Hydro One this week, and a copy was obtained by The Globe and Mail on Friday.
The Ontario government plans to sell off 60 per cent of Hydro One in an initial public offering taking place in the next four or five years. The privatization could reap a windfall estimated to be as much as $9-billion for the Ontario government. The province plans to use $5-billion of that to pay down debt, while using the other $4-billion to set up a fund for transportation infrastructure.
However, critics of the sale such as CUPE argue that the deal is a short-term transaction that will hurt Ontario financially in the long run due to lost revenue. Lawyers for the union are particularly concerned that the way the government has structured the IPO prevents other stakeholders – such as employees, bondholders and consumers – from having any say in the process.
In his letter to the OSC, Mr. Groia states that on April 16, the Ontario government – as the sole shareholder – removed "all rights, powers and duties" of the board of Hydro One with respect to the sale of the utility. In particular, that left the board of directors without any oversight over "whether, how, and when to proceed with the transaction" and "whether to take any steps in preparing the corporation for the transaction."
David Sischy, a securities lawyer at Groia & Co., said that violates securities law, which requires the board to sign off on certain aspects of the transaction, while also contravening common law. "A board's primary obligation is to the corporation itself [and] the corporation itself consists of numerous stakeholders," Mr. Sischy said. "Because of the unique nature of Hydro One, we list consumers, Hydro One pensioners and the trade unions representing employees" as stakeholders. "Not all of those interests are aligned necessarily with the interests of the shareholders, and when you have the sole shareholder driving the bus so to speak, the risk is that they place a premium on their interests at the expense of the other stakeholders."
If CUPE is successful in making the argument, it's unclear what impact that would have on the deal, since there is no certainty that if oversight for the IPO was placed back in the hands of the board of directors, that it would proceed any differently. But Mr. Sischy said it would allow the interests of other stakeholders to be heard, and potentially have their concerns included. It would also slow down the sale process.
The goal "would certainly be to have the board's oversight reinstated. And if after that, the board did decide to side with Hydro, at least there would be the assurance that the proper process was followed and the interest of everybody was looked at," Mr. Sischy said. "So really it's to slow down the process and make sure it's done properly."
The debate comes as the Ontario government announced changes to Hydro One's board on Friday. The new 15-member board will be led by David Denison, the former chief executive officer of the Canada Pension Plan Investment Board. He was named chairman of Hydro One's board in April.
The new board "will oversee the company as it prepares to become publicly traded," said Dan Moulton, a spokesman for Ontario's Minister of Energy. Among its responsibilities will be a focus on customer service and improved performance and reliability, Mr. Moulton said in a statement.