A fleet vehicle makes its way into the the Hydro One Claireville Transfer Station in Vaughan, Ontario Monday March 9, 2015.
Hydro One Ltd. is tightening its grip on Ontario's electricity transmission network, snapping up a century-old business in a deal that highlights the evolution of the province's power system.
Ontario's largest electrical utility said Friday that it would buy Great Lakes Power Transmission LP for $222-million in cash from Brookfield Infrastructure Partners LP, while taking on $151-million of Great Lakes' debt. The deal will increase Hydro One's transmission capacity in Ontario to more than 98 per cent, according to the Ontario Energy Board, up from about 97 per cent. While it's not a big jump in market share, Great Lakes is the second-largest transmission group in the province, leaving just a few small players still standing.
The Great Lakes business was founded 1916 and has been controlled by Brookfield in one way or another since 1973, when the company says it was the largest independent producer and distributor of electricity in Ontario. The power-generating company grew through acquisitions, and the transmission business was last sold within the Brookfield family of businesses for nearly $92-million plus debt in 2008. Great Lakes operates along the eastern shore of Lake Superior, with 15 transmission stations and 560 kilometres of power lines. It already connects to some Hydro One stations.
The electricity landscape in Ontario is steadily evolving, both for the few transmission systems that send electricity from generators – such as nuclear plants – to the smaller local distribution companies (LDCs), and for the dozens of LDCs across the province that carry electricity to customers.
Hydro One is unusual in that it is a large business that does both of those jobs, dominating in the transmission market. There are only two other active transmitters in the province not owned in part or in full by Hydro One: Canadian Niagara Power Inc. and Five Nations Energy Inc.
But there are likely more deals to be done as the smaller LDCs are sold to create more powerful regional distributors. In 2012, the Minister of Energy's Ontario Distribution Sector Review Panel reported that the 73 LDCs it reviewed could be bundled into just eight to 12 larger distributors that would be more efficient and better able to make investments to update aging infrastructure and offer new services that will be needed in the future.
The report suggested that Hydro One should "lead and engage in the discussion of the merger of its distribution assets with the appropriate interested utilities."
Already, Hydro One has been an acquirer, picking up three LDCs in the year before its $1.83-billion initial public offering in November, 2015.
"Our intense focus on customers and communities together with our disciplined approach to leveraging strategic opportunities is an important combination as we move forward with the transformation of this company," Mayo Schmidt, chief executive of Hydro One, said in a statement Friday.
Even Great Lakes has participated in this consolidation. Brookfield sold off the distribution side of the business in 2009 for about $68-million to East Coast utility company Fortis Inc., which is owned by investors.
Power utilities attract private investors for the consistent returns earned, and the evenness of this highly regulated industry. But tax rules and provincial and municipal unwillingness to part ways with these income-generating assets has stymied many private investors from investing in the sector so far.
The deal for Great Lakes is pending closing conditions and still needs approval from the Ontario Energy Board, which will ensure stability in price, reliability and service for consumers. The board says it has not yet received an application from Hydro One to purchase the asset.