Toronto Hydro quadrupled 2002 profits
Still owes city $980 million, prospectus shows
Unregulated businesses didn't fare as well
Toronto Star - April 2, 2003
by John Spears
Toronto Hydro Corp. quadrupled its profit in 2002, but still hasn't paid a
penny in dividends to its shareholder, the
City of Toronto.
The profits are flowing from Toronto Hydro's regulated utility business,
while the company's ventures into unregulated businesses have lost money
or delivered minimal profits.
Toronto Hydro made net profit of $45.4 million in 2002, up from $11.4
million in 2001, according to the company's financial statements. Revenue
climbed 16 per cent to $2.44 billion from $2.1 billion, partly on the
strength of higher electricity prices.
The information is contained in a preliminary prospectus for a debenture
offering of $200 million filed yesterday with the Ontario Securities Commission.
Ownership of local electric utilities such as Toronto Hydro was handed
over to municipalities in 1999; prior to that, they had been operated on a
not-for-profit basis and effectively owned by their customers.
The city holds $980 million in debt from Toronto Hydro, on which hydro is
supposed to pay interest of 6.8 per cent.
That proved difficult when the province blocked the city's application to
boost hydro rates so it could pay the interest. In 2002, for the first
time, the city received its full interest of $66.7 million, up from $41.9
million in 2001 and $33.3 million in 2000.
The city had anticipated receiving regular dividends from Toronto Hydro,
but the rate freeze has prevented the company from raising its prices to
pay the dividend. The dividend in 2002 should have been almost $65
million, based on a return of 9.8 per cent on the city's equity, which is
the maximum permitted by the Ontario Energy Board.
The pospectus also shows that while Toronto Hydro's regulated utility
business continues to make money, its ventures into unregulated businesses
have stalled. Toronto Hydro's utility unit owns the wires that deliver
power directly to homes and businesses in Toronto.
The regulated utility had operating profit of $136.7 million before
interest, taxes and other items; the non-regulated businesses had
wafer-thin profit of $1.7 million before interest, taxes and other
expenses, on revenue of $254.3 million.
Among the unregulated businesses, Toronto Hydro Energy Services Inc. was
set up in part to sell fixed price electricity and gas contracts. Its
energy marketing ground to a halt when the government froze the price of
power last November.
The financial statements show the company took a $13.3 million writeoff in
2002 as a result of the price freeze.
The prospectus also reveals Toronto Hydro is trying to sell its interest
in EBT Express and SPi, a pair of related companies that handle customer
billing in the electricity market. They racked up a loss of $3.2 million in 2002.
Toronto Hydro had already announced it is selling its fixed-price
natural-gas contract business, which made $1.8 million in 2002.
The prospectus says Toronto Hydro plans to use $180 million of the money
raised by the debenture sale to repay money owed to three bank affiliates.
The plan outlined in the prospectus will also allow the city to draw
hundreds of millions of dollars out of Toronto Hydro by ordering the
company to repay part of the $980 million of hydro debt held by the city.
The city will be able to demand repayment of up to $330 million a year
from hydro. Drawing money out of hydro may become an attractive option for
the city, which is beset with financial problems including its own
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