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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 ballooning debt.


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