Canada: Hydro One’s Acquisition Of Norfolk Power, And The "Public Interest"

In January I commented on Hydro One's application to the Ontario Energy Board for regulatory approval to acquire Norfolk Power distribution. The Board had been asked by a ratepayer intervenor, with the support of a group of three electricity distributor intervenors (Essex Powerlines, Bluewater Power Distribution and Niagara-on-the-Lake Hydro), to direct further disclosure by Hydro One and Norfolk Power, and effectively to provide guidance on what is within "the public interest" test that will be applied by the Board to determine whether the transaction should be approved. The Board's decision has been issued, and it provides clarification, to some extent.

The application arises pursuant to the Ontario government's policy favouring consolidation of Ontario regulated electricity distributors, from more than 80 distributors to something significantly less. A recent report commissioned by the government proposes more than $1 billion in cost savings from efficiencies to be gained through electricity distributor consolidation. Norfolk Power was one of the first distributors put up for sale in response to this government policy, and Hydro One was the successful bidder. Concerns have arisen that Hydro One's aggressive acquisition behaviour to date might not be what is best for the sector or Ontario's electricity ratepayers.

Hydro One has offered an immediate 1% rate reduction, followed by a 5 year rate freeze, to Norfolk Power customers. Given Hydro One's relatively high distribution rates, driven by Hydro One's relatively high average cost per customer to serve, questions arise as to what happens after the 5 year rate increase holiday. Norfolk customers may be hit with significant increases. Hydro One has also offered to pay a $65 million (equivalent to 70% of the net book value of Norfolk Power) premium to Norfolk Power's shareholder to clinch the deal. This is an expensive carrot that other would-be distribution company consolidators could find hard to match. This is not the first - and all indications are not the last - generous acquisition offer by Hydro One. Hydro One, which is funded by borrowing on the credit of its owners, the taxpayers of Ontario, is already pretty busy building, and borrowing for, priority transmission refurbishment and expansion projects, and it is not clear why the Ontario government is endorsing, tacitly or otherwise, Hydro One's aggressive approach to local distributor acquisition.

The motion brought before the OEB highlighted two specific concerns:

  1. That the longer term rate impact could be negative for Norfolk Power customers, and the Board should consider that longer term impact in determining whether the proposed acquisition is in the "public interest".
  2. That the competitive "chill" which Hydro One's actions are causing in the nascent market for distributor consolidation may be contrary to the public interest in rational consolidation, as distinct from monopolization.

The OEB has traditionally applied a "no harm" test for approval of regulated distributor consolidations. Under this test, the board will approve a transaction if it is satisfied that the transaction will not have an adverse effect in terms of the factors identified in the board's statutory objectives. In its decision on the motion for disclosure, the Hearing Panel has clarified a few things about its view of the Board's test.

The Hearing Panel has indicated that, in applying the "no harm" test, it is appropriate for the Board to assess the cost structures which will be introduced as a result of the acquisition in comparison to the cost structures that underpin current rates. The Board noted that Hydro One and Norfolk Power had not provided evidence to demonstrate that a reduction in future costs would support the promised immediate 1% reduction and subsequent freeze in distribution rates. The Board agreed with the moving parties that this concern bears further consideration.

Hydro One and Norfolk Power have now filed more information in response to the decision about their assumptions regarding cost savings and transaction costs. The 3 distributor intervenors have also filed evidence that questions the veracity of the information and the estimates provided by Hydro One. The lines have thus been drawn for debate regarding whether anticipated cost savings are sufficient, and sufficiently demonstrated, to meet the "no ratepayer harm" test. Stay tuned on this debate as the hearing proceeds.

In respect of the impacts of the purchase price, the Hearing Panel has maintained what appears at first instance to be a narrower approach than advocated by the intervenors who argued for further disclosure. The Hearing Panel has indicated that it is appropriate to consider:

  1. Whether the premium to be paid would create a financial burden on the acquiring utility.
  2. Whether the premium to be paid would put upward pressure on rates (presumably either for the customers of the target utility or for those of the acquiring utility, or both).

Hydro One has already said that it will recover the purchase price premium through post-acquisition efficiencies and not through future rates, and has presented some information on its expected efficiency savings to fund not only the rate freeze and rate reduction but the purchase premium and transaction costs as well. The expert report filed by the three intervening distributors examines these assertions.

In addressing the argument that the Board should consider the potential "predatory pricing" impact of the premium offered by Hydro One for Norfolk Power, the Hearing Panel answered indirectly, suggesting that its scrutiny of anticipated revenues should inform buyers and sellers on how to price their transactions. The motion decision states:

In applying the "no harm" test, the Board will consider whether future revenue requirements will unduly burden rate payers. The market price of a utility company established between a willing buyer and a willing seller is informed by the anticipated future revenues that the purchased entity will generate. This means that the Board's consideration of future revenue requirements in the application of the "no harm" test should be an important factor that will be considered by willing buyers and willing sellers in the establishment of market value.

However, given the OEB's previously expressed imperative that purchase premiums are not recoverable in rates (they are a shareholder cost to be recovered through efficiencies rather than rate increases), there is no clear link between future rate revenues and acquisition pricing.

In considering certain unanswered interrogatories regarding Hydro One's communications with its shareholder; the Ontario government, the motion decision states:

...the Board also considers that the conduct or motivations of a seller leading up to the consolidation transaction are not relevant to the "no harm" test. The "no harm" test looks at the effect of a transaction, not the reason for or the process preceding the transaction. Accordingly, the Board does not consider the [interrogatories] relating to the overall merits or rationale for [Hydro One's] acquisition plans, including any related communications with government, to be relevant to this proceeding. [Emphasis added.]

This seems to indicate that the broader competitive implications of Hydro One's actions are not going to be considered by the Board. However, the decision also states:

The application of the Board's "no harm" test is intended to ascertain if the transaction will have an adverse effect in terms of the factors identified in the Board's objectives. The Board intends to do so by comparing prospective cost structures to existing cost structures and in consideration of non-financial impacts as well. [Emphasis added.]

What "non-financial" impacts might be considered by the Board, in reference to its statutory objectives? Hydro One and Norfolk Power would no doubt argue that the reference to "non-financial" impacts means such things as reliability of electrical distribution service and service quality for Norfolk and existing Hydro One customers. Arguably, however, the Board's statutory objectives related to the regulation of electricity include some broader concepts. One such objective is:

To promote economic efficiency and cost effectiveness in the generation, transmission, distribution, sale and demand management of electricity and to facilitate the maintenance of a financially viable electricity industry.

It could be argued that "economic efficiency and cost effectiveness in the...distribution of electricity" and/or "the maintenance of a financially viable electricity industry" supports consideration of whether "rationale consolidation" by a number of players is preferable to "monopolization" of the distribution sector supported by additional Hydro One debt.

Alternatively, if such considerations are beyond the scope of the OEB's mandate, perhaps they should be more carefully considered by the Ontario government.

A number of Ontario's distributors are certainly concerned.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions