Hydro One Fee Structure Isn’t Yet Decided, Ontario’s Wynne Says

The investment banking fee structure for the initial public offering of Hydro One Inc. hasn’t been finalized, despite “speculation” about the process, Ontario’s premier said.

Kathleen Wynne, 62, spoke Thursday at the Bloomberg Canada Economic Summit in Toronto, responding to questions on what rate the government seeks to secure from banks in its share sale. The Wall Street Journal reported Wednesday the province would set a two-tier fee structure for institutional and retail investors.

“Those details, I don’t think have been finalized,” Wynne said, asked about the IPO.

Ontario Finance Minister Charles Sousa told Bloomberg last week in New York the province expects banks to receive one-quarter the fee they’ve earned in other large Canadian IPOs.

“I think the minister, when we were in New York and he was talking about that, there was some speculation on what that might look like, but Ed Clark was clear that this would look different from other IPOs,” Wynne said Thursday, referring to the former Toronto-Dominion Bank chief executive officer who led the group reviewing government asset sales.

Last month, Wynne announced Ontario would sell off a stake in its provincially owned utility, Hydro One Inc. The initial 15 percent stake could raise an estimated C$2.25 billion ($1.84 billion), and the province would eventually sell 60 percent of the company. Wynne plans to use part of that money to invest in infrastructure.

The sale is also aimed at making Hydro One “a better-run company,” Wynne said.

‘Better Run’

“That’s one of the benefits to making this decision,” Wynne said. “It can be a better run company with a different board, a professional board.”

Asked whether that board would lead to job cuts at the utility, she said the decisions would be made by the board but “that’s not why we would go into this. That’s not the motivation.”

The deal has proven controversial, in part, because of a report in the Toronto Star and elsewhere that Wynne’s government’s proposal to the Power Workers’ Union -- representing both Hydro One workers and Ontario Power Generation workers -- would include shares in Hydro One, in exchange for relief on pension contributions. The contract hasn’t been ratified and won’t be made public until July, when union members finish voting.

Wynne declined to comment on the contract offer Thursday. “That’s part of a deal that hasn’t been ratified, so I’m not going to talk about the specifics of that deal,” she said.

Service Cuts

Wynne’s Liberals won a majority mandate in an election last year with a vision for activist government - pledging to trim the deficit slowly and balance the budget by the 2017-2018 fiscal year without deep service cuts and while investing in transit, an approach that has proven popular with bond investors.

Her government’s budget, released last month, forecast an C$8.5 billion deficit for this fiscal year, one that will add to more than C$300 billion in total debt for the province of 14 million people. No sub-sovereign jurisdiction has more debt rated by Moody’s Investors Service.

Wynne projects a C$4.8 billion deficit in the next fiscal year before returning to balance in 2017-2018. Ontario has a negative outlook with both Standard and Poor’s and Moody’s, which downgraded its debt rating for the province in 2012.

Wynne also announced last month Ontario would implement a cap-and-trade system to reduce its carbon emissions. Early internal government estimates the project could raise as much as C$2 billion annually. On Thursday, she declined to specify what revenue she expects the system to generate, but suggested Ontario would reveal more details on its plan later this year, ahead of a UN Climate Summit in Paris in December, after talks with business leaders.

“I’m very sensitive to the perceptions and the input from the business community, different sectors having a different view of what we should be doing, what we shouldn’t be doing,” she said. “My hope is as we go to the Paris summit on Climate in December that we will have a clearer picture.”

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