More bites from Ontario’s power system (3)

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Last installment in Parker Gallant’s, what bites in Ontario’s power system. We saved the best for last!
Hydro One, raising hopes for a Wynne fall 
We have heard the news that Hydro One’s initial share sale could generate $2 billion dollars for Ontario’s provincial government coffers meaning the overall value, if 100% were sold, is suggested to be in the area of $13.3 billion.   The Premier has stated the province will retain 40%  meaning the total raised from the sale of the 60% will be around $8 billion, or less, depending on what shares were handed out to the employees at Hydro One and OPG to settle their labour negotiations.
With $5 billion slated for payment of the “stranded debt” that would leave $3 billion to fund transit projects and/or reduce the deficit.  Even $8 billion may be “pie in the sky” as most utilities usually trade at a multiple of earnings and a price to book less than suggested. They also usually have a dividend yield that is a multiple of the prime rate.  For 2014 Hydro One’s dividends to the province represented a yield (based on the suggested initial share value) of 2% whereas dividend yields for utilities range upwards e.g., Brookfield 5.3%, TransAlta 10.5%.  Increasing Hydro One’s yield would delay infrastructure projects which are directed by the Minister of Energy and are expected to remain if we are to believe “control” will be retained by the province.  Likewise the “price to book” at the suggested sale price would suggest a value of 1.75:1 is higher than Fortis who trade at 1.4:1 with a market valuation of $10.4 billion and a dividend yield of 3.5%.
Perhaps the government should simply use the money from the sale and buy shares in Brookfield Infrastructure which has a much lower “price to book” of about 1:1, a higher yield and trades at a P/E (price earnings) ratio of over 35.  Another option would be to buy TransAlta Energy which has a yield of over 11%, trades at a P/E ratio of 84 and a “price to book ratio” of 1.6:1.
Its worth noting that TransAlta claim 1,476 MW of  wind capacity and Brookfield 1,679 MW, and may be one of the reasons they have both a high dividend rate and a high P/E ratio.  Hydro One has no such long term 20-year contracts that will guarantee them long term profitability!
Whatever comes out of this sale may cover the costs of the “net-zero” settlements they are announcing daily for the teachers unions but there will be little left for infrastructure projects and little left to reduce the annual deficit.
The message I would pass on to the Wynne government is “you have a spending problem”!
(C) Parker Gallant

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6 Comments

  • Brenda
    Posted September 2, 2015 4:45 pm 0Likes

    Awh so she is going to screw over the GTA as well? Get in line guys get in line

  • Barbara
    Posted September 2, 2015 7:53 pm 0Likes

    It’s likely that shares given to Hydro One employees will be sold by the employees and then be available for investors to purchase.
    Maybe Ontario government workers including teachers, should try looking for work elsewhere at their current wages/salaries. The province is broke and should not be expected to borrow money to pay wage increases or increase taxes on the general public.

  • Ed Edwards
    Posted September 2, 2015 8:35 pm 0Likes

    Someone please help me. Why would shares be given to employees upon a sale.

    • Barbara
      Posted September 2, 2015 9:11 pm 0Likes

      Shares are given in lieu of wage increases. It’s like future money.
      Maybe teachers should evaluate their skill sets to determine what their skills are worth in wages in other jobs. Not many teachers have the skill sets to make what they are making teaching. Shop, business, science and math teachers might make fairly good money in other jobs for example.

  • James G. Oborne
    Posted September 4, 2015 8:29 am 0Likes

    This share offering makes even less sense than the rush to develop even more mega turbine power capacity and losses to ratepayers therefrom. Only fools will buy these shares-the same fools that support the failed Green Energy Act

  • Ed Edwards
    Posted September 4, 2015 1:18 pm 0Likes

    Still not making any sense to me. OK so my company gets sold. So me as an employee hopefully will continue to be employed by my new owner and if I do well, I may get a raise. Maybe the new owner will cut back and I will lose my job. That stuff happens in the real world. What world is Hydro One in? Why do all these H1 employees seem to or appear to get many more entitlements than people in the real world. Were they promised a job forever??? Is that what this stock thing is?

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