London Hydro earns city $20M

[ldoto]

London Hydro will give $20 million to city hall, half of that before the end of the year, in a payout that comes as the municipality wrestles with a tough budget and an economy battered by a downturn.

Half of that dividend will be paid by the end of the year and the balance in four installments next year, city council was told yesterday.

But the injection is a second prize of sorts for those hoping to realize cash from the city utility.

Some on council and leaders at London Hydro had hoped the utility could merge with another, but efforts to find a partner have been unsuccessful, as reported last week by The Free Press.

"Merger is probably a better strategy than going alone. Unfortunately we aren't able to present to (council) that option," Hydro board chairperson Peter Johnson told council.

It will be some time before council decides what to do with the $20-million payout. The city's finance chief will present options and recommendations in the next month to board of control.

The search for a partner utility was started two years ago when Chatham-Kent Energy, which has swallowed up small regional utilities, offered to buy London Hydro for $245 million.

The London utility rejected that offer -- its then chief executive Bernie Watts wanted to expand its reach, not sell out to another.

Council then agreed to the exploration of suitors, but laid out criteria of what would be acceptable -- only deals that would preserve or expand the role of the utility locally.

Ten utilities and companies expressed an interest in a deal and London Hydro selected three contenders, then one serious prospect -- Hydro One, according to a source close to negotiations.

"After lengthy negotiations, we couldn't come to an agreement that met (council's) criteria," Johnson said.

Nor was the final suitor satisfied, he said.

The courtship in London is hardly unique.

During the last decade, the number of utilities in Ontario has dropped from 300 to 84, the consolidation slowing during recent years as smaller players were bought.

That drive to merge, buy or sell utilities has been the product of several things, industry experts say.

Eventually utilities will buy electricity themselves, a tough task that carries with it the risk of securing too much or too little.

Bigger utilities have the expertise to make smart choices and the bargaining power to secure better rates.