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Toronto Hydro considers slashing dividend

Hydro towers are seen over a golf course in Toronto on Wednesday, November 4, 2015.


The board of Toronto Hydro is considering whether to slash the dividend the company pays to the City of Toronto – worth $56-million last year – as the utility commits more cash to fix its aging infrastructure, according to senior city hall sources.

The Hydro board met on Monday night and will meet again on Nov. 23, when the utility is scheduled to release its third-quarter financial results. It is unclear when the decision on the dividend will be made.

City finance officials, at the urging of Mayor John Tory and city council, are taking a close look at whether to sell-off a portion of Toronto Hydro in order to raise money for other priorities, such as new public-transit lines or repairs to its crumbling public housing.

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Reducing or eliminating the dividend could undermine one of the key arguments used by left-leaning city councillors who oppose the sale, which is that Toronto cannot afford to forgo the dividend – typically about half of the utility's net profits – because the cash helps the city balance its own books every year.

However, Toronto Hydro chief executive officer Anthony Haines has warned publicly that the utility needs to raise more money to cover the costs of fixing its aging electricity infrastructure. One source said that in the past few months, Hydro has been considering the idea of cutting the dividend to shore up its cash flow.

On Monday afternoon, Toronto Hydro communications director Brian Buchan said the corporation's board has not made a move to slash the dividend. "No decision of that nature has been made," he said.

Mr. Buchan said the dividend is expected to be discussed at upcoming board meetings. But he declined to comment further, saying any such discussions are confidential.

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"The board is having ongoing discussions about issues like that," he said. "They are not specifically about the dividend. But, you know, the dividend is a consideration."

So far this year, Toronto Hydro has already declared $18.75-million in dividends for the city, covering the first three quarters of 2016.

Even as it considers slashing its dividend, the utility is beginning to benefit from a power-rate increase approved by the Ontario Energy Board that took effect on May 1.

According to its second-quarter financial statements from August, the utility had a profit of $75.5-million in the first six months of 2016, more than double the amount it recorded in the same six months the year before.

The amount in dividends remitted to the city each year may seem small, given Toronto's $10-billion operating budget.

But the city's finances are under strain. Costs keep rising, but the mayor has pledged not to raise residential property taxes above the rate of inflation.

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It is unclear exactly what effect a lower-than-expected dividend would have on the city's books for the remainder of 2016, as surpluses or reserve funds could be available to cover an immediate shortfall.

But if the dividend were to disappear for next year as well, the challenge of balancing the budget could made more difficult. Already, the city faces a projected shortfall in the hundreds of millions for its 2017 books, according to budget documents that assume a dividend from Toronto Hydro.

In recent months, Mr. Tory has made a point of highlighting what he said were big deficiencies in Toronto Hydro's infrastructure, using recent blackouts at the downtown condo complex CityPlace to argue that more money is needed to replace aging power transformers and lines.

Mr. Tory has ensured that the utility's board is made up of a number of allies, including deputy mayor Denzil Minnan-Wong, former city councillor and deputy mayor Case Ootes, Etobicoke Councillor Stephen Holyday, lawyer Tamara Kronis, who was director of operations for his mayoral campaign, and David McFadden, a lawyer and industry veteran who advocates for competition in the electricity sector.

The mayor has said that any move to sell off shares in Toronto Hydro would have to leave a controlling stake in public hands.

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About the Authors
Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. He spent six years as the law reporter in The Globe’s Report on Business, covering Bay Street law firms and writing about fraud, insider trading and corporate tax avoidance. More

Oliver Moore joined the Globe and Mail's web newsroom in 2000 as an editor and then moved into reporting. A native Torontonian, he served four years as Atlantic Bureau Chief and has worked also in Afghanistan, Grenada, France, Spain and the United States. More


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