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In a landmark ruling delivered by Mr. Justice Gans on April 19, 2002, the Ontario Superior Court has ruled that the provincial government has no authority to privatize Hydro One. The ruling came just one week after the CEP Canada and CUPE first appeared in court to argue that the government was acting unlawfully by offering to abandon control of the second largest transmission company in North America to private and foreign investors.

The following day Canadian newspapers were filled with news of the judge’s ruling and of the fall-out for the Bay Street firms that were planning to cash in on the largest privatization in Canadian history. The ruling also presents the province’s new Premier, Ernie Eves, who himself had only just arrived from Bay Street, with his first political hot potato. Mr. Eves, who has proclaimed his commitment to a more open and responsive government, will now have to decide whether he will listen to the people of the province who appear to be firmly opposed to the privatization of Hydro One, or to his former colleagues in the investment firms of Bay Street.

During the mid 1990s, the Harris government set out detailed plans for introducing competition at the consumer level and for breaking Ontario Hydro into various parts. However, the government did not indicate that its plans included privatizing Hydro One Inc., which took over the transmission grid from Ontario Hydro as well as the direct distribution of electricity to over a million of Ontario Hydro’s residential and business customers.

On the contrary, in 1998, when the Electricity Competition Act was introduced for second reading, Jim Wilson, the Minister of Energy, Science and Technology told the Ontario Legislature that “we’re not talking about privatization”. Mr. Wilson made the same point in a letter to the editor of the Financial Post in December 1998, writing “Hello! Is anybody listening? …. the Harris Government introduced the Energy Competition Act to bring about customer choice, lowest possible prices and investment for Ontario - not privatize the utility”.

But in December 2001, Mike Harris announced that the government planned to sell Hydro One. Mr. Harris announced that the privatization would be “several times larger” than $2.65 billion privatization of CN Rail, the largest privatization completed to date. In a newspaper article written at the time the deal was announced, an executive at a Bay Street firm vying for a piece of the deal is quoted as saying: “We’re all just trying not to pee our pants with excitement.”

On March 28th, the details of the proposed transaction were made public for the first time. The Electricity Act authorizes the Minister to “acquire” and “hold” shares in Hydro One on behalf of the Province of Ontario, but is strangely silent on the question of selling them. CEP and CUPE argued that specific statutory authorization is required before the government can sell Hydro One, which is estimated to have assets worth $11.1 billion, and last year alone generated a net cash flow of almost $1 billion for the benefit of Ontarians.

After closely reviewing the provisions of the Electricity Act, the Court concluded that the legislature did not intend to embark of a privatization program at this stage in the reorganization and corporatization of Ontario Hydro. In this regard, the Court noted that, while one of the purposes of the Act is to ensure that the debt of Ontario Hydro is repaid, there is no provision in the Act to pay down the debt from the sale of Hydro One. Any money generated from the sale would be paid into the Consolidated Revenue Fund and could be used by the government for any purpose. In contrast, the Act provides that, where a municipality sells any assets or shares in respect of any local utility it owns or controls, the funds must be paid over to the financial corporation set up to hold Ontario Hydro’s debt. No similar requirement was imposed on the Minister in respect of the sale of Hydro One.

The Court also noted that the purposes of the Electricity Act are set out in detail in the Act and privatization is not among them. The Court concluded:

“I would have thought that the notion of privatization should have been set out in clear and unequivocal terms in the ’purposes’ portion of the Electricity Act, as were a whole range of other important social and economic matters. Privatization of a long-standing important public institution, such as Ontario Hydro, is not something I would have thought would or should occur without addressing the issue head on. The fact that it wasn’t set out as a stated purpose is consistent with the conclusion that the Electricity Act, as comprehensive a piece of legislation as it is, is not intended to deal with privatization, as such, let alone through any implied ability to alienate personal property as a natural person.”

Finally, the Court noted that its interpretation of the Act was supported not only by other provisions of the Act, but also by the Minister’s assurances at the time the legislation was introduced that the government was “not talking about privatization” and by the White Paper preceding the legislation which did not discuss privatization.

The Court also rejected the government’s arguments that CEP and CUPE did not have standing to bring the application, holding that, while the unions and their members may not have a direct personal interest in the sale of Hydro One, they did meet the test for public interest standing. In this regard, the Court noted that the interests of trade unions extend beyond the immediate economic interests of their members:

“It has long since been recognized that unions have an interest in matters which transcends the ’realm of contract negotiation and administration’… To borrow [from a case of the Supreme Court of Canada] ’the interests of labour do not end at some artificial boundary between the economic and political’. Inherent in this proposition is the notion that interests of labour are expansive and are meant to include more that ’mere economic gain for workers’.