[URBAN NOTE] "Toronto Hydro considers slashing dividend"

[rfmcdonald]

Jeff Gray and Oliver Moore write at The Globe and Mail about Toronto Hydro's dividends and saleability. All I can say is that the old adage about the dangers of consuming one's seed corn comes to mind.

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.

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.