Shariq Khan and Maiya Keidan

(Reuters) – Hydro One Ltd., Ontario’s biggest electric utility is looking to acquire businesses worth C$500m ($397 million). This will help it increase its customer base as well consolidate an already fragmented sector, a spokesperson told Reuters.

Ontario, Canada’s most populous provincial, wants customers to pay less for electricity. Sources say that Hydro One is being encouraged by the province to acquire customers to achieve this goal.

The Hydro One spokesperson stated that “we believe this consolidation is in the best interests of the community, Ontario, and Hydro One because it makes the province grid more efficient while reducing costs throughout the system.”

One source said that dealmaking will be primarily focused on the expansion of service areas and customers as well as replacing old infrastructure and increasing grid reliability.

According to the Ontario Energy Board (OEB) data, the Ontario electricity distribution network has 60 companies. 55 have less than 2% of the sector.

Hydro One has a market capitalization of C$17.9billion. However, Hydro One declined to disclose how it intends to expand its customer base to 1.4 million.

The company holds the most market share with 35.5%, but Toronto Hydro-Electric System Ltd has 21.8% and Alectra Utilities Corp have 18.1% and respectively, 21, 8.9% of each market.

Get Lower Bills

Hydro One won approval for two smaller deals worth C$132million last year. This encouraged the company’s pursuit of more business opportunities.

Gavin MacFarlane is vice president-senior officer of credit at Moody’s (NYSE): “I believe that government over time was trying to promote consolidation.”

According to the company’s last annual report, it had more than C$2 trillion in net cash at December 31, 2020. The spokesperson stated that they plan to use their balance sheet to finance acquisitions.

Hydro One estimates that it will spend C$1.91 Billion on 2021 capital investments, however the spokeswoman refused to give details about how much it would be spending on acquisitions or mergers.

Dealogic data shows that dealmaking by Canadian power companies has reached $2.3 billion so far this year. This compares to $4.3 trillion for 2020. Hydro One accounts for only 2%.

Hydro One recently purchased the assets of Peterborough Distribution Inc. and Orillia Power Distribution Corp. The total acquisition value was C$104 Million.

Hydro One reported to Reuters that Peterborough and Orillia customers saw a 1% decrease in their base distribution bills following the acquisitions.

The spokeswoman stated that “We believe there may be further opportunities for consolidation in Ontario” and was open to exploring these opportunities when they become available.

Hydro One (47.3%) is owned by Ontario’s government. According to three sources, the company and Reuters, Hydro One have been hiring specialists from banks and advisory firms in their mergers and acquisitions department.

Among Hydro One’s recent hires was new Vice President, Growth Matt Vines, an investment banker hired from Bank of Montreal in August who previously worked in M&A for Canadian Imperial Bank of Commerce.

Hydro One’s spokeswoman stated that Hydro One was strengthening its corporate strategy group, but declined to disclose the exact size of their current staff with Reuters.

($1 = 1.2635 Canadian dollars)