Hydro

A vast domain is the Province of Ontario, stretching from the Ottawa River to the Manitoba prairies; from Niagara Falls to Hudson Bay. Within its 400,000 sq. mi. are one-third of Canada's population; one-half of Canada's industry. Almost every known mineral except coal lies beneath Ontario's geologically ancient hills. And that fact has given rise to the greatest public power enterprise in the capitalist world--the Ontario Hydro-Electric Power Commission. Last week "Hydro" found itself in the thick of a furious politico-economic fight which stirred the whole Dominion.

Ontario's new Liberal Premier Mitchell ("Mitch") Hepburn is very busy giving his Province a new deal (TIME, July 2, et seq.). And like any good New Dealer the cocky, noisy Premier insisted on making an issue of Power. That was not so easy for Mr. Hepburn as it was for President Roosevelt: almost all of Ontario's power business is already in the hands of Hydro and Hydro is an official appendage of the Provincial Government. Furthermore, no less a private U. S. powerman than . Chairman Floyd Leslie Carlisle of Consolidated Gas Co. of New York and of Niagara Hudson Power Corp. once described Hydro as "the best managed and operated government enterprise in the world."

Nevertheless, if there was dirt to dig from Hydro's past, "Mitch" Hepburn could find it. And he did, chiefly in connection with long-term contracts which Hydro made with four big private power companies in the neighboring Province of Quebec. Apparently convinced that the amazing growth in power sales promoted by Hydro's low rates in the booming 1920-5 would continue indefinitely, Hydro's former Conservative management signed up for huge blocks of power on a rising scale of delivery for years to come. After Depression struck Ontario, Hydro, with its own plant capacity of 1,200,000 h.p., found itself paying for additional power from Quebec it could not use.

In the meantime, however, the private companies sold millions in bonds on the basis of the Hydro contracts, regarded by investors as almost a direct obligation of the Province. The money was sunk in tremendous hydro-electric developments up & down the rivers of Quebec. Last week, after weeks of preliminary rumblings, Premier Hepburn uprose in the Ontario Parliament in Toronto and begged leave to introduce a bill repudiating the contracts one & all as "illegal, void and unenforceable." While there appeared to be some question whether Hydro had not exceeded its authority, the Premier took no chance with the courts: his bill included a ban on suits against the Government.

The proposed repudiation threw Canada into an uproar. Conservative newspapers thundered about disastrous repercussions on Ontario's credit, if not that of the whole Dominion. Securities tumbled. Protective committees tossed out advertisements asking: "If Hon. Mr. Hepburn is RIGHT, the courts will uphold him. So why deny an appeal?" In Ottawa the Federal Government feared that Hon. Mr. Hepburn's move would put bad ideas in the heads of other politicians.

Ontario's cherished low power rates were Premier Hepburn's excuse for tearing up Hydro's contracts. If Hydro lived up to them, it would have to boost rates to carry the costs of the power it cannot sell. Since someone must hold the bag and there was no visible method of passing it to the opposition, the Premier decided that it should be held by the securities holders of the private companies.

The four companies involved--Beau-harnois Light, Heat & Power; Ottawa Valley Power; Maclaren-Quobec Power; Gatineau Power--have $172,000,000 of bonds in the hands of U. S., .Canadian and British investors. Typical is Gatineau, nearly one-half of whose annual revenue of around $9,000,000 is derived from its contracts with Hydro. In Gatineau's case, however, the Premier proposed to make a partial exemption for practical operating reasons: Hydro might buy Gatineau current at present rates "as it deems advisable."

A wholesale producer of electric energy is Hydro. It sells to a few big private users but its most important function is supplying power, service and advice to some 700 Ontario towns & cities at cost. The municipalities in turn sell power to ultimate consumers over their own local distributing system, also at cost. Founded in 1906 by Act of Parliament, Hydro is financed by the Provincial Government but not subsidized except in rural electri-fication--a minor item. Its bonds are being amortized, so that eventually the municipalities will, in effect, own all Hydro's great plants and transmission lines, representing an investment of nearly $400,000,000, free & clear of debt.

Thousands of pages have been written about Hydro, most of them dedicated to the proposition that this classic example of public ownership does--or does not-- sell power as cheaply as could a private company. There is little argument about actual domestic rates: they are lower, with rare exceptions, than any iri the U. S. The squabble is over technicalities like the question of whether Hydro favors domestic customers at the expense of commercial and industrial users; or what adjustment should be made for Hydro's low taxes. Most comparisons of Hydro's rates with U. S. rates are illogical because 70% of Hydro's power is Niagara Falls power, world's cheapest.

Toronto suspected last week that Premier Hepburn's Hydro bill might be a colossal bluff. Having put the fear of God and the Premier into the hearts of the private power companies in Quebec. Hydro might yet negotiate new contracts at reduced rates. With that to his credit, the Premier would quietly pull the teeth from his toothy measure.

If & when new contracts are drawn, the Government's chief negotiator will probably be the only important man in Canada last week who did not voice an opinion on the Hydro bill--Thomas Stewart Lyon, Hydro's head. A short, wiry Scot fairly bristling with a kind of fierce honesty, Chairman Lyon was appointed by Premier

Hepburn because he was a thoroughgoing Liberal and a close friend and adviser of the late Sir Adam Beck, "father of Hydro." As early as 1888 Mr. Lyon was editing a paper called the Labour Reformer. For 40 years he was with the Toronto Globe--as reporter, city editor, associate editor, finally director. During the War he went to the front with Canadian troops as a crack correspondent. Now 68, ruddy-cheeked, snowy-haired, blue-eyed, he speaks with a broad Scottish accent, is a stern prohibitionist.

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