Do Pension Funds Even Want to Invest in Ontario’s Power Utilities?

Canadian pension funds are often described as the ideal owners of regulated utilities: patient capital, long time horizons, and a need for predictable, inflation-linked cash flows. On paper, Ontario’s local electricity distribution companies (LDCs) should be a near-perfect match.

Yet in practice, pension funds invest very little in them.

This disconnect raises a more uncomfortable question for policymakers and municipalities alike: do pensions actually want to invest in Ontario’s LDCs? Or have structural, political, and regulatory realities made these assets unattractive?

Pensions invest in infrastructure — just not much in Canada

Canada’s largest pension funds are global infrastructure powerhouses. CPP Investments alone manages roughly $777 billion, with a significant allocation to infrastructure assets worldwide, including regulated energy networks, transport assets, data centres, and utilities across Europe, Australia, and the United States (CPP Investments, 2025).

Ontario Teachers’, OMERS, CDPQ and others all hold substantial international infrastructure portfolios. These include toll roads, airports, fibre networks, and energy systems, the same asset class and risk profile as electricity distribution, but largely outside Canada.

Even when pensions invest domestically in energy, the focus tends to be generation, renewables, or transmission, not local distribution utilities. CPP Investments’ sale of a 49% interest in an Ontario renewable portfolio, via its wholly owned subsidiary in 2021, illustrates that pension capital will invest in regulated Ontario energy assets when scale, structure, and liquidity are present.

Traditional municipal LDCs, however, remain conspicuously absent from pension portfolios.

The tax code Is a necessary change, but it’s not sufficient

The lack of pension investment is often blamed on tax rules, notably restrictions on foreign ownership and the “10% rule.” While tax treatment matters and needs to be changed, it does not fully explain why domestic pension funds have also largely stayed away.

Small scale is the first barrier

Most Ontario LDCs are simply too small to matter to multi-hundred-billion-dollar investors. Pension funds require assets that can absorb tens or hundreds of millions of dollars efficiently. Fragmented ownership and limited consolidation make many LDCs uneconomic to evaluate, let alone acquire.

But size alone is not insurmountable. Pension-backed infrastructure funds have acquired relatively small, regulated utilities in the United States — often as part of a broader platform strategy that allows for future aggregation. The problem in Ontario is not just size, but the absence of a credible path to scale.

One potential path is for a large pension fund to acquire a utility at scale – such as Alectra, Ottawa Hydro, Elexicon, or Toronto Hydro. These utilities could then be used to acquire the smaller LDCs that a pension fund would not want to invest in directly.

Politics and governance matter more than yield

Infrastructure investors obsess over regulatory stability. While Ontario’s regulatory framework is generally respected, pension investment committees are acutely sensitive to political risk — particularly the risk that governments will intervene to constrain returns after capital is deployed.

The question is not about regulatory competence, but whether the regulatory framework governing LDCs will remain predictable over the long term. That uncertainty looms larger for municipal utilities than for globally diversified infrastructure platforms. Indeed, this uncertainty might be compounded by the OEB’s plan to undertake a comprehensive review of the way in which LDCs are remunerated.

A pension fund will also be a minority shareholder on a board with elected municipal shareholders. Pension funds generally want either control or strong minority governance rights. Municipal ownership structures, layered with councils, boards, and public accountability obligations, are often incompatible with institutional governance norms. From an investor’s perspective, municipalities are not bad actors; they are simply complicated counterparties.

An illiquid market with few buyers

Pensions also care about exits. Ontario’s LDC market has a narrow buyer universe with significant transaction friction. Municipalities, other utilities, and pension funds are often the only realistic purchasers, and they are rarely under pressure to buy quickly or at market-clearing prices.

Without confidence in future liquidity, even stable cash flows may not justify the risk. There is also a deeper mismatch in time horizons. Pension funds typically underwrite infrastructure assets with a six-to-ten-year vehicle horizon, after which assets are refinanced or sold. Regulators, by contrast, plan for perpetual ownership. If regulators knew a pension owner planned to exit within a decade, would that change their comfort level? Regulators will need to set the guardrails and get out of the way of ownership.

What would change the equation?

If Ontario wants pension capital in local electricity distribution, the market must evolve.

That likely means larger platforms, created through consolidation or structured aggregation, and clear regulatory rules. Keep in mind governance demands would increase, whereby pensions plans would need more control of corporate decision making through either enhanced minority rights or mandated independent directors to keep municipal control on a shorter leash.

And, at a base, it will also require targeted tax or policy incentives that encourage domestic infrastructure investment, particularly as governments look for ways to mobilize private capital for economic growth.

Pensions are far more likely to invest alongside experienced operators, rather than become stand-alone owners of municipal utilities. Platform investments — not one-off transactions — are the model that resonates with investment committees.

The bottom line

Pension funds are not ideologically opposed to owning Ontario’s LDCs. But under current conditions, many simply do not see the combination of scale, governance clarity, political certainty, and exit optionality they require.

Until those fundamentals change, Canada’s pension giants will continue doing what they already do best: investing in regulated utilities — just not many of them at home.