By KAREN HOWLETT AND MURRAY CAMPBELL, The Globe and Mail, 20070127 -- TORONTO -- The Ontario government is setting up a three-person panel to conduct a sweeping review of the structure of the province's electricity agencies, following concerns that costs have soared more than 50 per cent since the old Ontario Hydro was dismantled in 1998, sources say.

The panel will examine the costs associated with operating the four major agencies that succeeded Ontario Hydro, said sources familiar with the plan. The panel will also be asked to review salaries for the electricity entities' top executives, the sources said.

The government has been besieged by negative headlines over the $1.6-million paid to former Hydro One chief executive officer Tom Parkinson in 2005, the province's highest-paid public-sector employee. He resigned last month after the provincial Auditor-General's office revealed that he had allegedly violated company policy by charging $45,000 in expenses to his secretary's corporate credit card.

The panel will be led by James Arnett, a former chief executive officer of Molson Inc., who served recently as an adviser to Premier Dalton McGuinty in the restructuring of Ontario's steel industry, according to sources familiar with the plan. Mr. Arnett also chaired Michael Ignatieff's federal Liberal leadership campaign.

He will be joined by Charles Harnick, a former Progressive Conservative attorney-general, and Sharon Manson Singer, president of the Canadian Policy Research Network and a former vice-chairwoman of British Columbia Hydro.

A senior government official acknowledged that the Auditor-General's scathing report last fall that exposed improperly documented spending at Hydro One was a spur to action. But the official said the government had felt for some time that the electricity-sector agencies were in need of review.

"It's pretty self-evident," the official said. "We're looking at ways of reducing costs of the sector, particularly executive compensation."

Energy Minister Dwight Duncan plans to unveil the panel on Monday. The panel is expected to report by the summer, which would give the government time to respond to it before the provincial election on Oct. 4.

Steve Erwin, a spokesman for Mr. Duncan, declined to comment yesterday.

"The key point that we're trying to get across is to tell all the agencies . . . that we expect them to pinch pennies and be responsible with public dollars," the government official said.

A senior energy industry source said government officials are concerned that the opposition will make the province's electricity bureaucracy an issue in the election campaign. "I think it's safe to say if none of the opposition parties were raising this as an issue, this would not be something that would be a priority for the government to be doing just before an election campaign," he said.

The government has come under fire for the soaring costs associated with running the various entities responsible for keeping the lights on in Ontario. A Globe and Mail analysis last December revealed that the entities that succeeded Ontario Hydro racked up $3.4-billion in operation, maintenance and administration costs in 2005, $1.2-billion, 55 per cent, higher than in 1998. But revenue growth during that same period lagged at only 15 per cent.

Another industry source said the article in The Globe "caught the government's attention."

Progressive Conservative Leader John Tory said yesterday the government is simply trying to "clean up their own mess" by setting up the panel, he said. "We've got the arsonists in charge of putting out the fire," he said in an interview.