TORONTO -- Ontario's 80 local electricity distribution companies -- many municipally-owed utilities -- should voluntarily merge into a maximum of eight-to-12 regional agencies within two years, an expert panel recommended Thursday.

The changes to the electricity distribution system would save $1.2 billion over ten years and make it easier, and less costly, for regional utilities to borrow money for much-need investments to upgrade their systems, said panel chair Murray Elston.

"Demands by consumers for new services, which are quickly becoming necessities, were proving costly to introduce," Elston told reporters.

"In some cases just keeping up with routine maintenance schedules was difficult enough, without looking for major system upgrades."

Under the plan drawn up by three former cabinet ministers -- one from each party -- there would be two electricity distributors in northern Ontario, while Toronto Hydro is large enough to be considered its own region so would remain unchanged.

Hydro One, the provincially-owned transmission company which bought up 88 local distribution companies in the 1990s, would end up being the dominant player among the new regional distribution utilities outside Toronto, admitted Elston.

Each local utility, and Hydro One, will get a share of the new regional distribution companies based on their assets and number of customers as a percentage of the larger agency.

"There will be a (Hydro One) dominance in the majority of the regional entities," said Elston.

"Hydro One, in the sense that their assets are going to be a majority in a number of the areas, will be a part-owner, but the board itself will be independent enough so that they don't become a Hydro One driving force."

The panel did not take a position on allowing more private players into electricity distribution, but was confident the savings would be there in either case, said Elston.

"We think that there are big administrative savings that can be won by the reorganization itself, not necessarily by determining whether there are public or private owners," he said.

"We believe that whether there are either -- private or public -- that those savings are available just because we're going to have a much more efficient structure."

However, the New Democrats said a recommendation from the panel to remove a tax on private investments in the sector clears the way for more privatization, which they warned will mean higher rates for consumers.

"The most important thing, and the worst thing in this report, is the opening of the door to privatization," said NDP energy critic Peter Tabuns.

"I think that's bad news for Ontario and is going to mean higher costs and less local control."

The Progressive Conservatives said they liked the idea of voluntary mergers of electricity distribution companies, but want to make sure local voices such as mayors still have a say in the operation of the new utilities.

"The thing we really need to stress is the local input," said PC energy critic Vic Fedeli.

"As the former mayor of North Bay, it was nice having the flexibility as the owner of the utility when we saw an (industrial) expansion about to happen and they needed power, it was great having that local input and that local flexibility."

The panel wants each of the new regional distribution companies to have about 400,000 customers, although Toronto Hydro has 709,000 customers.

Currently, Hydro One has over 1.2 million customers, while the smallest LDC, Hydro 2000 in Alfred, northeast of Ottawa, has only 1,208 customers.

The panel recommends Hydro One's assets be made available for mergers, but not for sale, as the new regional distribution companies are established. And it says if there isn't sufficient progress on the voluntary mergers, the government should use legislation to force the process along.

Energy Minister Chris Bentley issued a statement saying he would review the panel's report and assess the recommendations, but made no commitments to act on the ideas they put forward.