A deal that would have seen Hydro One take control of Orillia Power Distribution has been rejected.

The Ontario Energy Board denied the sale on Friday, nearly two years after Hydro One signed a $41 million deal.

“We were surprised. We put a lot of effort into the negotiations of the original deal,” says Mayor Steve Clarke.

As part of the deal, Hydro One would have assumed the utility company's $14-million debt.

Despite a promise to reduce hydro rates by 1 per cent in the first five years, Ontario’s Energy Board wasn't convinced that would mean lower rates for consumers in the long run.

"It’s great to say I’m going to give you a discount for five or 10 years, but what happens after that? What's that cost going to be and what are future generations going to have to live with?" Councillor Mason Ainsworth says. He was one of three city councillors who voted against the deal.

The deal would have included Hydro One building a technology hub in the city's west end. The total economic spinoff was estimated to be as high as $300 million.

“There's a process in place. There's legal options we're not sure where we're going to go yet,” says Mayor Clarke.  

Both Hydro One and the city say they are reviewing the OEB decision before determining what their next steps will be.

There's a 30 day window to appeal.