The Ontario government is imposing a compensation plan on Hydro One Ltd. to ensure its chief executive officer earns no more than $1.5-million in salary and bonuses, capping a long-running attack on the utility’s leadership that started in last spring’s election campaign.
Highlighting the political nature of the decision, the Progressive Conservative Party sent out a fundraising appeal within hours of Ontario announcing its plan Thursday, blaming Hydro One for higher electricity prices and promising that the government would ensure a new CEO will “focus on driving down rates.”
In a letter to the Hydro One board last week, Energy Minister Greg Rickford said the government would not interfere with the selection of the new CEO – except to cap his or her compensation at $1.5-million.
The government “has taken decisive action to bring Hydro One’s executive compensation in line with levels with comparable utilities,” Mr. Rickford said in a statement Thursday. “After receiving a proposal last week that included a CEO compensation cap of $2.775-million, it is clear that Hydro One’s Board of Directors has failed to take steps to adequately reduce compensation for both the CEO and themselves as board members.”
Hydro One acknowledged it had received the directive. “The board will continue to focus on its CEO search,” the company said in a brief statement.
The government of Ontario owns 47 per cent of Hydro One, which has power transmission and distribution assets across the province, while shareholders own the remaining stake. The government passed the Hydro One Accountability Act last summer, giving it the authority to set a salary package.
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During the election campaign, now-Premier Doug Ford railed against the $6-million compensation package of previous CEO Mayo Schmidt, saying it was emblematic of an industry out of touch with its customers.
Mr. Rickford told reporters he was unaware of the fundraising e-mail that was sent to party supporters.
NDP Leader Andrea Horwath said it is “pretty cynical” of the PC party to raise funds on the back of a government directive.
“They’re obviously trying to pat themselves on the back with this $1.5-million cap, even though the Hydro One CEO – when it was a public company – was only making $750,000," she said in reference to compensation levels at the utility before the previous, Liberal government sold off most of it in 2016. “To cynically use this as a fundraising ploy – it’s what people hate the most about politics."
Last week, the board released a proposed compensation plan that would set a target of $2.475-million in CEO salary and bonuses that could go as high as $2.775-million if results proved stellar. The board said those levels were needed to attract an experienced chief executive who can deliver for both shareholders and the people of Ontario.
Mr. Rickford made it clear last week that the government would not accept a compensation plan offering more than $1.5-million.
The directive announced Thursday also reduces compensation paid to board members and the senior executive team at the company.
Investors and bond-rating agencies are monitoring Hydro One’s situation to determine whether the company will be able to operate effectively as a private-sector utility under Mr. Ford. Standard & Poor’s downgraded the company’s debt last September, saying the government’s legislation “weakened Hydro One Ltd.'s management and governance structure.” A credit downgrade typically makes it more expensive for a company to borrow money.
Analyst Jeremy Rosenfield said the financial implications of the salary cap are “immaterial” in the short run, but said the government directive could have long-term consequences for the company.
“From a broader perspective, restricted compensation could be a roadblock to hiring and retaining experienced senior executives, which is in turn a headwind to the development of a new growth strategy for Hydro One going forward,” Mr. Rosenfield, of iA Financial Group in Montreal, wrote in a note.
Hydro One said Thursday it managed to post a modest growth in net income last year, despite the instability caused by the resignation of its CEO and the replacement of the entire board last summer after Mr. Ford took office.
In a conference call, interim CEO Paul Dobson said Hydro One remained focused on its performance and wrung productivity savings of $153-million out of the company over the course of the year.
Mr. Ford has pledged to reduce electricity rates by 12 per cent. Hydro One – like all companies in the electricity supply chain – is still trying to determine what that pledge will mean for its operations and profitability, Mr. Dobson said.
In 2018, the company posted adjusted net income of $807-million, compared with $694-million in 2017. In the fourth quarter, adjusted net income was $176-million compared with $170-million in the same period a year earlier. On a per-share basis, Hydro One earned $1.35 in 2018, up from $1.17 in the previous year.
However, those results did not include a payment of US$103-million to Avista Corp. after the two companies agreed to terminate Hydro One’s planned acquisition of the U.S.-based utility. Regulators in Washington State and Idaho rejected the takeover, citing the Ontario government’s interference in its business.