How long should it take to turn the Titanic around? Is five years a reasonable amount of time to allow for the transformation of a bloated and poorly run government-owned utility into a disciplined, high-performing one? Surely 10 years should be enough?
A decade ago, Ontario’s newly appointed energy minister promised to fix the mess at Ontario Power Generation. Dwight Duncan vowed to end to the years of “indecision and ideology” that had hamstrung electricity policy under the Progressive Conservatives and New Democrats. Job One was ending the excesses at OPG.
Mr. Duncan hired a bank chairman and two former federal cabinet ministers to examine the utility that managed a motley stable of publicly owned energy assets, including the Adam Beck hydroelectric station at Niagara Falls that once made Ontario an energy leader and the problem-plagued fleet of nuclear reactors, which had become the bane of Mr. Duncan’s predecessors and saddled power consumers with the utility’s atomic-sized debt.
The group led by former Liberal minister John Manley, former Tory minister Jake Epp and Bank of Nova Scotia chairman Peter Godsoe, sized up their task: “There are those who would argue that OPG’s problems are so severe that it is no longer capable of handling the complexities of running and maintaining one of the largest portfolios of generating assets in North America … OPG looks, to people on the inside and outside, like a company that is neither well-run nor well-governed.”
The real question was whether OPG could ever be truly fixed as long as it remained in government hands. But the botched attempt at privatization under the Tories may have prevented the Manley committee from properly considering the option. In the end, it concluded OPG should remain public, though “commercially oriented” and free of political interference.
How’s that worked out? Ontario Auditor-General Bonnie Lysyk gave us a hint this week with a damning report on OPG’s management practices that portrays the utility as an amateurish operation where possibly the only obstacle between employees and the public trough is the long lineup in front of them. Whereas the Manley committee found only weak links between employee achievement and bonus payments, Ms. Lysyk noted that this is “still the case.”
OPG seems to have adopted the same grading scale as an elementary school: Nobody fails. Two-thirds of executives and top managers have received “high scores” on their performance evaluations since 2010, entitling them to bonuses of up to 150 per cent of their base salaries. Senior management grew to 238 people last year from 152 in 2005, despite a 20-per-cent drop in the amount of electricity the utility generates. Vice-presidents and directors with “no specific titles or job descriptions” more than tripled to 40 people, with each earning healthy six-figure salaries.
OPG has found clever ways to skirt a de facto public-sector pay freeze, such that its 50 highest earners enjoyed salary increases averaging 11 per cent in 2011. When 680 unionized staff earned more than their non-unionized bosses in 2012, OPG raised the salaries of 220 supervisors so they were at least 3 per cent higher than those of their unionized subordinates.
More than 60 per cent of OPG’s 11,100 employees earned more than $100,000 in 2012 and 448 made more than $200,000. Attempts to cut costs through a “business transformation” initiative have been handicapped, according to Ms. Lysyk’s report, by “collective agreements and the ‘culture of entitlement’ among staff.” Despite a massive attrition rate among retiring baby boomers, OPG “will face significant challenges in further reducing its staffing levels in the coming years.”
None of this would be as galling if OPG was generating decent returns for taxpayers. It’s not. Regulators have sought to impose cost discipline on OPG by holding the line on rate increases, but, as Ms. Lysyk’s report shows, to little effect.
Liberal Energy Minister Bob Chiarelli reacted by turfing three top OPG executives – but not CEO Tom Mitchell or Mr. Epp, who has been chairman since Mr. Duncan put him there a decade ago. Ontarians should be asking whether such tinkering is enough.
Mr. Duncan, now retired from elected politics, tweeted Wednesday that OPG “should be privatized. Market discipline will be much more effective at addressing the problems than political oversight.”
He should know. Ten years on, the Titanic has yet to turn.