One of the most shocking pieces of political theatre I've seen in a long time took place last spring, when Doug Ford blamed the wrong guy for Ontario's soaring electricity rates—and then used that brazen ploy to get elected as the province's premier.
Ford, who campaigned on a promise to slash electricity bills by 12%, somehow managed to pin the high cost of power on Hydro One’s “$6-million man,” CEO Mayo Schmidt, saying Schmidt and the board were elites benefiting at the public’s expense. Once elected, Ford saw to it that both Schmidt and the board got the boot.
It was an audacious and cynical move. Not only was Schmidt’s $6.2-million salary fairly typical for an executive running a power utility of that size, but Hydro One doesn’t even set electricity rates. An arm’s-length regulator does that. Hydro One doesn’t produce electricity at all—the company just transmits it, mainly from power plants to the municipal utilities (like Toronto Hydro), which then distribute it. If Hydro One were to pay its CEO nothing and somehow slash transmission costs to zero, Ontario’s rates would likely drop by only 10%, because 90% of the cost is due to other factors, such as generating the power and funding local utilities.
In short, the amount Schmidt was paid had almost no effect on electricity prices. To find the real culprit for Ontario's sky-high rates, the Conservatives should have looked in the mirror: It was the poor decisions made by government, not a semi-public corporation, that are to blame.
One of the biggest miscalculations was a decision made decades ago to use nuclear power for the bulk of Ontario's electricity needs. The plants cost more than anticipated to build and maintain, and refurbishing them will require billions of dollars.
More recently, under the Liberals, the government made things worse by handing out generous 20-year contracts to private gas-fired, solar and wind power producers. Some of those contracts stipulated that the province must pay through the nose for electricity it often doesn't need, whether that electricity is produced or not.
It’s clear the truth doesn’t matter much in populist politics, as long as the message is easy to digest and a suitable target is found for the public’s ire. But this case is fascinating because that target was an experienced executive who has tangled with messy Canadian politics before, during his transformation of the Saskatchewan Wheat Pool into Viterra. So why did Schmidt and his board members—who awarded themselves a raise at the worst possible time—fall into Ford’s trap?
That question has been on my mind for a while, so I was delighted when I got a call from Patricia Best, a former editor of Report on Business magazine, who told me she could help shed some light on what happened. It turns out Best was hired to do some work for the Ford campaign during the run-up to the election. At the same time, she was in the final stages of interviewing for a communications position at Hydro One. Best proposed drawing on that experience, along with a lot of research, to write about what really happened when Ford took on Hydro One. You can find the resulting Report on Business magazine feature here. As she reveals, Schmidt never seemed to believe that Ford would follow through on his threat. He thought—wrongly—that Ford could be reasoned with.
Best's feature is a captivating study of how smart people can do not-so-smart things, especially when they operate in a bit of a bubble and don't really understand what's playing out at ground level. It should be required reading for any executive who has to tango with populist politics in these unpredictable times.
Duncan Hood is the editor of Report on Business magazine. He can be reached at email@example.com.