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LEAMINGTON, NOV 28, 2019 - CANNABIS POWER - Hydro One CEO, Mark Poweska is in Leamington announcing the utility’s continued commitment to bring more power to the region as demand for electricity increases due to the influx of cannabis greenhouses. Glenn Lowson photo/The Globe and MailThe Globe and Mail

Mark Poweska’s predecessor as chief executive at Hydro One Ltd. faced questions over U.S. takeover plans and a $6-million paycheque.

Those issues are now off the table. In their place, the new head of Ontario’s electrical utility said institutional investors are grilling him on Hydro One’s plans for dealing with climate change.

In his first interview since taking the top job in March, Mr. Poweska outlined a strategy for coping with what’s become the defining environmental issue of this era, while keeping the peace with the utility’s largest shareholder, a provincial government led by Premier Doug Ford.

Hydro One recruited Mr. Poweska from the top ranks of BC Hydro after the departure last year of Hydro One CEO Mayo Schmidt – whose compensation became a target in Mr. Ford’s populist campaign for office – and the cancellation of the planned $4.4-billion acquisition of northwestern U.S.-based utility Avista Corp. Mr. Poweska took the job after Ontario’s Progressive Conservative government capped the CEO pay package at $1.5-million; he earned $405,000 last year at BC Hydro.

After a listening tour that swept in employees, customers, shareholders and provincial politicians – the Ontario government owns a 48-per-cent stake in Hydro One – Mr. Poweska rolled out a less ambitious expansion strategy last month. Hydro One is committed to improving operations, snapping up local electrical distribution systems where it can, and building what the CEO, an electrical engineer by training, called “a grid for the future”: a network that can withstand increasingly extreme weather events.

“In talking to investors, we kept hearing that we needed to address environmental challenges, that ESG [environmental, social and governance] issues such as our plans to de-carbonize are critical to our strategy. Fortunately, we have a good ESG story to tell,” Mr. Poweska said. While the CEO didn’t name specific institutions that raised these concerns, Hydro One’s major shareholders include fund managers such as BlackRock, the Canada Pension Plan Investment Board and Fidelity Investments that incorporate ESG criteria in their stock-picking decisions.

Ontario drivers will be among the first customers tapping into the new CEO’s climate change strategy. In partnership with government-owned Ontario Power Generation, Hydro One plans to install 100 charging stations for electric vehicles in more than 40 service centres on major Ontario highways by the end of 2020. The network is branded as “Ivy” and to build awareness, drivers initially will be able to charge their batteries at no cost. The utility installed its first two charging stations in Huntsville, 230 kilometres north of Toronto, three months ago.

Hydro One plans to help homeowners and businesses that are weighing their energy options. “If you are looking at installing rooftop solar panels, or switching to an electrical vehicle, we want to be there with unbiased advice on the decision,” Mr. Poweska said.

Hydro One also plans to convert 50 per cent of its fleet of sedans and SUVs to electric vehicles or hybrids by 2025, part of a larger push to cut greenhouse gas emissions by 10 per cent over the next decade, while significantly expanding the company. The green initiatives all support Hydro One’s core business, delivering electricity. Mr. Poweska said: “We’re investing in our network to help shift energy consumption from fossil fuels to electricity.”

To deal with increasingly severe and frequent storms, Hydro One is stepping up maintenance on power lines. Mr. Poweska said workers are moving to a schedule that clears trees and brush in transmission corridors every three years, rather than the old standard of pruning once a decade. Authorities in California linked several recent wildfires to overgrown foliage near power lines.

Along with ESG concerns, Mr. Poweska said Hydro One’s institutional investors pushed for a narrowly focused growth strategy. As part of the Avista acquisition, Hydro One would have moved into a new field, natural gas distribution. Mr. Poweska said a number of shareholders made it clear they would prefer to see the electrical utility avoid risks such as swings in gas prices, and remain committed to electrical transmission businesses with predictable, regulated rates.

As part of Hydro One’s new growth strategy, Mr. Poweska pledged that for at least the next five years, any acquisitions will play out inside the province. He said there are opportunities to boost Hydro One’s profits and cut customers’ monthly bills by continuing to consolidate the province’s 60 electricity distributors, most of which are owned by municipalities. On the new CEO’s watch, Hydro One remains committed to getting regulatory approval for a $105-million takeover of Peterborough’s electrical utility launched in 2018 and a $26-million purchase in Orillia first announced in 2016.

“Hydro One rolled-out an updated corporate strategy that we think will be well-received by many investors,” said analyst Robert Kwan at RBC Dominion Securities. “We believe the market will like the focus on Ontario and specifically the company not being likely to pursue M&A outside of the province and especially not in the U.S.”

Hydro One’s share price was at $20 levels when Mr. Poweska was appointed and has risen steadily every since, closing Friday at $26.04 on the Toronto Stock Exchange. Despite this rally, RBC’s Mr. Kwan said some potential shareholders remain leery of the company as a result of concerns about the provincial government’s plans for the sector. In a report, he said: “We believe that a number of investors may stay on the sidelines until the government has fully delivered on its promise for customer bill reductions and following the passage of time with no political interference.”

Mr. Poweska spent more than two decades working for government-owned BC Hydro, so dealing with the province as a shareholder is nothing new for this executive. As Hydro One’s CEO, Mr. Poweska has met with the minister responsible for the company, Greg Rickford, on a number of occasions, but has not been to any formal meetings with Mr. Ford.

Sessions with Mr. Rickford, Minister of Energy, Mines, Northern Development and Indigenous Affairs, were “constructive” and “cordial,” Mr. Poweska said, and largely focused on ensuring Hydro One can support business growth in the province. To meet that goal, Hydro One’s boss was in the Southern Ontario farmlands near Leamington last week, breaking ground on a $325-million transmission network that will feed electricity to greenhouses that grow cannabis and vegetables such as tomatoes.

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