Doug Ford ran for premier as a populist, but now that his Progressive Conservatives have been elected, no one seems to know how the future leader will govern. What he does with Hydro One Ltd. may offer the first clue.
Early in the campaign, Mr. Ford vowed to fire the utility’s chief executive officer and replace its board of directors in his first days as premier. The Tory Leader made an issue of Mayo Schmidt’s $6.2-million pay package: “You can take this to the bank, the CEO is gone and the board is gone.”
That message may have resonated with voters sick of rising electricity costs. But Mr. Ford omitted that the province can exert only so much influence over the $12-billion company, because its power is constrained by a governance agreement set in place when the province took Hydro One public.
Under the existing rules, the government has no right to fire Mr. Schmidt. It can replace the existing directors, but a committee of independent shareholders can influence who the new nominees are. And the replacement directors “ must meet the same qualification and independence standards” as any other director. In other words, political hacks aren’t welcome.
Hydro One’s largest independent shareholders, which include Investors Group, Bank of Nova Scotia’s investment management arm and Fidelity Investments, either declined to comment or did not return requests for comment on Friday.
However, investors signalled their approval for the CEO at Hydro One’s annual meeting in April by voting 92 per cent in favour of his pay package.
The real test of Mr. Ford’s populism, then, will be whether he still tries to boot the board despite these constraints, simply to keep his campaign promise, or whether he puts his focus on other measures that will have a more meaningful impact on Ontario’s economy.
If he does try to kick out of the directors, Hydro One’s share price will likely sink because independent investors are averse to political meddling of this kind. Any drop will hurt the province because it remains a 47-per-cent owner. The utility’s shares have already suffered from the uncertainty during the campaign, down 7 per cent since Mr. Ford first made his bold pledge.
Removing the board would also catch the eye of U.S. state regulators, five of which Hydro One needs approval from for its pending $4.4-billion acquisition of American utility Avista Corp., based in Washington State.
If regulators were to block the deal, Hydro One could be left stranded amid a quickly consolidating industry, an argument Mr. Schmidt made in the late stages of the campaign.
“Timing for Hydro One is critical,” he said in an interview, referring to his plan to transform the utility into a North American powerhouse. “If the industry consolidates and we stand on the sidelines, what we end up with is an Ontario company with a high fence around ourselves – which isn’t the path to success for ourselves, our province or Canadians.”
If the deal does not close, the utility is at risk of having to pay a break fee of $103-million to Avista, a sum worth many multiples of the CEO’s annual salary.
On Friday, Mr. Ford said he is focused for now on working with his transition team to name his cabinet. This team includes Conservatives such as former federal foreign minister John Baird. The transition is expected to take three weeks, and Hydro One will remain in limbo until it is complete.
Come July, Mr. Ford’s cabinet may help him realize that turmoil at Hydro One is at odds with one of the big themes of the Conservative campaign. During his victory speech on Thursday evening, the premier-designate declared that Ontario is open for business – reiterating a slogan of his from the campaign trail.
But putting a cloud of uncertainty over a $12-billion public company, whose shareholder list includes some of the world’s largest blue-chip money managers, doesn’t send the best message to anyone looking to invest in the province.