Hydro One Ltd.’s chief executive officer Mayo Schmidt is warning that threats from politicians in Ontario’s election campaign are weighing on the business and will have consequences.
The utility has dominated headlines ahead of Ontario’s provincial election on June 7 as the political leaders hammer it over its executive pay.
Progressive Conservative Leader Doug Ford has threatened to fire Mr. Schmidt and replace the board of directors because of executive pay levels.
Mr. Schmidt was given a $1.7-million raise last year, bringing his total compensation to $6.2-million.
Meanwhile, the NDP has pledged to repurchase Hydro One following its 2015 privatization.
In an interview Wednesday, Mr. Schmidt warned that such political meddling could set Hydro One back at a critical juncture in the North American power industry.
“Timing for Hydro One is critical,” he said, 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.”
As the political attacks compound, investors are showing signs of getting spooked. The S&P 500 utility index has fallen 7 per cent this year, while Hydro One’s stock is down 15 per cent. Several variables have affected the market, including a broad sell-off of dividend stocks as bond yields have risen, but analysts blamed the election campaign for Hydro One’s underperformance. “The weakness is attributable to persistent political noise in the Ontario election,” Neil Kalton at Wells Fargo wrote in a note to clients this week.
Mr. Schmidt mostly stayed quiet amid the politics, but after shareholders showed their support for his pay this week, with 92 per cent of them approving it through a “say-on-pay” vote at Hydro One’s annual general meeting on Tuesday, he has started to speak up.
Asked if the recent interference is adding uncertainty to Hydro One’s acquisition of U.S. power company Avista Corp., Mr. Schmidt noted the deal is still waiting for final regulatory approval from five states, which leaves room for adverse decisions. Regulators “are watching the politics in Ontario and they are taking an objective view on what these outcomes mean to them,” he said. Mr. Schmidt was scheduled to fly to Montana Wednesday to meet with the state’s energy regulator.
As for investors, he said meetings with top shareholders have indicated concern about new interpretations of Ontario’s governance agreement with Hydro One. Changes to it “would affect their view of the business,” he said, adding that shareholders “rely on this organization to continue to be managed by professionals with modern governance.”
Mr. Schmidt also hopes to broaden the conversation beyond executive pay. For the past few weeks he and the board have stressed that Hydro One’s compensation is in line with comparable publicly traded companies – an argument he reiterated on Wednesday. But now he is going on the offensive as well, highlighting all that he and his team have achieved.
Speaking to Hydro One’s latest quarterly earnings, he noted that profit was up 33 per cent from the year prior, and that Hydro One has added 400 jobs while delivering $114-million in cost savings since its IPO. “Those are remarkable statistics for a company that’s in transition,” he said.
Examples of improvements include a sharp increase in billing accuracy – a significant improvement after Hydro One’s invoice system went haywire prior to the IPO, causing scores of problems. The new management team has also introduced a sense of urgency to the business. It used to take nine years to complete a full cycle of tree removal under power lines, but that has fallen to three years.
Outsiders confirm the progress. “To management’s credit the utility has achieved significant progress on both customer service ratings and [operating] costs since the IPO,” Raymond James analyst Frederic Bastien wrote in a note to clients this week.
The trouble for Hydro One is that the Ontario election is revolving around populist campaign promises – and the hydro file is one of the most contentious because hydro prices have soared in the past decade. Because there is so much voter anger about costly electricity, and because the power system is so complex, Hydro One often takes the blame for things beyond its control.
Chiefly, the utility distributes power and rates are set by the province’s energy regulator.
As Mr. Schmidt noted: “We do not price electricity.”