Hy­dro One shares take tum­ble

Util­ity strikes deal with Doug Ford to re­place board, CEO

The Recorder & Times (Brockville) - - BUSINESS - GE­OFF ZOCHODNE

Shares of Hy­dro One Ltd. were down Thurs­day morn­ing af­ter the Toronto-based elec­tric­ity util­ity an­nounced a deal with the govern­ment of new On­tario pre­mier Doug Ford that will re­place the com­pany ’s board of di­rec­tors and re­tired its chief ex­ec­u­tive.

As of 10:00 a.m. Thurs­day, Hy­dro One’s stock price was ap­prox­i­mately 4.5 per cent lower, hov­er­ing around $19.26.

Hy­dro One said Wednes­day evening that, fol­low­ing an ap­proach of its own to the prov­ince, it had en­tered into an agree­ment that would prompt each of its cur­rent di­rec­tors to re­sign and be re­placed with a new board. Ac­cord­ing to a re­lease, that 10-per­son board would be nom­i­nated 40 per cent by the prov­ince, which re­mains the com­pany ’s largest share­holder, and 60 per cent by its other largest share­hold­ers.

The aim is to have the new di­rec­tors in place by Au­gust 15, the re­lease said. The di­rec­tors would also ap­point a new chief ex­ec­u­tive of­fi­cer, who will sit as an eleventh mem­ber of the new board.

Ac­cord­ing to a let­ter pub­lished on Wednes­day, Hy­dro One and the prov­ince also agreed to a deal that in­cluded the re­tire­ment of Mayo Sch­midt, the pres­i­dent and CEO of the com­pany, the same day.

Among the other terms of his de­par­ture, Sch­midt is to re­ceive his base salary and his short­term bonus for 2018 pro­rated to Wednes­day, in ad­di­tion to a one­time lump sum cash pay­ment of $400,000 that will be re­ceived “in lieu of all post-re­tire­ment ben­e­fits and al­lowances as pro­vided in his con­tract or oth­er­wise.”

The news at Hy­dro One is just the lat­est po­lit­i­cal ma­neu­ver­ing that has gone on around the util­ity, which boasts more than $25 bil­lion in as­sets.

Hy­dro One has es­sen­tially been a po­lit­i­cal hot po­tato since the Lib­eral govern­ment that pre­ceded Ford de­cided to pri­va­tize it back in 2015. Ap­prox­i­mately 53 per cent of the util­ity, On­tario’s largest dis­trib­u­tor and trans­mit­ter of elec­tric­ity, has been sold to other in­vestors. The money earned from the share sales had been ear­marked by the now-de­posed Lib­er­als for in­fra­struc­ture projects and pay­ing off debt.

The prov­ince still owns more than 282 mil­lion shares of Hy­dro One, the com­bined value of which had dropped by around $211.8 mil­lion.

Ford took spe­cial is­sue with Sch­midt’s com­pen­sa­tion and made fir­ing Sch­midt — dubbed “The SixMil­lion-Dol­lar Man” by Ford — a key cam­paign is­sue ahead of the June elec­tion that brought Ford and the Pro­gres­sive Con­ser­va­tives to power in On­tario.

Sch­midt earned nearly $6.2 mil­lion in to­tal com­pen­sa­tion last year, ac­cord­ing to Hy­dro One’s man­age­ment in­for­ma­tion cir­cu­lar.

“Af­ter years of ris­ing elec­tric­ity bills, this is a step to­wards our main goal—bring­ing down elec­tric­ity rates for all On­tar­i­ans,” said provin­cial en­ergy min­is­ter Greg Rick­ford in a state­ment.

More­over, the ma­jor­ity now held in the On­tario leg­is­la­ture by Ford and the Pro­gres­sive Con­ser­va­tives could have con­tin­ued to make life quite awk­ward for the cur­rent man­age­ment of Hy­dro One had they not taken ac­tion.

“We be­lieve that the agree­ment we have reached with the Prov­ince of On­tario, which pro­vides for an or­derly tran­si­tion of the board of di­rec­tors and CEO suc­ces­sion, is in the best in­ter­ests of Hy­dro One and its var­i­ous stake­hold­ers and pro­vides sta­bil­ity and clar­ity to Hy­dro One’s gov­er­nance and man­age­ment struc­ture go­ing for­ward,” said David Deni­son, chair of Hy­dro One, in a press re­lease.

Hy­dro One’s chief fi­nan­cial of­fi­cer, Paul Dob­son, has been ap­pointed as the act­ing CEO.

The com­pany, how­ever, is also in the midst of an at­tempted $6.7-bil­lion takeover of north­west­ern U.S. en­ergy com­pany, Avista Corp. The deal has been rack­ing up reg­u­la­tory ap­provals, and the com­pany had pre­vi­ously wanted sign-offs from U.S. state and fed­eral reg­u­la­tors by Au­gust 2018.

All of the sound and fury around Hy­dro One has cre­ated some cau­tious stances among an­a­lysts. CIBC World Mar­kets’ Robert Catel­lier said they were re­duc­ing their price tar­get on the stock to $20.50 a share, down from $24.

“While the tran­si­tion will oc­cur through a more or­derly process than we had feared, it in­di­cates the govern­ment is will­ing to med­dle,” Catel­lier wrote in a note. “Just as wor­ri­some is the pos­si­bil­ity that the govern­ment med­dles with the com­pany’s rates in some form, po­ten­tially im­pact­ing earn­ings and up­side from in­cen­tive rate mak­ing. This also does not bode well for the Avista ac­qui­si­tion, which does not yet have all re­quired reg­u­la­tory ap­provals.”

THE CANA­DIAN PRESS FILES

A Hy­dro One of­fice is pic­tured in Mis­sis­sauga, Ont. As of Thurs­day morn­ing, Hy­dro One’s stock price was about 4.5 per cent lower, hov­er­ing around $19.26.

Sch­midt

Ford

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