How Ford dug Hy­dro One’s $100M man­hole

Toronto Star - - CANADA - Martin Regg Cohn Twit­ter: @reg­gcohn

The saga of the “Six Mil­lion Dol­lar Man” has spilled over into the Hun­dred Mil­lion Dol­lar Man­hole. That’s how much money has gone down the drain at Hy­dro One thanks to Doug Ford’s costly cam­paign stunt, cul­mi­nat­ing with a botched takeover bid and a $103-mil­lion kill fee. Never have On­tar­i­ans paid so heavy a price for such cheap slo­ga­neer­ing, with the meter still run­ning on lawyers’ bills.

That our fear­less, feck­less premier could fire the (ad­mit­tedly over­paid) CEO of On­tario’s elec­tric­ity trans­mis­sion util­ity with­out fi­nan­cial con­se­quences was al­ways the stuff of tele­vi­sion fan­tasy. When you mix busi­ness risk with po­lit­i­cal reck­less­ness, and per­sonal ar­ro­gance with govern­ing in­com­pe­tence, you are on the hook for what hap­pens.

It be­gins with the costs (and op­por­tu­nity costs) of sidelin­ing CEO Mayo Schmidt, who sur­ren­dered his mu­nif­i­cent $6-mil­lion an­nual com­pen­sa­tion but walked away with gen­er­ous stock op­tions at our ex­pense. That’s a mas­sive trans­fer of wealth for which we re­ceived noth­ing be­yond the fleet­ing sat­is­fac­tion of is­su­ing a pink slip.

Re­venge is no rem­edy for past griev­ances. Envy is no sub­sti­tute for strat­egy.

Af­ter win­ning the June 7 elec­tion on a prom­ise to de­cap­i­tate Schmidt for his tin ear, Ford vowed to side­line the en­tire board of Hy­dro One. The util­ity’s di­rec­tors sen­si­bly of­fered to re­sign vol­un­tar­ily (avoid­ing the tu­mult of ter­mi­na­tion), but the premier’s of­fice opted for paral­y­sis.

Ford’s chief of staff, Dean French, sev­ered all lines of com­mu­ni­ca­tion be­tween both sides, I’m told. Bad enough that it was ren­dered a lame duck board headed by a doomed CEO, our pro­vin­cial trans­mis­sion util­ity was trans­formed into a zom­bie cor­po­ra­tion for weeks while the Ford team sat on its hands.

By push­ing out Schmidt, Ford set off a chain re­ac­tion in the U.S. north­west, where reg­u­la­tors were ex­am­in­ing Hy­dro One’s pro­posed $4.4-bil­lion takeover of re­gional util­ity Avista.

Writ­ten prom­ises that On­tario’s gov­ern­ment acted only as a pas­sive in­vestor in Hy­dro One were fla­grantly con­tra­dicted by Ford’s med­dling, prompt­ing the reg­u­la­tor to step in.

Hence the kill fee Hy­dro One must pay, plus com­mis­sions to in­vest­ment banks in­volved in the deal’s fi­nanc­ing, adding up to more than $150 mil­lion. Not to men­tion mas­sive le­gal bills.

Re­treat­ing into dam­age control mode, the premier’s of­fice is­sued a writ­ten state­ment laced with cam­paign-style rhetoric, six months af­ter the elec­tion ended: “I will never apol­o­gize for keep­ing my prom­ises to the vot­ers. We are re­duc­ing hy­dro rates.”

Ex­cept that cut­ting Schmidt’s su­per­sized salary won’t shave more than a frac­tion of a penny off monthly bills. Pay­ing out more than $150 mil­lion in kill fees and lawyer’s bills will cost the com­pany far more.

All for what? The sat­is­fac­tion of cut­ting off our nose (or Schmidt’s tin ear) to spite — or in­cite — our­selves?

It is tempt­ing to blame the premier alone for our hy­dro­elec­tric­ity folly. But that would pile one more over­sim­pli­fi­ca­tion onto the heap of hy­per­bole sur­round­ing Hy­dro One.

Ever since the start of its pri­va­ti­za­tion mis­ad­ven­ture, led by for­mer premier Kath­leen Wynne, the util­ity has been bizarrely cursed.

While I ar­gued against it — too much risk for too lit­tle re­ward — I never lost sleep over the par­tial sale of our trans­mis­sion lines (a largely pas­sive as­set) while main­tain­ing ef­fec­tive control with a 47 per cent stake.

But I never an­tic­i­pated the suc­cess of the New Demo­cratic Party in whip­ping up pub­lic an­tipa­thy to the sale, thanks largely to brand con­tam­i­na­tion: Most peo­ple con­flated Hy­dro One with the old On­tario Hy­dro, long since split up into the trans­mis­sion util­ity and the more strate­gic On­tario Power Gen­er­a­tion (still fully owned by Queen’s Park).

The Pro­gres­sive Con­ser­va­tives, who had long de­manded pri­va­ti­za­tion, con­ve­niently re­versed them­selves ahead of the elec­tion to join the NDP cru­sade for full pub­lic own­er­ship. On the cam­paign trail, Ford emerged as the prov­ince’s pop­ulist-in-chief by pounc­ing on Schmidt’s ex­ces­sive com­pen­sa­tion with his art­ful rhetoric that struck a chord with vot­ers — and pulled the rug out from the NDP.

But Ford’s bumper sticker slo­gan mock­ing the “Six Mil­lion Dol­lar Man” and his new road­side signs pro­claim­ing On­tario “Open for Busi­ness,” be­lie the re­al­ity that this Pro­gres­sive Con­ser­va­tive gov­ern­ment is bad for busi­ness, and bad for Hy­dro One’s bal­ance sheet. Ford’s pro-busi­ness rhetoric hasn’t fooled the busi­ness press, which is pan­ning his gov­ern­ment’s in­ter­ven­tion in cor­po­rate gov­er­nance, its in­ter­fer­ence in the hir­ing and fir­ing of top man­agers, and its readi­ness to tear up signed com­mer­cial con­tracts to score po­lit­i­cal points.

If a Liberal or NDP gov­ern­ment had at­tempted half of the up­heaval un­der­taken by PCs so far, the pri­vate sec­tor would be raising cries of ban­ditry and Bol­she­vism. Hap­pily for the Tories, they are buffered by their his­tor­i­cal affin­ity with right-wing rhetoric.

But the more mal­adroit their per­for­mance, the more glar­ing the dis­tinc­tion be­tween con­ser­vatism and com­pe­tence. Med­dling with man­age­ment is no way to run a cor­po­ra­tion, just as mis­man­age­ment is no way to gov­ern a prov­ince.

RYAN REMIORZ THE CANA­DIAN PRESS

Doug Ford’s road­side signs pro­claim­ing On­tario is “Open for Busi­ness” be­lies the re­al­ity that his gov­ern­ment is bad for busi­ness, and bad for Hy­dro One’s bal­ance sheet, Martin Regg Cohn writes.

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