Photo: Mayo Schmidt “From good to great.” Photo by Rod Denis.
The Hydro One $4.5 Million Man Stickhandles House Of Cards
Mayo Schmidt assumed the mantle of an oracle when he came to Windsor at the end of May to sell the move by the desperate Kathleen Wynne government to privatize Hydro One, the oft-maligned colossus that distributes electricity to 1.3 million customers across Ontario.
Wikipedia defines an oracle as a person who provides wise and insightful counsel or prophetic recognition of the future, inspired by the gods.
Only time will tell if the Kansas-born graduate of prestigious business school Washburn University, possesses the supernatural powers to pull off what he describes as the “intense transformation” of Hydro One and restore its tattered image. The previous regime issued faulty billings to more than 100,000 customers.
“We have embarked on a new era,” Schmidt, the President and CEO of Hydro One, told a luncheon meeting of the Windsor-Essex Regional Chamber of Commerce. “Each and every day, we are determined to prove that we are putting customers first, taking another step toward becoming the leading utility in North America . . . we are focused on moving this company from good to great.”
Lofty words from the 58 year old who took over the company just 19 months ago, sporting an impressive resume, including credit for turning the former Saskatchewan Wheat Pool (later called Viterra Inc.) into a global agribusiness powerhouse during his 12 year tenure as CEO of the grain handler. While there (2000-2012), the former NCAA running back lived up to his reputation as a hard ass, cutting thousands of jobs, fending off creditors, diminishing debt, scooping up smaller firms and diversifying assets.
Premier Wynne, whose popularity ratings are lower than “The Grinch,” brought Schmidt in to stickhandle the final batch of the public offering of Hydro One. Windsor’s Sandra Pupatello was shuffled aside as Chair of the Hydro One board when the company was privatized.
The day after Schmidt spoke in Windsor, the Fair Hydro Act was rammed through the legislature when the reigning Liberals cut off debate. The Act is purported to lower electricity bills by 25 percent on average for all residential customers and as many as half a million small businesses and farms.
“On behalf of our customers, we advocated to government for rate relief and a Fair Hydro Plan,” Schmidt told his Windsor audience.
Hydro One says its 1.3 million local distribution customers will see $600 a year in savings under the plan, effective July 1.
“Since being privatized, we have cut costs by tens of millions of dollars,” Schmidt continued. “And that is just the beginning. We are reducing our information technology costs. We are rethinking how we negotiate and set contracts with third-party suppliers. We are improving our paperless billing solution, making it easier to use so more customers will make the move to electronic billing. We are examining everything we do with an eye to improving financial efficiency.”Contrary to a belief that privatization will drive hydro prices higher, Schmidt suggested it would make Hydro One more accountable to the customers who are now the shareholders, in particular the province, which owns 49 percent.
“We need to be as efficient and cost-effective as possible at all times. Our regulators and shareholders expect it. And our customers demand it.”
He reminded the local media in a post-speech scrum that the province has harvested $9 billion from the 51 percent sell off to bankroll greatly needed non-hydro infrastructure upgrades.
The opposition parties at Queen’s Park aren’t buying what Wynne and Schmidt are selling. They both opposed the Fair Hydro Act.
Percy Hatfield, NDP MPP for Windsor -Tecumseh, has dubbed Schmidt “the $4.5 million man,” reflective of his much criticized Hydro One salary. He points out the 25 percent hydro bill reduction that kicks in this summer is in fact 17 percent, since the government previously rebated the eight percent HST from hydro bills.
The 17 percent drop is dwarfed by the amount the Liberals have raised hydro prices, doubling them over the last decade, only to magically reduce them with an election looming.
“It’s like taking out a mortgage on your home that you are never going to pay off,” says Hatfield, drawing attention to calculations by the Ontario Financial Accountability Office.
The independent watchdog estimates the Fair Hydro Plan, consisting of the HST rebate, electricity cost refinancing, and changes to electricity relief programs for low-income consumers, will cost the province $45 billion over 29 years while providing overall savings to eligible ratepayers of $24 billion. This back-end loading of debt results in a net cost to Ontarians of $21 billion.
Electricity bills are projected to decrease by 25 percent in 2017, followed by four years of growth at the rate of inflation. Starting in 2021, when Wynne is almost certain to be long gone, bills are projected to increase by an average of 6.8% annually until the end of 2027.
Two weeks after Schmidt’s visit, the Ontario Energy Board held a community meeting in Leamington to receive feedback on a Hydro One application to hike distribution rates by 20 percent over five years, starting in 2018.
NDP leader Andrea Horwath called on Wynne, in a futile open letter, to freeze delivery rates and stop allowing privatized Hydro One to “sneak in” further price hikes.
Hydro One is the Local Distribution Company (LDC) for 1.3 million of 4.9 million provincial hydro customers, including Leamington, while acting as the transmitter of power on its wires to LDCs like Windsor’s EnWin Utilities and Essex County’s E.L.K. Energy.
Coincidently, these two are also applying for rate increases. EnWin CEO Helga Reidel has said her company will determine the size of its rate increase application this fall. EnWin accounts for 20 percent of your overall monthly hydro bill.
At the end of the media scrum I asked Schmidt to comment on his salary controversy. He answered without missing a beat. “The compensation is based on comparators of other public companies with the same scale and complexity. Eighty percent of the salaries are based on performance. The board sets high objectives. If the leadership team meets those they earn the compensation. If not they can go to zero.”
Critics like Hatfield counter the comparator argument by noting the salaries of the CEOs of public hydro companies. Éric Martel, the CE0 of Hydro Quebec, which has 4.2 million customers, earned $630,000 including incentives, in 2016. The man Schmidt succeeded, Carmine Marcello, received $1.2 million in 2014.
I found Schmidt to be unfailingly cordial and convincing, but his rat-a-tat recital of facts, figures and buzzwords left me with an uneasy image of Kevin Spacey, the conniving U.S. congressman in television’s House of Cards.
Playing Frank Underwood, Spacey periodically turns to the camera and shares his private thoughts, often ridiculing the buffoonery of lesser mortals.
Comparing Schmidt to Spacey’s character is a stretch. But, we can only hope that Premier Wynne’s Fair Hydro Plan doesn’t one day collapse like a House of Cards.