Shareholders voted 92 per cent in favour of Hydro One Ltd.’s executive compensation plan, which has faced intense scrutiny during the lead up to Ontario’s election campaign.
After revealing the results Tuesday, David Denison, chair of Ontario’s electrical transmission network, re-iterated the board believes CEO Mayo Schmidt’s pay is “appropriate” for a utility with ambitions to expand in Ontario and outside the province, and noted there is no relationship between executive compensation and Ontario power prices. Prices are set by a third-party – the Ontario Energy Board.
The cost of electricity is a hot button issue in Ontario’s election campaign, with a few dozen protesters gathering in the rain outside Tuesday’s meeting to watch Conservative leader Doug Ford appear on the sidewalk and continue his attacks on Hydro One’s “six million dollar man” - Mr. Schmidt’s compensation totalled $6.2-million last year. Every media question at the meeting focused on pay for executives and directors, who recently awarded themselves a $25,000 annual raise, bringing annual compensation for directors to $185,000. Mr. Ford said if the Conservatives are elected, “the board is going, the CEO is going. This is unacceptable.”
Mr. Denison said directors’ fees, frozen for the past three years, continue to rank among the bottom third of what’s seen at Canadian public companies. As chairman, his Hydro One annual compensation rose $70,000 to $330,000.
Ontario election guide: What you need to know before you vote
Inside the meeting, shareholders were upbeat: One, Chief Ava Hill of the Six Nations of the Grand River, went out of her way to praise chief executive Mayo Schmidt’s leadership. And earlier Tuesday, the utility, privatized three years ago by Ontario’s Liberal government but still 47-per-cent-owned by the province, announced strong financial results, with quarterly profit up 33 per cent year-over-year and raised its common share dividend by 5 per cent.
But on the campaign trail Tuesday, Ontario Premier Kathleen Wynne also said raises for the Hydro One board are “unacceptable” and will be part of an ongoing review of compensation at the utility.
Hydro One’s board began reviewing pay packages in late April, after Mr. Ford went on the offensive. Ontario’s Liberal government subsequently called the utility’s pay schemes, including change of control and severance provisions that came to light in a Globe and Mail report in April, “unjustifiably generous.” Mr. Denison said Tuesday the review is still underway, and the board has hired independent consultants.
The government initially threatened to vote against Hydro One’s compensation under what’s known as a non-binding “say-on-pay” initiative, then opted to abstain once the review was announced.
The overwhelming majority of shareholders who voted in favour of its compensation scheme was a result that was in line with the previous year’s vote. When asked about Mr. Ford’s plans to fire the board and replace him as CEO, Mr. Schmidt listed the utility’s accomplishments in the three years since he joined the company and said: “We really do believe that calmer heads will prevail.”
Ahead of the annual meeting, Hydro One released first-quarter financial results, with profit up 33 per cent to $222-million. The company also raised its quarterly dividend by 4.5 per cent to 23 cents per share, which means the province will receive more than $220-million in annual dividends from Hydro One. Over the past year, Hydro One shares declined from a high of $23 to $19 levels, closing on Tuesday at $19.34.
“The Ontario election will contribute to share price volatility over the next month,” a Tuesday report from CIBC World Markets analyst Robert Catellier said. “The company is controlling what it can,” he wrote, “with operating performance achievements in customer service, service restoration and cost reduction.”
At Tuesday’s annual meeting, Hydro One revealed the outlook has dimmed on its planned $4.4-billion acquisition of Avista Corp., which supplies electricity and natural gas to 600,000 customers in four western U.S. states. Mr. Schmidt said recent regulatory decisions on power rates and the new U.S. tax regime mean Avista is no longer expected to add to Hydro One’s annual profit in the short-term. The acquisition is expected to close in the second half of 2018.
Until recently, Hydro One planned on growing in the United States as the North American electricity sector consolidates. This plan is still on the table, but on Tuesday, management said the main drivers of earnings growth will come from consolidating local distribution companies in Ontario and cutting costs - the company got rid of 1,000 vehicles over the past year.
Hydro One’s domestic growth plans are also facing headwinds. In April, Ontario regulators blocked the company’s planned $41-million acquisition of Orillia’s city-owned power grid over concerns about the long-term affect on the price consumers will pay for electricity.
Andrew Willis
Tim Kiladze