How Hydro One’s privatization reversed our political polarity

Scandalously high salaries symbolize everything that is wrong with privatizing what should be a public service.

Thestar.com
Sept. 29, 2015
By Martin Regg Cohn

Of all the unsettling problems besetting Premier Kathleen Wynne, the privatization of Hydro One seems the most confounding.

What makes it so peculiar for some Liberals is not just that the political fallout was so foreseeable, but that it was so self-inflicted.

Selling off a major publicly owned utility was always bound to generate a surge of electricity negativity - opinion polls show a majority of Ontarians oppose the sale. The bigger problem for Wynne’s Liberals is how rapidly the Hydro One battle is energizing the opposition parties, notably the anti-privatization New Democrats who directly compete with the Liberals for progressive voters.

Anxiety about ceding control of a major utility to the private sector is unsurprising in a province where public control of power took root a century ago under a Progressive Conservative government. But generalized distress has risen to disgust amid revelations of supersized salaries.

Mayo Schmidt, the corporate titan taking over Hydro One’s transmission lines, will be paid up to $4 million a year in salary and bonuses for his labours - nearly four times what his predecessor, Carmine Marcello, earned. Significantly, Marcello will stay on as an adviser at $500,000 a year to help keep the lights on, which raises the question: If the new CEO needs on-the-job-training from his predecessor, shouldn’t that extra stipend come out of his own exorbitant pay packet until he can stand on his own feet?

The scandalously high salaries symbolize everything that is wrong with privatizing what should remain a public service.

Lambasted over the lopsided salaries, Wynne expressed unease - then lapsed into the kind of hollow defence customarily put forward by the most defensive one-percenters: The free market demands competitive salaries to reward rare talent.

The political calculus, however, is more complicated. That’s because the public sell-off, and the executive windfalls, are highly visible, whereas any potential benefits to the treasury remain a long way off.

Wynne counters that privatizing Hydro One will raise $9 billion that, after retiring some of its massive debt, will leave $4 billion for her to invest in vital infrastructure - transit, bridges, roads and more roads. When it comes to privatization, it’s unclear whether the premier has had a conversion on the road to Damascus, or too many conversations about building roads to Dryden.

How to explain Wynne’s leap of faith? The premier has clearly come under the spell of her privatization czar, former TD Bank CEO Ed Clark. A federal deputy minister before becoming one of Canada’s most successful corporate chiefs, he has skilfully stickhandled the liberalization of beer sales in Ontario.

But as a banker who earned $12 million a year, he has a tin ear about titanic salaries. We won’t know for years whether Clark sold Wynne a bill of goods about cashing in on Hydro One.

But it remains a hard sell politically. Liberals who opposed privatization - and most of them did, publicly, until recently - were hoping to slow things down, or at least persuade the premier to retain 50 per cent ownership, but she remains adamant about selling a 60-per-cent stake.

The opposition claims hydro bills will go up under privatization - an unproven proposition that runs counter to past experience, given that it will remain a regulated utility (like private gas companies). I’ve opposed the privatization for other reasons (I’m reluctant to relinquish important levers of public policy for unproven rewards). But I’ve never believed privatization would push up prices (they have been rising for years under public ownership anyway).

No matter. The political battle is being waged by the opposition parties on pocketbook issues, not arcane regulatory procedures.

Privatization has transformed the terms of the debate in other ways: Long notorious for its inferior customer service and mediocre balance sheet, Hydro One has long exasperated Ontarians. Now it is being lionized by opposition critics as a crown jewel that must be kept in public hands at all costs, despite letting the public down and pushing costs up for years.

The ongoing debate over our utility has reversed Ontario’s political polarity: A once-popular government is losing credibility over electricity, while the opposition’s fanciful pocketbook pitch is gaining momentum, and the public is becoming sentimental about the Hydro One it used to hate.