Paul Vieira
National Post
June 5, 2002

 The long-awaited privatization of Hydro One Inc. is dead, the company is "rudderless" and the province’s power industry in peril after the utility’s board of directors resigned last night following a protracted fight over compensation for the utility’s executive, according to senior Bay Street financiers and industry observers.

"It’s the end of the world. There’s not a soul on the face of this Earth who would buy shares in this company," said a Bay Street source, who asked not to be named.

"The company will be rudderless. Absolutely rudderless . . . There is not an income trust, not-for-profit entity or privatized company you can run in this world without a board of directors."

The source, along with other observers, believes the senior management team, including chief executive Eleanor Clitheroe, will follow shortly.

Ms. Clitheroe is the only board member who will remain at Hydro One.

"She’s definitely gone," said another Bay Street insider with ties to the industry and the government.

The government’s move yesterday to table a bill that would fire the 12-member Hydro One board, and the board’s later en masse resignation, is the latest chapter in the trials and tribulations of the transmission company.

What was supposed to be the largest privatization and initial public offering in Canadian corporate history has turned into a corporate soap opera since an Ontario Superior Court blocked the sale in an April ruling and the government said it was re-examining its options regarding Hydro One.

On top of that, controversy regarding the compensation packages of Hydro One’s senior executives and escape clauses built into their contracts – that were later amended – led the government to introduce legislation to remove the board.

"It’s a mess, and it’s becoming a bigger mess and huge distraction for the electricity industry," said an executive with a power generation company.

The privatization, estimated to fetch $5.5-billion, was designed to raise money for the government to pay down the $21-billion in stranded debt accumulated by the old Ontario Hydro monopoly.

Also, Hydro One would get access to the capital markets to raise money for much-needed infrastructure upgrades, the construction of interconnection projects with neighbouring jurisdictions and possible expansion in the United States.

The sale was one element in Ontario’s restructuring of its $10-billion electricity industry. But now, those reforms – an attempt to attract private-sector investment in the province – are in question.

"What the government has attempted to do is abrogate contracts," said Tom Adams, executive director of Energy Probe, an industry watchdog.

"In the context of attracting investment and, down the road, privatizing other assets, the abrogation of contracts is a draconian measure that’s just got to hurt the overall investment climate.

"If you can squelch one deal, why not squelch other deals?"

Industry watchers say other key issues in terms of Ontario’s electricity industry are being ignored, such as the sale of assets at Ontario Power Generation Inc., the attempt to bring the Pickering A nuclear facility on stream and issues surrounding market regulation.

"Instead, they are focusing on governance issues," the insider said.

Also, the move by Ontario will leave it with a black eye among business leaders.

"These [Hydro One] directors have credibility in the investment community worldwide," said one corporate watcher, citing the board chairman, Sir Graham Day, Robert Gillespie, chief executive of General Electric Canada Ltd., Allister Graham, former chief executive of the Oshawa Group Ltd., and Richard Auchinleck, former chief executive of Gulf Canada Ltd.

"Business people will have a hard time understanding what’s going on here."

However, some Hydro One watchers said the government’s move was a step in the right direction.

"I think they have to resolve these major issues here," said an analyst.

"How do you do an IPO and ask the public to buy these shares? The institutional guys wouldn’t even touch it unless it was really cheap. So I think the government is doing the right thing by cleaning up the problem and taking harsh action – which they need to do."

HYDRO ONE RESIGNATIONS:

The directors of Hydro One Inc. who resigned yesterday:

– Sir Graham Day, chairman

– Richard Auchinleck, former CEO of Gulf Canada

– Allister Graham, former CEO of Oshawa Group Ltd.

– Robert Gillespie, CEO of General Electric Canada Ltd.

– Dona Harvey, management consultant

– Stephanie Kushner, chief financial officer of Chicago-based Federal Signal Corp.

– Radcliffe Latimer, former CEO of TransCanada PipeLines

– Doug McCaig, chairman of the Fort Frances, Ont. utility

– Gedas Sakus, former senior executive at Nortel Networks

– Martin Syron, chairman of Cara Operations

– Roslyn Watson, real estate investor