Paul Vieira
National Post
May 17, 2002

Turning Hydro One Inc. into an income trust or not-for-profit corporation could force the Ontario government to pay out at least $13.5-million in buyout fees for four of the transmitter’s senior managers, including Eleanor Clitheroe, the chief executive.

Ms. Clitheroe and three senior executives have escape clauses in their contracts that they could exercise should the province embark upon a "fundamental change" of policy for the company, according to the prospectus filed in connection with Hydro One’s initial public offering.

"There may be certain things the province could do that would trigger that," the source said, citing the following: putting Hydro One into an income trust; turning it into a not-for-profit entity; or splitting its transmission and distribution businesses.

In Ms. Clitheroe’s case, that could mean a payment of roughly $6-million. Moreover, she would be entitled to pocket rewards under the company’s long-term incentive plan. Under the scheme, she could earn between $600,000 and $833,490 should the company meet certain financial targets.

Last year, Ms. Clitheroe earned $2.18-million in total compensation, including a salary of $750,000, a bonus of $806,250 and other benefits totalling $625,930.

For the three most-senior executives after Ms. Clitheroe, they would pocket a combined $7.5-million, plus money they’re entitled to under the long-term incentive plan (between $225,000 and $312,559 apiece).

"Think about it. Hydro One has a board of directors that’s a private sector group of people and a management team in place with the idea of running a major growth-oriented company. If the government decided to do something quite radically different with Hydro One, you wonder if any of that management team would be around," the source said.

Industry observers say the income trust and not-for-profit structures being recommended restrict the utility’s ability to expand and invest in its ageing infrastructure. For example, in an income trust, the bulk of the cash flow must be distributed to unitholders.

This would contradict the business strategy outlined in the Hydro One prospectus, which says it wants to become a North American player in the electricity sector by, among other things, acquiring transmission assets in the United States.

Ernie Eves, the Ontario Premier, said the government would review the contracts after he was questioned by opposition politicians in the legislature.

Hydro One issued a statement, saying its compensation package is competitive with other comparable companies in Canada and the termination clauses are similar to other commercial enterprises.

Management at Hydro One have remained silent through the privatization debate. However, sources close to the company say frustration is setting in. "Hydro One is very unhappy, but I mean there’s nothing they can do about it," an insider said.

Ontario had planned to sell the utility through an IPO – the largest in Canadian history – but that’s been thrown into doubt after a court ruling blocked the sale.

In the three weeks since the ruling from Ontario Superior Court, Mr. Eves has gone from backing an IPO to indicating privatization was only one option to saying the transmitter could remain a Crown corporation. His latest pronouncement is that the utility could be sold in chunks to major institutional investors.

"A terrible muddle has descended on this whole debate," said Tom Adams, executive director of Energy Probe, a power industry watchdog. "It’s clear the government doesn’t understand the changes that they’ve been undertaking [with electricity]. I’m so surprised by them everyday, I just don’t know what’s coming next."