Tentative deal with union trades concessions for stock
Public debate surrounding the privatization of Hydro One continues, but plans are already in place to divvy up Ontario’s electric utility.
A tentative agreement signed last month between Hydro One and the Power Workers’ Union (PWU) would see employees' pensions compensated, in part, by shares in the company.
Starting in 2017, PWU employees contributing to the pension plan would also participate in a new IPO "share grant plan." The shares in question would be equivalent to 2.7 per cent of the employees’ salary effective from the initial share price. The shares would be granted each year for a total of 12 years.
The tentative collective agreement itself extends for three years. The union’s bargaining committee recommended its acceptance on April 14.
The unusual arrangement — detailed in documents obtained by independent energy and environment advisor Tom Adams and provided to Canadian Labour Reporter — was made public shortly after Premier Kathleen Wynne announced 60 per cent of Hydro One would be sold to fund the government’s transit infrastructure plan.
OPG involvement
A similar offer has been extended to Ontario Power Generation (OPG) employees represented by PWU in their respective tentative agreement, according to media reports. These agreements, Adams said, amplify the uncertainties about privatization.
"The proceeds that net back to the Ontario government from the sale of Hydro One, irrespective of how those proceeds are distributed — debt reduction, transit, whatever — the proceeds will be impaired by the terms of the labour agreement," he said.
It is still unclear at what price point the shares will be transacted, Adams said, and it is also unclear how many shares will be floated. And because it would not be unreasonable to assume other unions representing employees at Hydro One or OPG could negotiate similar deals, it is difficult to estimate exactly how much of the company the workers could eventually own.
So while the immediate results of the agreement — including concessions to a costly pension plan — are clear, the long-term ramifications are more difficult to calculate.
Adding to the uncertainty is the unpredictability of investing. According to Muneeza Sheikh, partner at Levitt & Grosman in Toronto, the onus is on the union to ensure employees are aware of the risks associated with the possibility of plummeting shares.
"At the end of the day," Sheikh said, "the union and OPG and Hydro One have the right through the ratification process to come to a deal that suits them. With that being said, it is an odd deal, especially since it seems that OPG workers are going to be gaining stock in a company that they don’t even work for."
Adams agreed the inclusion of OPG employees was unusual.
"One of the reasons to compensate workers with stock of the company they’re working in is to give them an incentive to see the world from the point of view of their employer, to align the interests of the workers and the corporation so that they can work in harmony with each other," he said. "But paying workers at company B with stock of company A doesn’t achieve some of those objectives… What did they hope to achieve by it?"
The PWU declined to comment on the tentative agreements.
Jennifer Beaudry, spokesperson for the minister of energy, Bob Chiarelli, however, said the ministry is "excited" PWU leadership expressed support for the government’s plan to strengthen Hydro One through partial privatization.
"We’re pleased that a tentative net zero agreement has been reached between the Power Workers’ Union and employers," Beaudry said, "and that workers are interested in becoming owners in the new Hydro One."
"Net zero" refers to the contract’s wage hike and shares being offset by savings elsewhere in the contract. The biggest contribution to the claim of a net zero contract is likely the negotiation of concessions to the pension plan.
Pension payments
The tentative agreement would see the average of workers’ three highest-paid years of service used to calculate pension payments, down from the current five. Additionally, employee pension contributions will be increased in each year of the agreement.
Adams, however, said not enough information has been made public to allow for independent verification of the net zero claim.
"There’s a whole host of financial regulation related to pension administration and there may be aspects of the pension administration rules that play into this," he said.
Furthermore, Adams said, regulations relating to a public utility will also play a part.
"Both OPG and Hydro One have drawn the ire of the Ontario Energy Board related to their compensation packages or compensation liabilities," Adams said.
"Now that we’re adding to that cocktail of compensation by adding a new category of payments in the form of this stream of share grants, we have no precedent for how the Ontario Energy Board considers the share grant benefits when evaluating… We don’t know what the ratepayer implication of that compensation will be."
Independent parties such as Adams will likely have to wait a while longer before more information becomes available.
The parties directly involved — including PWU — continue to decline to comment, citing the upcoming ratification vote.
The first ratification meeting for the union’s membership at Hydro One was scheduled for May 3. The next is slated for June 19. According to the tentative agreement, ballots will be counted on July 3.
