Hydro One Reports Third Quarter Results
Improved customer service, innovative operational productivity programs and strategic acquisition demonstrate the company's momentum and transformation into a commercially-focused organization
TORONTO, Nov. 10, 2017 Hydro One Limited (Hydro One or the Company), the parent company of Ontario's largest electricity transmission and distribution utility, today announced its financial and operating results for the third quarter ended September 30, 2017.
-- Third quarter results reflect the Ontario Energy Board's (OEB) Hydro One
Networks Inc. transmission rates decision, leading to catch-up revenues
for three quarters of $55 million and contributing to third quarter
earnings per share of $0.37 and adjusted earnings per share of $0.40,
compared to $0.39 last year.
-- Hydro One and Avista Corporation filed joint applications with state
utility and federal commissions for regulatory approval of the merger as
planned.
-- Subsequent to the July announcement of the proposed Avista Corporation
acquisition, Hydro One issued approximately $1.5 billion of convertible
debentures, which were oversubscribed.
-- Achieved productivity savings through operational improvements, such as
a revised vegetation management approach, fleet optimization and
competitive procurement.
-- Hydro One demonstrated operational excellence as part of the
unprecedented Hurricane Irma restoration effort in Florida.
-- Customer service initiatives related to affordability resulted in
stabilized accounts receivable levels.
-- Continued recognition as a leading utility, being awarded the
Progressive Aboriginal Relations Bronze Certification for demonstrating
a commitment to Aboriginal communities and the Ontario Energy
Association's 2017 Leader of the Year award.
"This quarter was marked by our Avista transaction and the mild summer weather. Our joint regulatory filings with Avista were a major milestone in accomplishing this high-quality transaction that will provide long-term benefits for customers and shareholders," said Mayo Schmidt, President and Chief Executive Officer, Hydro One. "Our operational excellence program continues to deliver savings, keeping us on plan, and our exceptional performance during recent storms in Ontario and Florida speaks to our North American reputation for safety, excellent workmanship and friendly service."
Selected Consolidated Financial and Operating Highlights
Three months ended September 30, Nine months ended September 30,
(amounts throughout in millions of Canadian dollars, except as otherwise noted) 2017 2016 2017 2016
------------------------------------------------------------------------------ ---- ---- ---- ----
Revenues 1,522 1,706 4,551 4,938
Purchased power 675 870 2,213 2,569
Revenues, net of purchased power(1) 847 836 2,338 2,369
Net income attributable to common shareholders 219 233 503 593
Costs related to acquisition of Avista Corporation 18 - 21 -
Adjusted net income attributable to common shareholders(1) 237 233 524 593
Basic earnings per common share (EPS) $0.37 $0.39 $0.85 $1.00
Diluted EPS $0.37 $0.39 $0.84 $0.99
Adjusted basic EPS(1) $0.40 $0.39 $0.88 $1.00
Adjusted diluted EPS(1) $0.40 $0.39 $0.88 $0.99
Net cash from operating activities 442 510 1,193 1,182
Capital investments 380 424 1,136 1,220
Assets placed in-service 294 383 859 906
Transmission: Average monthly Ontario 60-minute peak demand (MW) 20,857 22,991 19,801 21,115
Distribution: Electricity distributed to Hydro One customers (GWh) 6,226 6,621 19,046 19,784
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1 Non-GAAP Measures - Hydro One uses
financial measures that do not have
a standardized meaning under
generally accepted accounting
principles in the United States of
America (US GAAP) and may not be
comparable to similar measures
presented by other entities. Hydro
One calculated the non-GAAP
measures by adjusting certain US
GAAP measures for specific items
that impact comparability but which
the Company does not consider part
of normal, ongoing operations.
Refer to the Non-GAAP Measures
section of the Company's
Management's Discussion and
Analysis for further discussion of
these items.
Key Financial Highlights
For the three months ended September 30, 2017, the Company reported net income attributable to common shareholders of $219 million (2016 - $233 million), and earnings per share of $0.37 (2016 - $0.39), a 6.0% reduction from last year. Adjusted earnings per share, which exclude the impact of $18 million costs related to the Avista Corporation acquisition, were $0.40 for the quarter.
Revenues, net of purchased power, for the third quarter were higher than last year by 1.3% primarily reflecting higher transmission revenues driven by the OEB's decision on Hydro One Networks Inc.'s 2017-2018 transmission rates filing, partially offset by lower average Ontario peak demand and lower energy consumption due to milder weather, as well as a reduction in the 2017 allowed return on equity from 9.19% to 8.78%.
The comparability of third quarter earnings was negatively impacted by higher consulting costs primarily related to the acquisition of Avista Corporation, higher depreciation expense due to an increase in rate base and increased financing charges primarily due to a higher weighted average long-term debt portfolio as well as the issuance of convertible debentures in August 2017, partially offset by reduced vegetation management costs.
On a year-to-date basis, the Company reported net income of $503 million (2016 - $593 million), and earnings per share of $0.85 (2016 - $1.00), a 15.2% reduction from last year. Adjusted earnings per share are $0.88 year-to-date. In addition to factors noted above, year-to-date net income was also impacted by a significantly lower bad debt expense in the first quarter of 2016 due to revised estimates of uncollectible accounts as a result of stabilization of the customer information system (excluding this adjustment in 2016, the bad debt expense was relatively flat year-over-year).
Hydro One continues to invest to improve the reliability and performance of Ontario's electricity transmission and distribution systems, address aging power system infrastructure, facilitate connectivity to new generation sources, and improve service to customers. The Company made capital investments of $380 million during the third quarter, and placed $294 million of new assets in-service.
Selected Operating Highlights
Subsequent to the July 2017 announcement of the proposed Avista Corporation acquisition, Hydro One issued approximately $1.5 billion of convertible debentures, which were oversubscribed. Enthusiasm for the bought deal offering is reflective of the market's confidence in the Company's growth strategy.
The Company achieved significant productivity savings in the third quarter through a new vegetation management approach, fleet optimization and a more competitive procurement process, along with other initiatives. In September, Hydro One introduced a shortened and targeted vegetation management program that is expected to result in long-term productivity savings as well as improved reliability and community relations.
At the same time, the use of telematics data to evaluate the productivity of the Company's fleet resulted in current and future capital savings. Savings were also achieved through a reduction in prices paid for procured materials and services by consolidating spending to exercise purchasing power and introducing a revised, more streamlined bidding process.
Over a period of 14 days in September, Hydro One mobilized 175 employees to help restore power to more than 10,000 Florida residents after Hurricane Irma pummeled the state and surrounding region. While in Florida, Hydro One's employees were assigned challenging work in tough conditions and their actions contributed to establishing a strong reputation for operational excellence as well as commitment to safety.
The introduction of several relief and affordability measures proved to be effective in helping customers manage electricity usage and keep accounts current. Building on the success of the Company's extended Winter Relief program, the elimination and return of security deposits as well as additional outreach to customers at risk, accounts receivable levels have fallen to a four-year low. Overdue accounts have declined by 25% year-over-year to $86 million at the end of September. The number of customers disconnected for non-payment has declined by nearly 60% year-over-year.
As part of its new commitment to improving customer service, Hydro One has been increasing its presence in local communities with the goal of helping customers in a way that is convenient to them. Through drop-in sessions, the mobile Electricity Discovery Centre and opening customer service offices in London, Markham and Sudbury, customer service staff have assisted over 2,500 customers in nearly 30 communities.
On October 24, 2017, Hydro One supported the launch of the Affordability Fund, a relief program paid for by the Province of Ontario and administered by Hydro One. This unique program will allow Hydro One, along with other local distribution companies, to provide customers who do not qualify for low-income conservation programs with the ability to access energy efficient home improvements, such as block heater timers, appliances and insulation.
Hydro One continues to be recognized as a leading utility by industry associations and national organizations. In late September 2017, the Canadian Council for Aboriginal Business awarded Hydro One bronze standing in its Progressive Aboriginal Relations (PAR) program. The honour recognizes the Company's commitment to fostering and strengthening its relationships with Indigenous Canadians and promoting prosperity in the communities they call home.
In September 2017, Hydro One received the Leader of the Year Award from the Ontario Energy Association. This prestigious award recognizes outstanding industry leadership and significant accomplishments. The association cited Hydro One's major cultural and corporate transformation, execution of the successful IPO, growth into the U.S. Pacific Northwest with the acquisition of Avista Corporation, and focus on exceptional customer service.
Mergers and Acquisitions Update
On September 14, 2017, Hydro One and Avista Corporation filed applications requesting regulatory approval of the proposed merger of the two companies that was announced on July 19, 2017. The applications have been filed with state utility commissions in Washington, Idaho, Oregon, Montana, and Alaska, as well as with the U.S. Federal Energy Regulatory Commission, requesting approval of the transaction on or before August 14, 2018. Together with Avista Corporation, Hydro One is currently in the process of responding to data requests from staff from the commissions and various other parties. Filing of these applications is an important milestone in the proposed transaction to bring together Hydro One and Avista Corporation. The merger will over time provide the companies with increased opportunities for innovation, research and development, and efficiencies by extending the use of technology, best practices, and business processes over a broader customer base and a broader set of infrastructure between the two companies. On October 2, 2017, Avista Corporation filed the preliminary proxy with the U.S. Securities and Exchange Commission for shareholder approval of the merger. Required filings with a number of other agencies will be made in the coming months, including the U.S. Federal Communications Commission, and the Committee on Foreign Investment in the United States.
Common Share Dividends
Following the conclusion of the third quarter, on November 9, 2017, the Company declared a quarterly cash dividend to common shareholders of $0.22 per share to be paid on December 29, 2017 to shareholders of record on December 12, 2017.
Supplemental Segment Information
Three months ended Nine months ended
September 30, September 30,
(millions of dollars) 2017 2016 2017 2016
----------------------------------------------------- ---- ---- ---- ----
Revenues
Transmission 471 444 1,199 1,211
Distribution 1,040 1,249 3,317 3,687
Other 11 13 35 40
----- --- --- --- ---
Total revenues 1,522 1,706 4,551 4,938
-------------- ----- ----- ----- -----
Revenues, net of purchased power
Transmission 471 444 1,199 1,211
Distribution 365 379 1,104 1,118
Other 11 13 35 40
----- --- --- --- ---
Total revenues, net of purchased power 847 836 2,338 2,369
-------------------------------------- --- --- ----- -----
Income (loss) before financing charges
and taxes
Transmission 271 252 594 642
Distribution 114 126 369 390
Other 3
(24) (50) (19)
Total income before financing charges
and taxes 361 381 913 1,013
-------------------------------------- --- --- --- -----
Capital investments
Transmission 240 241 701 714
Distribution 138 181 427 502
Other 2 2 8 4
----- --- --- --- ---
Total capital investments 380 424 1,136 1,220
------------------------- --- --- ----- -----
Assets placed in-service
Transmission 120 224 367 449
Distribution 172 158 482 451
Other 2 1 10 6
----- --- --- --- ---
Total assets placed in-service 294 383 859 906
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This press release should be read in conjunction with the Company's third quarter 2017 Consolidated Financial Statements and Management's Discussion and Analysis (MD&A). These statements and MD&A together with additional information about Hydro One, including the full year 2016 Consolidated Financial Statements and Management's Discussion and Analysis, can be accessed at www.HydroOne.com/Investors and www.sedar.com.
Quarterly Investment Community Teleconference
The Company's third quarter 2017 results teleconference with the investment community will be held on November 10, 2017 at 8 a.m. ET, a webcast of which will be available at www.HydroOne.com/Investors. Members of the financial community wishing to ask questions during the call should dial 1-855-716-2690 prior to the scheduled start time and request access to Hydro One's third quarter 2017 results call, conference ID 90923670 (international callers may dial 1-440-996-5689). Media and other interested parties are welcome to participate on a listen-only basis. A webcast of the teleconference will be available at the same link following the call. Additionally, investors should note that from time to time Hydro One management presents at brokerage sponsored investor conferences. Most often, but not always, these conferences are webcast by the hosting brokerage firm, and when they are webcast, links are made available on Hydro One's website at www.HydroOne.com/Investors and are posted generally at least two days before the conference.
About Hydro One Limited
We are Ontario's largest electricity transmission and distribution provider with more than 1.3 million valued customers, $25 billion in assets and annual revenues of over $6.5 billion. Our team of 5,500 skilled and dedicated employees proudly and safely serves suburban, rural and remote communities across Ontario through our 30,000 circuit km high-voltage transmission and 123,000 circuit km primary distribution networks. Hydro One is committed to the communities we serve, and has been rated as the top utility in Canada for its corporate citizenship, sustainability, and diversity initiatives. We are one of only five utility companies in Canada to achieve the Sustainable Electricity Company designation from the Canadian Electricity Association. We also provide advanced broadband telecommunications services on a wholesale basis utilizing our extensive fibre optic network. Hydro One Limited's common shares are listed on the Toronto Stock Exchange (TSX: H).
For More Information
For more information about everything Hydro One, please visit www.HydroOne.com where you can find additional information including links to securities filings, historical financial reports, and information about the Company's governance practices, corporate social responsibility, customer solutions, and further information about its business.
Forward-Looking Statements and Information
This press release may contain "forward-looking information" within the meaning of applicable securities laws. Such information includes, but is not limited to, statements related to: growth; transformation; customer service; community relations; performance; reliability; productivity; operational improvements; ongoing and planned investments, projects and initiatives; the OEB's transmission rates decision and its anticipated impacts; dividends; the Affordability Fund; and the acquisition of Avista Corporation. Words such as "expect," "anticipate," "intend," "attempt," "may," "plan," "will", "can", "believe," "seek," "estimate," and variations of such words and similar expressions are intended to identify such forward-looking information. These statements are not guarantees of future performance or actions and involve assumptions and risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed, implied or forecasted in such forward-looking information. Some of the factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by such forward-looking information, including some of the assumptions used in making such statements, are discussed more fully in Hydro One's filings with the securities regulatory authorities in Canada, which are available on SEDAR at www.sedar.com. Hydro One does not intend, and it disclaims any obligation, to update any forward-looking information, except as required by law.
SOURCE Hydro One Limited
