Hydro One Reports Strong Third Quarter Results
Focus on continuous improvement drives operational efficiencies while strong financial performance demonstrates the robust fundamentals of the business
TORONTO, Nov. 8, 2018 /PRNewswire/ - 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, 2018.
Third Quarter Highlights
-- Favourable weather coupled with continued efficiencies in operation,
maintenance and administrative (OM&A) costs led to earnings per share
(EPS) of $0.33 and adjusted EPS of $0.38, compared to $0.37 and $0.40,
respectively, in the prior year when regulatory catch-up revenues and a
lower effective tax rate had previously boosted earnings.
-- Following Hydro One's Motion to Review and Vary regarding a 2017
deferred tax asset ruling, the Ontario Energy Board (OEB) granted the
motion and the matter will now return back to the OEB for further
consideration.
-- Numerous developments were achieved with the Avista Corporation (Avista)
merger transaction, including an end date extension to March 29, 2019,
new schedules released by the three outstanding state commissions, and
the filing of additional testimonies. A procedural evidentiary hearing
for the transaction was held in Washington on October 23.
-- Hydro One announced an agreement to acquire the business and
distribution assets of Peterborough Distribution Inc. (Peterborough
Distribution) and that it has submitted a new application to the OEB to
acquire Orillia Power Distribution Corporation (Orillia Power). The
Company also successfully reached the operational integration of Hydro
One Sault Ste. Marie LP (HOSSM) into Hydro One Networks Inc.
-- A survey of residential and small business customers reveals
satisfaction at 76%, up 5% and the highest in five years. When combined
with a survey of transmission customer satisfaction scoring a
highest-ever 90% earlier this year, it demonstrates a consistent,
company-wide dedication to customer service.
-- A significant wind and rain storm resulted in power outages to more than
500,000 customers and a tornado caused extensive damage to the company's
Merivale transmission station near Ottawa. While power to all customers
was restored quickly, repairs are ongoing at the damaged station.
-- Distribution service reliability has improved over previous years and is
better than forecasted, with year-over-year improvements in both outage
frequency and duration due to a multi-faceted strategy to improve
performance.
-- Following the announcement of a new, ten-member Board of Directors on
August 14, Tom Woods was appointed its new Chair. Chris Lopez,
previously Senior Vice President of Finance, was appointed Acting Chief
Financial Officer. Paul Dobson continues in his role as Acting President
and Chief Executive Officer (CEO).
-- Transmission rate application for 2019 filed with the OEB, seeking an
increase close to inflation.
-- Quarterly dividend declared at $0.23 per share, payable December 31,
2018.
"Hydro One continues to produce strong quarterly financial results coupled with continuously improving operational and customer service metrics. The positive figures highlight the underlying strength of the business and the unwavering dedication at all levels of the organization to improve the Company's core functions. The entire team is also excited with the progress the Company is making with the Avista merger and is looking forward to the approaching close of the transaction," said Paul Dobson, Acting President and CEO. "Finally, the management team has enjoyed spending time with the new Board of Directors during the quarter and the focused discussions on areas that are a priority for our customers and shareholders. The experience has been mutually beneficial and Hydro One has seen a benefit from the unique perspectives and depth of experience the new Board brings to the table."
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) 2018 2017 2018 2017
---
Revenues 1,606 1,522 4,659 4,551
Purchased power 733 675 2,158 2,213
Revenues, net of purchased power(1) 873 847 2,501 2,338
Net income attributable to common shareholders 194 219 616 503
Income related to acquisition of Avista 33 18 15 21
Adjusted net income attributable to common shareholders(1) 227 237 631 524
Basic EPS $0.33 $0.37 $1.03 $0.85
Diluted EPS $0.32 $0.37 $1.03 $0.84
Adjusted basic EPS(1) $0.38 $0.40 $1.06 $0.88
Adjusted diluted EPS(1) $0.38 $0.40 $1.06 $0.88
Net cash from operating activities 508 442 1,176 1,193
Capital investments 402 380 1,108 1,136
Assets placed in-service 239 294 861 859
Transmission: Average monthly Ontario 60-minute peak demand (MW) 22,759 20,857 20,841 19,801
Distribution: Electricity distributed to Hydro One customers (GWh) 6,817 6,226 20,334 19,046
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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, 2018, the Company reported net income attributable to common shareholders of $194 million (2017 - $219 million), an 11.4% decrease from last year, and EPS of $0.33 (2017 - $0.37). Adjusted EPS, which exclude the impact of $33 million costs related to the Avista transaction, was $0.38 for the quarter.
Revenues, net of purchased power, for the third quarter were higher than last year by 3.1%. This reflects increased transmission and distribution revenues due to higher energy consumption resulting from favourable weather, partially offset by lower transmission revenues driven by timing of Ontario Energy Board (OEB)'s decision on the 2017-2018 transmission rate filing resulting in recognition of year-to-date revenues in the third quarter of 2017.
The comparability of third quarter earnings was positively impacted by lower costs related to the acquisition of Avista, savings related to a new information technology (IT) outsourcing contract, and lower customer program costs, partially offset by one-time corporate support costs. Higher financing charges, primarily due to the revaluation of the deal-contingent foreign exchange forward contract and increased interest expense on long-term debt and convertible debentures issued in August 2017, contributed to the overall decrease in net income in the third quarter of 2018.
Higher income tax expense for the third quarter of 2018 was primarily attributable to a combination of an increase in the estimated annual effective tax rate (ETR) for 2018 arising from higher forecast earnings coupled with a corresponding decrease in the estimated annual ETR for 2017 arising from lower forecast earnings.
On a year-to-date basis, the Company reported net income of $616 million (2017 - $503 million), a 22.5% increase from last year, and EPS of $1.03 (2017 - $0.85). Adjusted EPS are $1.06 year-to-date. Year-to-date results were impacted by similar factors to those noted above. However, there were two significant differences being year-to-date transmission revenues were unaffected by the timing of OEB's decision on the 2017-2018 transmission rate filing, while the year-to-date revaluation of the deal-contingent foreign exchange forward contract resulted in lower financing charges.
Hydro One continues to invest in the reliability and performance of Ontario's electricity transmission and distribution systems, address aging power system infrastructure, facilitate connectivity to new load customers and generation sources, and improve service to customers. The Company made capital investments of $402 million during the third quarter, and placed $239 million worth of new assets in-service.
Selected Operating Highlights
A survey of residential and small business customers revealed that satisfaction with Hydro One has reached 76%, up 5% and the highest in five years. The survey revealed customers have recognized the Company's efforts and results most predominantly in customer service, brand, price/billing and quality/reliability. When paired with the Company's highest-ever 90% satisfaction rating following a transmission customer survey released in the second quarter, it demonstrates a consistent dedication to putting customer interests first at all levels of the organization.
On August 31, the OEB announced its ruling that an OEB panel will conduct a supplemental review and make a final decision regarding allocation of the deferred tax asset, following Hydro One's Motion to Review and Vary submitted in October 2017.
On September 19, Hydro One and Avista announced the end date for the merger transaction has been extended to March 29, 2019. Further, Hydro One filed several testimonies in support of the merger and secured a new schedule for all three remaining state commissions, with Washington and Oregon also setting a December 14 deadline. A procedural evidentiary hearing for the transaction was held in Washington on October 23. The Company remains fully committed to the Avista merger transaction.
In August, the Company announced an agreement to acquire the business and distribution assets of Peterborough Distribution from the City of Peterborough. This was followed shortly by a new OEB application to acquire Orillia Power. Further, on October 1, Hydro One successfully reached the operational integration of HOSSM into Hydro One Networks Inc. at which point Hydro One Networks Inc. assumed accountability for the day-to-day operation and maintenance of the HOSSM infrastructure. HOSSM remains a stand-alone licensed transmitter in Ontario.
The fifth force majeure event of 2018 occurred on September 21 when a storm moved through the North, Central and Eastern regions of the province and included a series of tornadoes affecting the Ottawa area. The storm impacted both distribution and transmission systems, causing power outages to more than 500,000 Hydro One customers, while a tornado caused extensive damage to the company's Merivale transmission station primarily serving approximately 170,000 Hydro Ottawa customers. Continuing Hydro One's performance of quick power restoration this year, service through Merivale and to 97% of affected customers was returned in approximately two days and all customers were restored without any safety incidents. However, the damage to the Merivale station was extensive and requires ongoing work to fully return the facility to normal operation.
At the end of September, distribution service outage frequency and duration measurements had been improved over previous years and were better than forecasted. This is due, in part, to the Company's new Optimal Cycle Protocol vegetation management program to address the 45% of outages caused by trees in 2017, as well as other tactics, including grid modernization and leveraging outage prediction tools for storms.
On August 14, the company announced a new, ten-member Board of Directors. The Board subsequently appointed Tom Woods to serve as the new Chair by unanimous vote on September 7.
Chris Lopez, previously Senior Vice President of Finance at Hydro One, was appointed Acting Chief Financial Officer, effective September 6. Paul Dobson continues in his role as Acting President and CEO.
On October 26, 2018, Hydro One filed with the OEB a one-year transmission rate application for 2019. This application seeks an increase similar to inflation to address priority investments in infrastructure to maintain safe, reliable service. The Company's new Board of Directors is currently reviewing a subsequent transmission rate application for 2020-2022.
Common Share Dividends
Following the conclusion of the third quarter, on November 7, 2018, the Company declared a quarterly cash dividend to common shareholders of $0.23 per share to be paid on December 31, 2018 to shareholders of record on December 11, 2018.
Supplemental Segment Information
Three months ended September 30 Nine months ended September 30
(millions of dollars) 2018 2017 2018 2017
---
Revenues
Transmission 493 471 1,344 1,199
Distribution 1,103 1,040 3,284 3,317
Other 10 11 31 35
---
Total revenues 1,606 1,522 4,659 4,551
---
Revenues, net of purchased power
Transmission 493 471 1,344 1,199
Distribution 370 365 1,126 1,104
Other 10 11 31 35
---
Total revenues, net of purchased power 873 847 2,501 2,338
---
Income (loss) before financing charges and taxes
Transmission 287 271 728 594
Distribution 120 114 397 369
Other (18) (24) (41) (50)
---
Total income before financing charges and taxes 389 361 1,084 913
---
Capital investments
Transmission 261 240 693 701
Distribution 138 138 409 427
Other 3 2 6 8
---
Total capital investments 402 380 1,108 1,136
---
Assets placed in-service
Transmission 112 120 466 367
Distribution 126 172 389 482
Other 1 2 6 10
---
Total assets placed in-service 239 294 861 859
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This press release should be read in conjunction with the Company's third quarter 2018 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 2017 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 2018 results teleconference with the investment community will be held on November 8, 2018 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 2018 results call, conference ID 5199234 (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, over C$25 billion in assets and 2017 annual revenues of nearly C$6 billion. Our team of over 7,400 skilled and dedicated regular and non-regular employees proudly and safely serves suburban, rural and remote communities across Ontario through our 30,000 circuit km of high-voltage transmission and 123,000 circuit km of 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 six 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: customer service; operational and customer service metrics; improvements and operational efficiencies; reliability and performance; connections; the Company's transmission rate application and its anticipated impacts; the OEB's review relating to allocation of deferred tax assets; ongoing and planned investments, projects and initiatives; dividends; the deal-contingent foreign exchange forward contract; the acquisitions of Avista, Orillia Power and Peterborough Distribution; and changes to Hydro One and Hydro One Inc.'s Boards of Directors and CEO. 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.
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SOURCE Hydro One Limited
