Focus on continuous improvement drives operational efficiencies while strong financial performance demonstrates the robust fundamentals of the business
TORONTO, Nov. 8, 2018 /CNW/ - 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)
Revenues, net of purchased power1
Net income attributable to common shareholders
Income related to acquisition of Avista
Adjusted net income attributable to common shareholders1
Adjusted basic EPS1
Adjusted diluted EPS1
Net cash from operating activities
Assets placed in-service
Transmission: Average monthly Ontario 60-minute peak demand (MW)
Distribution: Electricity distributed to Hydro One customers (GWh)
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)
Revenues, net of purchased power
Total revenues, net of purchased power
Income (loss) before financing charges and taxes
Total income before financing charges and taxes
Total capital investments
Assets placed in-service
Total assets placed in-service
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.
SOURCE Hydro One Limited
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