Robust financial results demonstrate strict cost controls, culture of continuous improvement in customer service
TORONTO, Aug. 14, 2018 – 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 second quarter ended June 30, 2018.
Second Quarter Highlights
- Earnings per share (EPS) of $0.34 and adjusted EPS of $0.33, compared to $0.20 in the prior year, an increase of 70% and 65%, respectively, reflecting Ontario Energy Board’s (OEB) decision on transmission rates and favourable weather.
- Quarterly dividend declared at $0.23 per share, payable September 28, 2018.
- Clarington Transformer Station, the Company’s flagship transmission project, brought in-service on-time and 18% under initial budget, demonstrating ability to effectively deliver large projects.
- Four major storms within the quarter resulting, in aggregate, with over 1.4 million affected customers requiring power restoration, more than all of 2017, and set a new Company record for speed of recovery due to a more proactive approach to resourcing and new outage prediction technology.
- A culture of continuous improvement yielded high performance metrics at the contact centre, billing accuracy in excess of regulatory requirements and a further $6 million decrease in overdue accounts receivable due to proactive support programs.
- Distribution reliability currently on target to achieve a one-hour reduction in average power outage duration compared to 2017.
- A new approach to transmission customer service has yielded a 2 point increase year-over-year to a record high 90% in satisfaction survey results.
- Continued progress in obtaining approvals for the Avista Corporation (Avista) transaction with numerous milestones reached in the regulatory approval, including approvals in Montana and Alaska, and filing of settlement agreements in Idaho and Oregon. Achieved all required federal regulatory approvals, consents, and clearances to go forward with the merger.
- Hydro One Inc. priced Canadian offering of $1.4 billion Medium Term Notes at favourable rates.
- Power Workers’ Union ratified two-year collective agreement that recognizes the importance of front-line workers while providing greater flexibility.
- Hydro One received two awards from the Edison Electric Institute (EEI) for storm restoration and mutual assistance efforts while its subsidiary, Hydro One Remote Communities Inc., was presented with the prestigious ENERGY STAR Canada Award for best Regional Utility by Natural Resources Canada.
- Consistent in principle with the ability of the Province of Ontario (Province) to remove the entire Board of Directors pursuant to the Governance Agreement dated as of November 5, 2015, Hydro One and the Province entered into an agreement for the purpose of the orderly replacement of the Board of Directors of Hydro One and Hydro One Inc. and the retirement of the President and Chief Executive Officer (CEO).
- Ad Hoc Nominating Committee established and committed to completing the transition to a new Board of Directors by August 15, 2018.
- Paul Dobson was appointed Acting President and CEO, while maintaining his Chief Financial Officer (CFO) role.
- The Province introduced new legislation regarding the Company’s executive compensation framework and disclosure.
- Following the announcement on July 11, 2018 of the pending resignation of Hydro One’s Board of Directors and the immediate retirement of its President and CEO, regulatory authorities in Washington and Oregon have extended the timetable for arriving at a decision in Hydro One’s acquisition of Avista to mid-December 2018. In addition, the Idaho Public Utilities Commission vacated its hearing scheduled for July 23, 2018. To date, this hearing has not been rescheduled.
- Hydro One reached an agreement to acquire the business and distribution assets of Peterborough Distribution Inc. (Peterborough Distribution).
“Hydro One’s strong second quarter financial results coupled with continuously improving operational and customer service metrics highlight the underlying strength of the business as well as the Company’s positive momentum since the Initial Public Offering in 2015. I would like to thank our former President and CEO as well as the outgoing Board of Directors for their tremendous contribution since the Company’s IPO. I would also like to extend a warm welcome to the new board and express how much we are looking forward to working with them,” said Paul Dobson, CFO and Acting President and CEO. “Despite this period of transition, the Company remains fully committed to the Avista transaction and worked diligently during the quarter to achieve a number of milestones in the regulatory approval process.”
Selected Consolidated Financial and Operating Highlights
|Three months ended June 30||Six months ended June 30|
|(amounts throughout in millions of Canadian dollars, except as otherwise noted)||2018||2017||2018||2017|
|Revenues, net of purchased power1||803||722||1,628||1,491|
|Net income attributable to common shareholders||200||117||422||284|
|Income related to acquisition of Avista||(6)||—||(18)||—|
|Adjusted net income attributable to common shareholders1||194||117||404||284|
|Adjusted basic EPS1||$0.33||$0.20||$0.68||$0.48|
|Adjusted diluted EPS1||$0.32||$0.20||$0.68||$0.48|
|Net cash from operating activities||292||280||668||751|
|Assets placed in-service||477||337||622||565|
|Transmission: Average monthly Ontario 60-minute peak demand (MW)||19,951||18,752||19,883||19,273|
|Distribution: Electricity distributed to Hydro One customers (GWh)||6,111||5,842||13,517||12,820|
|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 June 30, 2018, the Company reported net income attributable to common shareholders of $200 million (2017 – $117 million), a 70.9% increase from last year, and EPS of $0.34 (2017 – $0.20). Adjusted EPS, which exclude the impact of $6 million income related to the Avista transaction, was $0.33 for the quarter.
Revenues, net of purchased power, for the second quarter were higher than last year by 11.2%. This increase reflects higher transmission revenues driven by the OEB’s decision on the 2017-2018 transmission rates filing, and increased transmission and distribution revenues due to higher energy consumption resulting from favourable weather.
The comparability of second quarter earnings was also positively impacted by timing of work program costs, savings related to a new IT outsourcing contract, lower volume of customer program costs, and lower corporate support costs, as well as lower financing charges primarily due to revaluation of the deal-contingent foreign exchange forward contract, partially offset by interest on the Convertible Debentures issued in August 2017.
On a year-to-date basis, the Company reported net income of $422 million (2017 – $284 million), a 48.6% increase from last year, and EPS of $0.71 (2017 – $0.48). Adjusted EPS are $0.68 year-to-date. Year-to-date results were impacted by similar factors to those noted above.
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 $401 million during the second quarter, and placed $477 million worth of new assets in-service.
Selected Operating Highlights
A new transmission station near Clarington, Ontario became operational in the quarter. The facility represents the Company’s largest transmission project completed in the last six years, and was completed on-schedule and $52 million under the $297 million initial budget.
Four force majeure level storm events within the quarter resulted, in aggregate, in more than 1.4 million affected customers requiring power restoration, exceeding storm-related outage figures for all of 2017. A new Company record was set for speed of restoration when compared to similar, large storms in 2016 and 2013. Most notable is a five-day restoration of over 580,000 customers following a wind storm on May 4, 2018, which was four days faster than restoration for a 2013 storm affecting a similar number of customers. This was made possible due to new weather monitoring and outage prediction technology which provides the necessary information to enact a more proactive approach to align crews and resources to areas expected to be impacted by storms.
The Company continues to pursue improvements in its safety performance, including motor vehicle incidents, with year-to-date results on-track to achieve a target of 1.1 recorded incidents per 200,000 hours worked. The “Journey to Zero” vision for safety incidents continues in collaboration with union partners to further advance the safety culture.
Improving customer satisfaction remains top-of-mind and materialized in both performance and financial metrics. Providing access to support services for customers behind on their bills resulted in $73 million in overdue accounts receivable, representing a 30% reduction compared to the same period in 2017, including a $6 million reduction in the second quarter.
Further, when customers interact with Hydro One, they are reporting it was a positive experience. In the first full quarter since bringing the contact centre in-house, customers report first call resolution at 88% and customer satisfaction with agents at 93%. Billing accuracy is also exceeding OEB requirements at 99.63% year-to-date.
Distribution customers have also experienced reduced outage durations. The system average interruption duration is on target for achieving a one-hour reduction from last year. This is largely due to improvements in response times for restoration crews through better outage planning, reporting and analysis, and more proactive storm readiness.
Transmission customers have rated Hydro One highly in its latest satisfaction survey, giving the Company a 2 point lift year-over-year to 90%. The record-high score reflects a new approach for large and industrial customers that centralizes customer service to increase engagement, become more responsive to their needs and advocate on their behalf to remove barriers preventing growth.
Hydro One and Avista have achieved numerous key milestones in the regulatory approval process for the proposed merger, including the filings in April of a multi-party settlement agreement in Idaho and an all-parties settlement agreement in Alaska. In May, a settlement agreement with the City of Colstrip was filed in Montana, and an all-parties settlement agreement was filed in the Oregon proceeding. The companies received regulatory approval from Alaska in June and Montana in July. The remaining settlement agreements remain subject to approval by the respective commissions. The Committee on Foreign Investment in the United States completed its review of the proposed merger on May 18, 2018, and concluded that there are no unresolved national security concerns with respect to the transaction. Hydro One and Avista received the Federal Communications Commission’s consent on May 4, 2018 to close the merger, and antitrust clearance on April 5, 2018 after the expiration of the waiting period under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The transaction received approval from the Federal Energy Regulatory Commission on January 16, 2018.
Following the announcement on July 11, 2018 of the pending resignation of Hydro One’s Board of Directors and the immediate retirement of its President and CEO, regulatory authorities in Washington and Oregon have extended the timetable for arriving at a decision in Hydro One’s acquisition of Avista to mid-December 2018. In addition, the Idaho Public Utilities Commission vacated its hearing scheduled for July 23, 2018. To date, this hearing has not been rescheduled.
Hydro One’s wholly-owned subsidiary, Hydro One Inc., in June raised $1.4 billion of Medium Term Notes consisting of C$300 million aggregate principal amount of 2.57% Medium Term Notes, Series 39, due 2021, C$350 million aggregate principal amount of 2.97% Medium Term Notes, Series 40, due 2025, and C$750 million aggregate principal amount of 3.63% Medium Term Notes, Series 41, due 2049. Hydro One Inc. expects to use the net proceeds of this offering to repay short-term debt and for general corporate purposes.
The Power Workers’ Union voted 87% in favour of a two-year collective agreement covering approximately 4,000 employees in critical front line roles. This mutually beneficial agreement recognizes the significant contributions these employees make in maintaining the supply of power across the province while delivering value to customers and shareholders.
The Company was a recipient of two awards from the U.S.-based EEI, including an Emergency Recovery Award for its outstanding work responding to the mid-April ice storm that caused outages for nearly 500,000 customers and an Assistance Award for supporting two utility companies after devastating nor’easter storms in the northeast U.S. The Company’s subsidiary, Hydro One Remote Communities Inc., was also presented with the prestigious ENERGY STAR Regional Utility award by Natural Resources Canada. The award is given to utilities that have shown leadership and innovation in developing and marketing ENERGY STAR certified products.
On July 11, 2018, the Company announced that it had entered into an agreement with the Province for the purpose of the orderly replacement of the Boards of Directors of Hydro One and Hydro One Inc. and the retirement of Mayo Schmidt as President and CEO. An Ad Hoc Committee was established on July 17, 2018 and the Company is committed to completing the transition process of the new Boards of Directors by August 15, 2018.
On July 31, 2018, Hydro One reached an agreement to acquire the business and distribution assets of Peterborough Distribution, an electricity distribution company located in east central Ontario, from the City of Peterborough. Hydro One will pay the City of Peterborough $105 million for the transaction. The acquisition is conditional upon the satisfaction of customary closing conditions and approval by the OEB and the Competition Bureau.
Common Share Dividends
Following the conclusion of the second quarter, on August 13, 2018, the Company declared a quarterly cash dividend to common shareholders of $0.23 per share to be paid on September 28, 2018 to shareholders of record on September 11, 2018.
Supplemental Segment Information
|Three months ended June 30||Six months ended June 30|
|(millions of dollars)||2018||2017||2018||2017|
|Revenues, net of purchased power|
|Total revenues, net of purchased power||803||722||1,628||1,491|
|Income (loss) before financing charges and taxes|
|Total income before financing charges and taxes||337||249||695||552|
|Total capital investments||401||406||706||756|
|Assets placed in-service|
|Total assets placed in-service||477||337||622||565|
This press release should be read in conjunction with the Company’s second 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 second quarter 2018 results teleconference with the investment community will be held on August 14, 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 second quarter 2018 results call, conference ID 5691188 (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; business momentum; contact centre performance metrics; billing accuracy; reliability and performance; safety performance; connections; storm restoration; ongoing and planned investments, projects and initiatives; Hydro One Inc.’s Medium Term Note program; collective agreements; dividends; the deal-contingent foreign exchange forward contract; the acquisitions of Avista and Peterborough Distribution; and changes to Hydro One and Hydro One Inc.’s Boards of Directors and CEO, and the related agreement between Hydro One and the Province. 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