Fourth Quarter Highlights
“During a year that challenged us all, we remained guided by our corporate strategy as well as our commitment to protect employees and support customers and communities,” said Mark Poweska, President and CEO, of Hydro One. “As we look to the future, we have an important role in rebuilding the economy and helping people and small businesses emerge from this crisis. We recently announced Connected for Life, a promise to keep customers experiencing hardship connected to power while working together to access financial programs and get their accounts back to good standing. We are here to help our customers who are struggling so they can focus on what matters – staying safe and making it through this challenging time.”
Selected Consolidated Financial and Operating Highlights
Three months ended December 31, |
Year ended December 31, |
|||
(amounts throughout in millions of Canadian dollars, except as otherwise noted) |
2020 |
2019 |
2020 |
2019 |
Revenues |
1,867 |
1,715 |
7,290 |
6,480 |
Purchased power |
1,046 |
914 |
3,854 |
3,111 |
Revenues, net of purchased power1 |
821 |
801 |
3,436 |
3,369 |
Net income attributable to common shareholders |
161 |
211 |
1,770 |
778 |
Adjusting items |
— |
— |
(867) |
140 |
Adjusted net income attributable to common shareholders1 |
161 |
211 |
903 |
918 |
Basic EPS |
$0.27 |
$0.35 |
$2.96 |
$1.30 |
Diluted EPS |
$0.27 |
$0.35 |
$2.95 |
$1.30 |
Basic Adjusted EPS1 |
$0.27 |
$0.35 |
$1.51 |
$1.54 |
Diluted Adjusted EPS1 |
$0.27 |
$0.35 |
$1.51 |
$1.53 |
Net cash from operating activities |
427 |
551 |
2,030 |
1,614 |
Capital investments |
577 |
562 |
1,878 |
1,667 |
Assets placed in-service |
878 |
849 |
1,639 |
1,703 |
Transmission: Average monthly Ontario 60-minute peak demand (MW) |
19,188 |
19,643 |
20,091 |
19,896 |
Distribution: Electricity distributed to Hydro One customers (GWh) |
7,540 |
7,098 |
28,379 |
27,536 |
1 |
Non-GAAP Measures – Hydro One uses financial measures that do not have a standardized meaning under the United States generally accepted accounting principles (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 (MD&A) for further discussion of these items. |
Key Financial Highlights
2020 Fourth Quarter Highlights
The Company reported net income attributable to common shareholders of $161 million during the quarter, compared to $211 million in the same period of 2019. This resulted in EPS and adjusted EPS of $0.27, compared to EPS and adjusted EPS of $0.35 in the prior year.
Revenues, net of purchased power, for the fourth quarter were $20 million higher than last year, mainly due to higher distribution revenues as a result of OEB-approved rates, and a lower deferred regulatory adjustment related to the Earnings Sharing Mechanism in the year.
Operation, maintenance and administration (OM&A) costs in the fourth quarter of 2020 were higher than last year, primarily due to COVID-19 related expenses incurred in the current year, as further discussed below, as well as lower insurance proceeds received. OM&A expenditures in the fourth quarter of 2020 also included additional other post-employment benefit (OPEB) costs that have been recognized in OM&A following the 2020-2022 OEB transmission decision and recovered in rates, therefore net income neutral.
Depreciation, amortization and asset removal costs in the fourth quarter of 2020 were higher than last year mainly due to the growth in capital assets and timing of asset removal costs.
Income tax expense for the fourth quarter of 2020 was higher than the prior year primarily due to lower net tax deductions primarily related to tax depreciation in excess of depreciation, partially offset by lower income before taxes.
Hydro One continues to invest in the reliability and performance of Ontario’s electricity transmission and distribution systems, by addressing aging power system infrastructure, facilitating connectivity to new load customers and generation sources, and improving service to customers. The Company made capital investments of $577 million during the fourth quarter of 2020, and placed $878 million of new assets in-service.
2020 Annual Highlights
For the twelve months ended December 31, 2020, the Company reported net income of $1,770 million compared to $778 million in 2019, an increase of $992 million compared to the prior year. EPS for the period was $2.96 compared to $1.30 in 2019, while Adjusted EPS of $1.51 for the year compared to $1.54 in 2019.
In addition to factors noted in the quarterly highlights above, 2020 annual results were positively impacted by the income tax recovery recognized following the July 2020 decision of the Ontario Divisional Court, as well as the prior year recognition of costs related to the terminated acquisition of Avista Corporation and the write-off of the Lake Superior Link project. Results were also positively impacted by higher transmission revenues year over year primarily resulting from OEB-approved transmission rates following the OEB decision on 2020 rates, and lower vegetation management and work program expenditures. The impact of the above was partially offset by the 2018 foregone distribution revenue recognized in March 2019 following the receipt of the OEB decision on rates.
For the full year, the Company placed $1,639 million of assets into service in 2020 compared to $1,703 million in 2019.
COVID-19
Throughout the COVID-19 pandemic, the Company’s decisions and actions have continuously been guided by two priorities: to protect Hydro One’s employees and to maintain the safe and reliable supply of electricity to Hydro One’s customers. Since the onset of the COVID-19 pandemic in March 2020, Hydro One employees have worked extremely hard to overcome the challenges that COVID-19 has presented. Over the course of the last eleven months Hydro One has been extremely successful in achieving its priorities as it was able to return to full capacity within its field operations after a short stand-down of its workforce and has also experienced very few suspected cases of workplace transmission of the COVID-19 virus to date.
The Company continues to monitor and adhere to guidance provided by the Province of Ontario (Province) and public health experts in an effort to ensure employee, customer and public safety. After focusing on high priority and essential work at the onset of pandemic, the Company returned substantially all of its field crews to work, where it is safe to do so, in the second quarter. In the third quarter of 2020, the Company implemented enhanced safety procedures within its office locations across the province to reopen its offices to a small portion of its office and administrative staff. However, the Company has since reinstated its business continuity procedures, including work from home protocols for all office staff, in light of the Provincial Stay at Home Order announced in December 2020. The Company’s focus remains on ensuring that its teams are equipped to operate safely as the Company continues to advance work on capital and operating work programs.
Included in the Company’s results for the fourth quarter and twelve months ended December 31, 2020 are costs incurred as a result of the COVID-19 pandemic. OM&A costs in the quarter include $18 million of COVID-19 related expenses, which are primarily attributable to the bad debt expense recognized in OM&A following the issuance of the OEB staff proposal in December 2020 as well as additional facility-related expenditures. On a year-to-date basis, COVID-19 related OM&A expenditures of $50 million also include costs associated with the temporary stand-down of the Company’s work-force and other sustainment work performed in prior quarters.
Looking ahead, it is very difficult to determine or estimate the exact impacts of COVID-19 on Hydro One’s operations as it will be largely dependent on the duration of the pandemic and severity of the measures implemented to combat this virus. Hydro One continues to take the necessary steps to mitigate the impact of COVID-19 on the Company’s operations.
Selected Operating Highlights
Hydro One launched a new fund to help communities respond to new and urgent challenges presented by COVID-19. Charitable organizations, municipalities and Indigenous communities can now apply for up to $25,000 towards pandemic response efforts and initiatives that improve physical and emotional safety. This is part of Hydro One’s commitment to build safe communities across Ontario.
Hydro One extended its partnership with GlobalMedic to provide an additional 3,500 kits of food and safety supplies to First Nations communities. Since the partnership’s launch, GlobalMedic and Hydro One have provided 10,000 critical aid kits to Indigenous communities across the province.
Hydro One’s partnership with ACT Foundation provided 110,000 students across Ontario with lifesaving skills. The ACT Foundation transitioned to provide schools with access to course theory information online, including the warning signs of a heart attack and stroke and importance of calling 911 early. The practical CPR hand-on skills training resumed for students back in school.
Hydro One restored power to customers affected by the wind storm in November. The storm was the most significant since May 2018 with high winds and gusts over 100km/h and damaging approximately 400 poles.
On November 20, 2020, the Company completed the redemption of all of its outstanding Series 1 Preferred Shares.
Common Share Dividends
Following the conclusion of the fourth quarter, on February 23, 2021, the Company declared a quarterly cash dividend to common shareholders of $0.2536 per share to be paid on March 31, 2021 to shareholders of record on March 17, 2021.
Supplemental Segment Information
Three months ended December 31, |
Year ended December 31, |
|||
(millions of dollars) |
2020 |
2019 |
2020 |
2019 |
Revenues |
||||
Transmission |
398 |
407 |
1,740 |
1,652 |
Distribution |
1,457 |
1,298 |
5,507 |
4,788 |
Other |
12 |
10 |
43 |
40 |
Total revenues |
1,867 |
1,715 |
7,290 |
6,480 |
Revenues, net of purchased power |
||||
Transmission |
398 |
407 |
1,740 |
1,652 |
Distribution |
411 |
384 |
1,653 |
1,677 |
Other |
12 |
10 |
43 |
40 |
Total revenues, net of purchased power |
821 |
801 |
3,436 |
3,369 |
Operation, maintenance and administration costs |
||||
Transmission |
73 |
59 |
391 |
355 |
Distribution |
185 |
162 |
619 |
610 |
Other |
15 |
18 |
60 |
216 |
Total operation, maintenance and administration costs |
273 |
239 |
1,070 |
1,181 |
Income (loss) before financing charges and taxes |
||||
Transmission |
200 |
228 |
890 |
835 |
Distribution |
114 |
117 |
617 |
658 |
Other |
(5) |
(9) |
(25) |
(183) |
Total income before financing charges and taxes |
309 |
336 |
1,482 |
1,310 |
Capital investments |
||||
Transmission |
361 |
311 |
1,157 |
1,035 |
Distribution |
210 |
249 |
712 |
624 |
Other |
6 |
2 |
9 |
8 |
Total capital investments |
577 |
562 |
1,878 |
1,667 |
Assets placed in-service |
||||
Transmission |
565 |
573 |
948 |
1,082 |
Distribution |
308 |
271 |
684 |
602 |
Other |
5 |
5 |
7 |
19 |
Total assets placed in-service |
878 |
849 |
1,639 |
1,703 |
Summary of Fourth Quarter Results of Operations
Net Income
Net income attributable to common shareholders for the quarter ended December 31, 2020 of $161 million compared to $211 million in the prior year, is a decrease of $50 million, or 23.7%.
Revenues, Net of Purchased Power
The year-over-year decrease of $9 million or 2.2% in quarterly transmission revenues was primarily due to the following:
The year-over-year increase of $27 million or 7.0% in quarterly distribution revenues, net of purchased power, was primarily due to the following:
OM&A Costs
The year-over-year increase of $14 million or 23.7% in quarterly transmission OM&A costs was primarily due to the following:
The year-over-year increase of $23 million or 14.2% in quarterly distribution OM&A costs was primarily due to the following:
Depreciation, Amortization and Asset Removal Costs
The increase of $13 million or 5.8% in depreciation, amortization and asset removal costs in the fourth quarter of 2020 was mainly due to the growth in capital assets and timing of asset removal costs.
Financing Charges
The $3 million or 2.6% year-over-year increase in financing charges for the quarter ended December 31, 2020 was primarily attributable to:
Income Taxes
Income tax expense for the fourth quarter of 2020 increased by $25 million compared to the same period in 2019. This resulted in a realized effective tax rate (ETR) of approximately 14.2% in the fourth quarter of 2020, compared to approximately 0.9% in the fourth quarter of the prior year.
The increase in income tax expense for the three months ended December 31, 2020 was primarily attributable to:
Assets Placed In-Service
The decrease in transmission assets placed in-service during the fourth quarter was primarily due to the following:
The increase in distribution assets placed in-service during the fourth quarter was primarily due to the following:
Capital Investments
The increase in transmission capital investments during the fourth quarter was primarily due to the following:
The decrease in distribution capital investments during the fourth quarter was primarily due to the following:
Consolidated Income Statements
Three months ended December 31, |
Year ended December 31, |
|||
(millions of dollars, except per share amounts) |
2020 |
2019 |
2020 |
2019 |
Revenues |
||||
Distribution |
1,457 |
1,298 |
5,507 |
4,788 |
Transmission |
398 |
407 |
1,740 |
1,652 |
Other |
12 |
10 |
43 |
40 |
1,867 |
1,715 |
7,290 |
6,480 |
|
Costs |
||||
Purchased power |
1,046 |
914 |
3,854 |
3,111 |
Operation, maintenance and administration |
273 |
239 |
1,070 |
1,181 |
Depreciation, amortization and asset removal costs |
239 |
226 |
884 |
878 |
1,558 |
1,379 |
5,808 |
5,170 |
|
Income before financing charges and taxes |
309 |
336 |
1,482 |
1,310 |
Financing charges |
119 |
116 |
471 |
514 |
Income before taxes |
190 |
220 |
1,011 |
796 |
Income tax expense (recovery) |
27 |
2 |
(785) |
(6) |
Net income |
163 |
218 |
1,796 |
802 |
Other comprehensive income (loss) |
6 |
(1) |
(24) |
(2) |
Comprehensive income |
169 |
217 |
1,772 |
800 |
Net income attributable to: |
||||
Noncontrolling interest |
2 |
2 |
8 |
6 |
Preferred shareholders |
— |
5 |
18 |
18 |
Common shareholders |
161 |
211 |
1,770 |
778 |
163 |
218 |
1,796 |
802 |
|
Comprehensive income attributable to: |
||||
Noncontrolling interest |
2 |
2 |
8 |
6 |
Preferred shareholders |
— |
5 |
18 |
18 |
Common shareholders |
167 |
210 |
1,746 |
776 |
169 |
217 |
1,772 |
800 |
|
Basic EPS |
$0.27 |
$0.35 |
$2.96 |
$1.30 |
Diluted EPS |
$0.27 |
$0.35 |
$2.95 |
$1.30 |
Basic Adjusted EPS |
$0.27 |
$0.35 |
$1.51 |
$1.54 |
Diluted Adjusted EPS |
$0.27 |
$0.35 |
$1.51 |
$1.53 |
Consolidated Balance Sheets
December 31 (millions of dollars) |
2020 |
2019 |
Assets |
||
Current assets: |
||
Cash and cash equivalents |
757 |
30 |
Accounts receivable |
722 |
701 |
Due from related parties |
326 |
415 |
Other current assets |
184 |
122 |
1,989 |
1,268 |
|
Property, plant and equipment |
22,631 |
21,501 |
Other long-term assets: |
||
Regulatory assets |
4,571 |
2,676 |
Deferred income tax assets |
124 |
748 |
Intangible assets |
514 |
456 |
Goodwill |
373 |
325 |
Other assets |
92 |
87 |
5,674 |
4,292 |
|
Total assets |
30,294 |
27,061 |
Liabilities |
||
Current liabilities |
||
Short-term notes payable |
800 |
1,143 |
Long-term debt payable within one year |
806 |
653 |
Accounts payable and other current liabilities |
1,044 |
989 |
Due to related parties |
329 |
302 |
2,979 |
3,087 |
|
Long-term liabilities |
||
Long-term debt |
12,726 |
10,822 |
Regulatory liabilities |
231 |
167 |
Deferred income tax liabilities |
56 |
61 |
Other long-term liabilities |
3,674 |
3,055 |
16,687 |
14,105 |
|
Total liabilities |
19,666 |
17,192 |
Noncontrolling interest subject to redemption |
22 |
20 |
Equity |
||
Common shares |
5,678 |
5,661 |
Preferred shares |
— |
418 |
Additional paid-in capital |
47 |
49 |
Retained earnings |
4,838 |
3,667 |
Accumulated other comprehensive loss |
(29) |
(5) |
Hydro One shareholders’ equity |
10,534 |
9,790 |
Noncontrolling interest |
72 |
59 |
Total equity |
10,606 |
9,849 |
30,294 |
27,061 |
Consolidated Statements of Cash Flows
Three months ended December 31, |
Year ended December 31, |
|||
(millions of dollars) |
2020 |
2019 |
2020 |
2019 |
Operating activities |
||||
Net income |
163 |
218 |
1,796 |
802 |
Environmental expenditures |
(8) |
(4) |
(23) |
(25) |
Adjustments for non-cash items: |
||||
Depreciation and amortization |
210 |
201 |
783 |
777 |
Regulatory assets and liabilities |
33 |
103 |
68 |
(48) |
Deferred income taxes (recovery) |
19 |
1 |
(823) |
(30) |
Unrealized loss on foreign-exchange contract |
— |
— |
— |
22 |
Derecognition of deferred financing costs |
— |
— |
— |
24 |
Other |
9 |
8 |
49 |
37 |
Changes in non-cash balances related to operations |
1 |
24 |
180 |
55 |
Net cash from operating activities |
427 |
551 |
2,030 |
1,614 |
Financing activities |
||||
Long-term debt issued |
1,625 |
— |
2,725 |
1,500 |
Long-term debt repaid |
(1) |
(501) |
(653) |
(730) |
Short-term notes issued |
940 |
1,105 |
4,070 |
4,217 |
Short-term notes repaid |
(1,125) |
(481) |
(4,413) |
(4,326) |
Short-term debt repaid |
— |
— |
(20) |
— |
Convertible debentures redeemed |
— |
— |
— |
(513) |
Dividends paid |
(157) |
(149) |
(617) |
(588) |
Distributions paid to noncontrolling interest |
— |
(2) |
(2) |
(9) |
Contributions received from sale of noncontrolling interest |
— |
— |
9 |
12 |
Common shares issued |
2 |
3 |
7 |
6 |
Costs to obtain financing |
(9) |
— |
(14) |
(8) |
Preferred shares redeemed |
(418) |
— |
(418) |
— |
Net cash from (used in) financing activities |
857 |
(25) |
674 |
(439) |
Investing activities |
||||
Capital expenditures |
||||
Property, plant and equipment |
(535) |
(506) |
(1,718) |
(1,513) |
Intangible assets |
(38) |
(46) |
(126) |
(115) |
Capital contributions received |
— |
— |
— |
3 |
Acquisitions |
— |
— |
(126) |
— |
Other |
4 |
(7) |
(7) |
(3) |
Net cash used in investing activities |
(569) |
(559) |
(1,977) |
(1,628) |
Net change in cash and cash equivalents |
715 |
(33) |
727 |
(453) |
Cash and cash equivalents, beginning of period |
42 |
63 |
30 |
483 |
Cash and cash equivalents, end of period |
757 |
30 |
757 |
30 |
This press release should be read in conjunction with the Company’s 2020 Consolidated Financial Statements and MD&A. These financial statements and MD&A together with additional information about Hydro One, can be accessed at www.HydroOne.com/Investors and www.sedar.com.
Quarterly Investment Community Teleconference
The Company’s fourth quarter 2020 results teleconference with the investment community will be held on February 24, 2021 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 1-866-221-1674 prior to the scheduled start time and request access to Hydro One’s fourth quarter 2020 results call, conference ID 2928829 (international callers may dial 1-270-215-9604). 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.
Hydro One Limited (TSX: H)
Hydro One Limited, through its wholly-owned subsidiaries, is Ontario’s largest electricity transmission and distribution provider with approximately 1.4 million valued customers, approximately $30.3 billion in assets as at December 31, 2020, and annual revenues in 2020 of approximately $7.3 billion.
Our team of approximately 8,700 skilled and dedicated employees proudly build and maintain a safe and reliable electricity system which is essential to supporting strong and successful communities. In 2020, Hydro One invested approximately $1.9 billion in its transmission and distribution networks and supported the economy through buying approximately $1.7 billion of goods and services.
We are committed to the communities where we live and work through community investment, sustainability and diversity initiatives. We are designated as a Sustainable Electricity Company by the Canadian Electricity Association.
Hydro One Limited’s common shares are listed on the TSX and certain of Hydro One Inc.’s medium term notes are listed on the NYSE. Additional information can be accessed at www.hydroone.com, www.sedar.com or www.sec.gov.
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.
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