Hydro One Reports Robust Fourth Quarter Results
Hydro One Reports Robust Fourth Quarter Results
TORONTO, Feb. 12, 2020 – Hydro One Limited (Hydro One or the Company) today announced its financial and operating results for the fourth quarter ended December 31, 2019.
Fourth Quarter Highlights
- Fourth quarter earnings per share (EPS) was $0.35 and adjusted EPS was $0.35, compared to a loss per share of $1.18 and adjusted EPS of $0.30, respectively, for the same period in 2018. For the full year, EPS was $1.30 and adjusted EPS was $1.54. Adjusted EPS was 14.1% higher than adjusted EPS of $1.35 in 2018.
- A significant driver of the year-over-year increase in earnings was a net income reduction of $867 million in the fourth quarter of 2018 following an Ontario Energy Board (OEB) decision on the deferred tax asset.
- Annual productivity savings of $202 million represent a 49.1% increase year-over-year. Total productivity savings since 2015 amount to over $450 million.
- Strong project execution led to annual capital investments of $1.67 billion, which was an increase of 5.8% from last year and in-line with the plans put forward to the OEB.
- Continued improvement of customer satisfaction, with Residential and Small Business satisfaction scores increasing by 9.3% year over year.
- Allowed regulated return-on-equity (ROE) set to 8.52% for the transmission business under the Custom Incentive Rate-setting mechanism.
- Credit rating agencies took positive rating action, with S&P Global Ratings revising its ratings outlook on Hydro One and Hydro One Inc. to stable from negative, and Moody’s Investors Service upgrading the rating on Hydro One Inc. to A3 (stable) from Baa1 (stable).
- The OEB affirmed its decision with respect to the recovery of the revenue requirement associated with pension costs; the Company will discontinue its appeal before the Ontario Divisional Court.
- Canadian Electricity Association (CEA) recognized Hydro One under the Sustainable Electricity Program for Hydro One’s commitment to continuous improvement for Indigenous procurement.
- Edison Electric Institute (EEI) awarded Hydro One for its efforts to help restore power in Manitoba following a severe storm that caused widespread outages. This is the 10th award Hydro One has received from the EEI for demonstrating its industry-leading expertise in storm restoration.
- Hydro One was recognized for the 5th consecutive year as one of Canada’s Best Employers for 2020 by Forbes.
- Leadership team bolstered with the appointment of David Lebeter as Chief Operating Officer and Darlene Bradley as Chief Safety Officer.
- Quarterly dividend declared at $0.2415 per share, payable March 31, 2020.
“The fourth quarter capped an exciting year of operational excellence for Hydro One as we unveiled our new corporate strategy, increased our productivity and reinforced our leadership team,” said Mark Poweska, President and Chief Executive Officer of Hydro One. “Maintaining safe, reliable and customer focused operations are our key priorities as we charge into the next decade. We are excited about our contribution to Ontario’s economic prosperity and look forward to building strong partnerships.”
Selected Consolidated Financial and Operating Highlights
|
Three months ended December 31, |
Year ended December 31, |
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|
(amounts throughout in millions of Canadian dollars, except as otherwise noted) |
2019 |
2018 |
2019 |
2018 |
||||||||
|
Revenues |
$ |
1,715 |
$ |
1,491 |
$ |
6,480 |
$ |
6,150 |
||||
|
Purchased power |
914 |
741 |
3,111 |
2,899 |
||||||||
|
Revenues, net of purchased power1 |
801 |
750 |
3,369 |
3,251 |
||||||||
|
Net income (loss) attributable to common shareholders |
211 |
(705) |
778 |
(89) |
||||||||
|
Costs related to acquisition of Avista, after tax |
— |
14 |
140 |
29 |
||||||||
|
Deferred tax asset decision impact, after tax |
— |
867 |
— |
867 |
||||||||
|
Adjusted net income attributable to common shareholders1 |
211 |
176 |
918 |
807 |
||||||||
|
Basic EPS |
$0.35 |
($1.18) |
$1.30 |
($0.15) |
||||||||
|
Diluted EPS |
$0.35 |
($1.18) |
$1.30 |
($0.15) |
||||||||
|
Basic Adjusted EPS1 |
$0.35 |
$0.30 |
$1.54 |
$1.35 |
||||||||
|
Diluted Adjusted EPS1 |
$0.35 |
$0.29 |
$1.53 |
$1.35 |
||||||||
|
Net cash from operating activities |
551 |
399 |
1,614 |
1,575 |
||||||||
|
Capital investments |
562 |
467 |
1,667 |
1,575 |
||||||||
|
Assets placed in-service |
849 |
952 |
1,703 |
1,813 |
||||||||
|
Transmission: Average monthly Ontario 60-minute peak demand (MW) |
19,643 |
19,416 |
19,896 |
20,485 |
||||||||
|
Distribution: Electricity distributed to Hydro One customers (GWh) |
7,098 |
7,004 |
27,536 |
27,338 |
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|
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
2019 Fourth Quarter Highlights:
The Company reported net income attributable to common shareholders of $211 million during the quarter, compared to a loss of $705 million in the same period of 2018. This resulted in EPS of $0.35 compared to a loss per share of $1.18 in the prior year, while Adjusted EPS was $0.35 for the quarter compared to $0.30 in 2018.
Revenues, net of purchased power, for the fourth quarter were 6.8% higher than last year, primarily due to the 2018 impact of the OEB decision in respect of the sharing of the deferred tax asset and increased OEB-approved rates for 2019. This was partially offset by the deferred tax regulatory adjustment related to the use of accelerated tax depreciation (Accelerated CCA), resulting from the enactment of certain 2019 federal and Ontario budget measures in the second quarter of 2019, and recognition of a regulatory adjustment related to the Earnings Sharing Mechanism. Both the deferred tax asset sharing mandated by the OEB and Accelerated CCA will flow through to customers and are offset in lower taxes, with no impact on regulated ROE.
Net income was positively impacted by lower corporate support costs and higher insurance proceeds, as well as the timing of work performed with respect to stations and lines maintenance and vegetation management compared to the prior year. This was partially offset by higher information technology (IT) expenditures as a result of the implementation of new tools to support on-going operations.
Income tax expense for the fourth quarter of 2019 was lower than the prior year primarily due to the prior year charge to deferred tax expense related to the impairment of Hydro One’s deferred income tax regulatory asset. Taxes were further reduced, relative to 2018, by the Accelerated CCA and deferred tax asset sharing.
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 $562 million during the fourth quarter of 2019, and placed $849 million of new assets in-service.
2019 Annual Highlights:
For the twelve months ended December 31, 2019, the Company reported net income of $778 million compared to a loss of $89 million in 2018, an increase of $867 million compared to the prior year. EPS for the period was $1.30 compared to a loss per share of $0.15 in 2018, while Adjusted EPS was $1.54 for the year. Year-to-date results were impacted by similar factors to those noted above.
Current year results were also positively impacted by higher distribution revenue primarily due to the OEB’s decision on 2018 and 2019 distribution rates, partially offset by net costs associated with the Merger and lower energy demand driven by less favourable weather in 2019.
For the full year, the Company placed $1,703 million of assets into service in 2019, compared to $1,813 million in 2018.
Selected Operating Highlights
The Company achieved additional productivity savings of $202 million in 2019, compared to $136 million in 2018. This increase was attributable to initiatives surrounding strategic sourcing, planning and execution, repatriation of the customer call center, and more efficient use of capital.
Customer satisfaction scores in the Residential and Small Business categories increased due to Hydro One’s ability to deliver reliable electricity, restore power in a timely manner, and understand its customer needs.
The CEA announced Hydro One as a winner for Commitment to Continuous Improvement through Projects, Programs, and Initiatives for the Indigenous Procurement – Supporting Sustainable Development. This highlights our ongoing partnerships with and commitment to Indigenous peoples.
The EEI presented Hydro One with an Emergency Assistance Award for its response efforts following a severe snow storm that hit Manitoba in October, which caused significant damage to its grid and resulted in outages affecting hundreds of thousands of customers. Hydro One deployed 25 employees to join the restoration efforts. This is the 10th award Hydro One has received from the EEI for demonstrating its industry-leading expertise in storm restoration.
Executive management was enhanced with the appointment of David Lebeter as Chief Operating Officer, effective January 2, 2020. Mr. Lebeter was most recently at BC Hydro in Vancouver, British Columbia. In addition, Darlene Bradley was appointed as Chief Safety Officer. Ms. Bradley was previously the acting Chief Operating Officer at Hydro One.
Common Share Dividends
Following the conclusion of the fourth quarter, on February 11, 2020, the Company declared a quarterly cash dividend to common shareholders of $0.2415 per share to be paid on March 31, 2020 to shareholders of record on March 11, 2020.
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