2014 Fixed Income Investor Update Toronto April 23, 2014 Montreal - - PowerPoint PPT Presentation

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2014 Fixed Income Investor Update Toronto April 23, 2014 Montreal - - PowerPoint PPT Presentation

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2014 Fixed Income Investor Update Toronto April 23, 2014 Montreal April 24, 2014 Winnipeg April 28, 2014 Toronto Hydro Corporation Disclaimer Certain information included in this presentation or incorporated by reference herein

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Toronto Hydro Corporation

2014 Fixed Income Investor Update

Toronto – April 23, 2014 Montreal – April 24, 2014 Winnipeg – April 28, 2014

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Toronto Hydro Corporation

Disclaimer

Certain information included in this presentation or incorporated by reference herein constitutes "forward-looking information". Forward-looking information means disclosure regarding possible events, conditions or results that is based on assumptions about future economic conditions and courses of action or attributable to third parties. In some cases, forward-looking information can be identified by terminology such as "may", "will", "should", "expect", "anticipate", "believe", "estimate", "predict", "potential", "continue", "plan" and similar expressions or the negative of these terms or other comparable terminology. Although the Corporation believes that it has a reasonable basis for the forward-looking information included in this presentation or incorporated by reference herein, such information is subject to a number of risks, uncertainties and assumptions that may cause actual events, conditions or results to differ materially from those contemplated by the forward-looking

  • information. Some of the factors that could cause such differences include legislative or regulatory

developments, financial market conditions, general economic conditions and the ratings assigned to the Corporation or its debt securities by rating agencies. Except to the extent required by applicable securities laws and regulations, the Corporation does not undertake any obligation to update publicly or to revise any of the forward-looking information included in this presentation or incorporated by reference herein after the date thereof, whether as a result of new information, future events or circumstances or otherwise.

2 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

  • About Toronto Hydro
  • Regulatory Overview
  • Financial Highlights

Agenda

3 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

At a Glance

*As at Dec. 31, 2013

4 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

  • Regulated by Ontario Energy Board (OEB)
  • Local Distribution Company
  • 99% of Revenues
  • Contractual Relationship with City of Toronto
  • Owns and operates street lighting
  • 1% of Revenues

~$1.5 Billion ~$1.2 Billion Equity

Corporate Structure

5 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

  • Toronto Hydro is operated independently from the City and treated as an

investment

Board composed of 11 directors appointed by City Council

  • Shareholder Direction adopted by the City sets out the corporate

governance principles with respect to Toronto Hydro

Pay dividends to the City each year equal to the greater of $25.0 million or 50% of the Corporation's consolidated net income for the prior fiscal year

Employ most efficient cost structure and maximize return on equity

Obtain and maintain rating of A- or higher on senior debt securities

Shareholder Direction

6 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

VISION: Continuously maximize customer and stakeholders’ satisfaction by being safe, reliable and environmentally responsible at optimal costs.

Our Focus

7 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

People Strategy

Best in class safety & environmental management systems Focus on workforce engagement, productivity & quality of work Retain high performers and develop leadership succession plans Balanced workforce complemented by contractors

Our promise

 Provide a healthy and safe workplace  Develop a skilled and knowledgeable workforce Keep our workforce engaged and productive

8 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

Safety

Toronto Hydro is committed to a safe and injury free work environment for all employees, contractors, visitors and the public, as evidenced by the significant reduction of recordable injuries over the last seven years.

9 | 2014 Fixed Income Investor Update

6.44 5.19 4.29 4.41 2.49 2.15 2.26 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 2007 2008 2009 2010 2011 2012 2013

Injury Freq. / 200,000 hrs worked

Total Recordable Injury Frequency

65% Change

(2013 vs 2007)

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Toronto Hydro Corporation

  • Toronto Hydro has 961 employees represented

by the Canadian Union of Public Employees, Local One ("CUPE One")*

  • On February 13, 2014, CUPE One ratified

collective agreements governing inside and

  • utside employees for a four-year period

expiring January 31, 2018

New Collective Agreement

10 | 2014 Fixed Income Investor Update

*As at Dec. 31, 2013

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Toronto Hydro Corporation

Operations Strategy

Mitigate deteriorating reliability while maximizing reliability at allowable level of investment Maximize capital budget with available regulatory mechanism Continue to enhance productivity and efficiency throughout

  • ur operations

11 | 2014 Fixed Income Investor Update

Focus on managing core business activities Design, engineer, construct & operate

Our promise

 Keep the lights on  Keep our system safe  Build a grid that supports a modern city  Maintain above average productivity

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Toronto Hydro Corporation

Reduction in outage frequency is partly explained by grid modernization and infrastructure investments.

Operations

12 | 2014 Fixed Income Investor Update

Average # of Interruptions / Year (SAIFI1)

1System Average Interruption Frequency Index. Represents the quotient obtained by dividing the total number of customer interruptions longer than one minute by the number of customers served.

2.01 1.79 1.64 1.77 1.62 1.40 1.44 1.00 1.20 1.40 1.60 1.80 2.00 2.20 2007 2008 2009 2010 2011 2012 2013

Outage Frequency

28% Change

(2013 vs 2007)

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Toronto Hydro Corporation 13 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation 14 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

  • One of Toronto Hydro’s largest capital initiatives in response to the

developing need for distribution solutions in the downtown core

  • Estimated completion: Q2 2015
  • Estimated cost for this project is $195 million
  • Will add a total of 144 MVA in new capacity to

the distribution system, which is equivalent to approximately 70 condo towers

Copeland Transformer Station

15 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

Customer Strategy

Focus on managing Core business Meter to Cash Revenue protection and growth Affordable Rates Achieve CDM regulated targets within approved funding limits

Our promise

 To provide long-term value for rate payers  Make it easy to work with us  Help customers conserve energy  Provide customers with tools and technology

16 | 2014 Fixed Income Investor Update

CDM: Conservation and Demand Management

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Toronto Hydro Corporation

A diverse foundation of large, well-established customers provides Toronto Hydro with low concentration risk.

Customer Segmentation

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Type Number of Customers % Revenues ($K) %

Residential Service 648,380

88.9%

$814,287

25.4%

General Service 81,137

11.1%

$2,066,621

64.5%

Large Users 51

<0.01%

$264,548

8.3%

Other

  • $57,337

1.8%

Total 729,568

100%

$3,202,793

100%

*As at Dec. 31, 2013

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Toronto Hydro Corporation

Residential Bill Components*

Distribution (incl ICM) 30% Rate Riders (non-ICM) 3% Transmission 9% Regulatory (IESO) 12% Commodity 46%

Residential Bill 2005

% of Bill by Component

Distribution (incl ICM) 26% Rate Riders (non-ICM) 0% Transmission 9% Regulatory (IESO) 9% Commodity 56%

Residential Bill 2013

% of Bill by Component

* Projections incorporate high-level assumptions on rate increases for different components excludes Tax & Ontario Clean Energy Benefit

18 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

  • About Toronto Hydro
  • Regulatory Overview
  • Financial Highlights

Agenda

19 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

2013 2014

OEB – Key Dates

Apr-2013

2012/2013 Work Program 86% Approved Copeland Transformer Station

Dec-2013

2014 Work Program Settled

Q3-2014

2015-2019 CIR Application to be Filed

Jan-2014

Recovery of return

  • n assets of smart meters

1 2

20 | 2014 Fixed Income Investor Update

3 4

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Toronto Hydro Corporation

Forward Regulatory Framework

3GIRM IRM/ICM 3GIRM IRM/ICM

4GIRM Annual Indexed Rate Setting

2012-2013 2014

Cost of Service (COS)

2006-2011

Current

2015 & Beyond

Forward

Custom Incentive Regulation

21 | 2014 Fixed Income Investor Update

3GIRM: 3rd Generation Incentive Regulation Mechanism | ICM: Incremental Capital Module

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Toronto Hydro Corporation

  • Custom Incentive Regulation (CIR) is a hybrid between COS and IRM

(minimum 5-year term)

  • CIR is appropriate for:

 Distributors with large, broad, multi-year investment needs over a five-

year period or more

 Distributors who require certainty of funding several years in advance

CIR Framework

22 | 2014 Fixed Income Investor Update

Rate setting for term based on a distributor’s forecasts, and OEB IR analysis (e.g. productivity and benchmarking)

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Toronto Hydro Corporation

  • About Toronto Hydro
  • Regulatory Overview
  • Financial Highlights

Agenda

23 | 2014 Fixed Income Investor Update

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SLIDE 24

Toronto Hydro Corporation

Financial Strategy

Maintain investment grade credit rating and access to capital market Fair return to Shareholder Achieve excellence in Regulatory affairs and processes

24 | 2014 Fixed Income Investor Update

Our promise

 Provide a Fair Return To Our Shareholder  Continue To Increase Shareholder Value

Only spend OEB approved CapEx and OpEx

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Toronto Hydro Corporation

Record net income from regulated operations in 2013.

2013 Financial Summary

25 | 2014 Fixed Income Investor Update

$ Millions

2012 2013 Variance

Better/(Worse)

Net revenues $577.3 $635.3 $58.0

10.0%

Operating expenses ($245.2) ($272.0) ($26.8)

(10.9%)

Net financing charges ($74.0) ($66.3) $7.7

10.4%

Income tax expense ($4.6) ($4.3) $0.3

6.5%

Net income $86.0* $121.2 $35.2

40.9%

*2012 Net income includes $27.8M restructuring costs

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Toronto Hydro Corporation

  • Toronto Hydro benefits from a strong liquidity position
  • On September 6, 2013 Toronto Hydro amended its $600M credit facility

 Extended by an additional year, now maturing in October 2018

  • As at December 31, 2013 Toronto Hydro had nearly $500M in liquidity

Liquidity

26 | 2014 Fixed Income Investor Update

$ Millions

2013

Size Available Revolving Credit Facility* 600 450 Working Capital Facility 20 1 Prudential Facility 75 25 Total Liquidity 695 476

* Current Commercial Paper drawings reduce credit facility availability

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Toronto Hydro Corporation

Commercial Paper

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  • Launch Date: December 17, 2013
  • Rating: R-1 (low)
  • Amount: $400M
  • Dealers:
  • Backstopped by credit facility
  • $150 million outstanding as at

December 31, 2013

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Toronto Hydro Corporation

Debt Maturities

28 | 2014 Fixed Income Investor Update

The Corporation’s maturities are well staggered, with no debentures maturing before 2017.

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Toronto Hydro Corporation

Capital Expenditures / Capital Assets

29 | 2014 Fixed Income Investor Update

391 437 292 450

100 200 300 400 500

$M

CAPEX

2.2 2.5 2.7 3.0*

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

$B

Capital Assets

* Note: 2013 includes ICM Capital (integrated as a portion of Regulatory Assets)

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Toronto Hydro Corporation

Net Income

30 | 2014 Fixed Income Investor Update

66.1 95.9 86.0* 121.2

20 40 60 80 100 120 140

$M

* Note: 2012 Net income includes $27.8M restructuring costs

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Toronto Hydro Corporation

Key Metrics

31 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

Accounting Standards

USGAAP IFRS Up to 2011 2012-2014 2015+ CGAAP

32 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

A / stable outlook A (high) / stable trend

Credit Ratings

The Shareholder Direction provides that Toronto Hydro will obtain and maintain a rating of A- or higher on its senior debt securities.

33 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation

LOW RISK PROFILE WITH FOCUS ON REGULATED UTILITY OPERATIONS COMMITTED TO MAINTAIN STRONG CREDIT RATING FINANCIAL INTEGRITY OPERATIONALLY STRONG

Key Takeaways

34 | 2014 Fixed Income Investor Update

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Toronto Hydro Corporation