Q1 2020 Earnings Call
Good morning, ladies and gentlemen, and ones that have hydro one limited first quarter 2020, which teleconference.
At this time all participant lines are in a much more mode.
After the speakers presentation, there will be a question answer session.
That's a question during the session will need to press star one or your telephone.
As a reminder to college accordingly.
I'd now like to introduce your host for today's conference. So more jotted, Vice President Investor Relations at Hydro one. Please go ahead.
Good morning, everyone and thank you for joining us.
These unprecedented times, we're doing the called virtually but I do want leadership, we're practicing social distancing at their respective homes.
Joining us today are.
Our president and CEO Mark for Wesco.
Our Chief Financial Officer, Chris Lopez.
And our Chief operating Officer, David Libre.
In the call today, we will go over our first quarter results as well as our Corbett 19 response, and then spend the majority of the call answering as many of your questions as time permits.
There are also several slides that illustrates some of the points will address in a moment.
They should be up on our web cast now or a pure dialed into the call. You can also find them on hydro ones web site and the Investor Relations section under events and presentations.
Today's discussions with likely touch on estimates and other forward looking information.
You should review the cautionary language in today's earnings release, and or Mdna, which is <unk>, which we filed this morning regarding the various factors assumptions and risk.
I could cause our actual results to differ as they're all applied at this call.
With that I turn the call over to our CEO Mark for Wesco.
Thank you Omar.
Good morning, everyone and thank you for joining us to review our first quarter results.
Hope you are healthy and seen faced during this time.
You don't get a chance to ask a question near the end of this call. Please keep in mind that Omar and his team are available to you.
In today's update we will focus on what is on everyone's mind.
Our financial results.
Impact from the covert 19 pandemic as well as the decisions from the Ontario Energy Board honor transmission rate application.
And you are really a peterborough transactions.
I will provide you with an update on how our stable financial Foundation I prepared us for the road ahead, and how we will emerge stronger from these unprecedented times.
We'll then turn to Chris to review the financial results.
Over the past few months Cobot 19 has changed our world and daily lives.
Immunities businesses and families have adapted to a new reality as we fight a global pandemic.
As we face new economic and social challenges governments industry and individuals are coming together to help those in need to financial support donations and increased financial flexibility.
I don't want plays a critical role empowering communities and the economy.
I would like to thank the men and women hydro one for their outstanding effort and their commitment to our customers each other and all Ontario.
The covert 19 pandemic has brought new challenges for many of us.
Our ability to quickly learn and adapt gives me great confidence that we will emerge from this as a more resilient organization than ever before.
Over the past year I outlined are clear vision mission and our corporate strategy.
Our vision of a better and brighter future for all supported by our mission to energize life for people in communities through a network built for the possibilities of tomorrow.
To us energizing life doesn't just mean supplying safe and reliable power. It also means standing up for our customers communities and employees and advocating for them when they need it most.
And then essential service, we're responding to the challenge is brought forward, but to cope with 19 pandemic.
During this time, our top priorities are to protect our employees and to maintain the safe and reliable supply of electricity to our customers.
As always our commitment to safety is uncompromised.
Our employees are powering the province, and it is our responsibility to protect them.
We have it just it our operations and our concentrating on near term system safety and reliability as well as longer term work they can still be conducted safely.
In the field, we have put safety barriers in place to enable our crews to continue working safely.
We've adjusted our work methods and our splitting cruise deploying work digitally.
I agree start times and minimizing travel within the province.
We seamlessly transition 3000 employees to work from home, including our customer operations.
Nearly all of our customer service agents are now supporting our customers remotely.
We've introduced enhanced temperature and symptoms screening for employees working in our main and backup control centers.
And should the need arise. We are also prepared to sequester control center employees to ensure we maintain the ability to safely operate the grid.
As we've instituted new processes tools and technologies, we've been able to continually increase the amount of work we can conduct safely.
Keep our teams engaged and informed my senior leadership and I regularly connecting with all employees.
We recognize our critical role in supporting families the economy and those on the frontline fighting this virus.
We have taken several steps to support essential services during this time.
We are proactively patrolling line the feed hospitals and other critical infrastructure, we're prioritizing projects and enable our food supply.
Connecting greenhouse growers to powering food depots grocery stores.
We're connecting new homes to ensure people have shelter.
We also recently volunteered are dedicated to professional customer service agents to assist the province with tracking cobot 19, like contacting them monitoring travelers coming into Ontario.
We are proud to play this small role in keeping Ontario safe.
Ontario ends are counting on us and we are here for them.
It is critical that we stand by our customers at this time.
To support our residential customers, we lost a pandemic relief fund we have temporarily suspended late fees and we announced that no one would be disconnected during this time.
For a business customers, we've returned $5 million and security deposits so over 4000 businesses.
With more people isolated at home, we applaud the Ontario government for moving decisively to implement interim released measures that allowed us to move customers onto off peak rate pricing.
We've also fast track $6.2 million in payments to small medium and indigenous suppliers to help with much needed cash flow.
We have donated 300000 worth of meals to feed, Ontario, which is an urgent need in the communities we serve.
To me to challenge of this magnitude we must work in partnership with government other companies industry and unions.
As we continue to advocate for customers and get back to communities Weve seen a significant jump in hydro ones overall impression score.
In Q1, 82% residential customers said, they have a favorable impression of hydro one.
Seven point increase over the same period last year.
At this situation unfolds, we will continue to put people first.
Despite the challenges presented by the pandemic there was a bright future ahead, and we have many successes to be proud of.
Hi, everyone has financial stability and flexibility for times like these.
The first quarter results demonstrate the stability of our business.
Although year over year earnings are lower this quarter. It is all not counting strong results last year related to the regulatory decision on the distribution rate application and favorable weather.
Our ongoing efforts to take expenses out of the system are benefiting both customers and shareholders alike.
In March we held our inaugural Investor day.
Well my executive team and I had the opportunity to meet with global investors and highlight this focus.
We also outlined our strong investment grade balance sheet.
It is our financial position that has given us the flexibility we need as we adjusted our operations and workforce to tackle this unprecedented time.
In late February we issued $1.1 billion of debt at a competitive rate will undoubtedly support our sustainable business model.
In addition, late last month, we received a number of decisions from the OE B.
These included the decision on our 2020 to 2022 transmission rate application and approvals of the arrhythmia and Peterborough transactions.
We see these decisions is balanced inline with prior OE be rulings and the demonstration of Ontarios constructive relic regulatory environment.
We are pleased we now have regulatory approvals and clarity on capital investments through to 2023.
We look forward to welcoming our new customers and employees from a real Ya and Peterborough to the hydro one family.
Joining us from a radio will be approximately 14000, new customers in the simple county, which is surrounded by existing hydro one service territories.
Hydro one will serve as an additional 37000 customers in the Peterborough Lakefield and Norwood areas as a result to the Peterborough transaction.
I don't want to has a century long legacy of solving challenging problems through ingenuity determination and resilience all while putting the needs of customers communities first.
Since 2015 Hydro one has been on a journey to transform the business.
Our customer driven culture, nearly half a billion dollars and productivity savings do you some new technologies in the field.
Digital solutions for customers have formed a strong foundation that enables us to weather the storm.
We found new ways to collaborate we've developed innovative solutions and were more in tune than ever with the needs of our customers and communities.
Once this chapter is over we will be safer more flexible and more efficient.
Over the past two months I've seen the best of humanity creativity and kindness, we will continue to find new ways to support one another with more solutions to address the challenges that lie ahead.
Before I pass it over to Chris I would like to take a moment to thank you and your Deeni, who is not standing for reelection to the board of directors this year.
I don't want has benefited from adds leadership experience and forward thinking in her rules as chair of the health safety environment and indigenous Peoples Committee.
And as a member of the audit Committee.
A search to replace and has been initiated in accordance with the governance screaming.
Thank you and.
Chris or do you.
Thank you Mark.
Good morning, everyone and thank you for joining us today during what is an extraordinary Todd.
Hi, you and your families is safe and well.
Hi, Good 19 has affected everyone in a deep and for sound manner.
We remain hopeful for solution that will now everyone to move forward with a new normal weight loss in the not too distant future.
Hi, Joe one we understand our role is to keep the lights on all Ontario.
We have met this challenge hit on.
We made the necessary changes to ensure the safety, although employees and customers and to continue supporting electricity grid needed by don't too young to keep all essential services operating and the economy open and ready to grow again, when it is safe to do so.
Intends about financial results for the quota we saw an increase in basic earnings per share to 38 cents compared to 29 cents last year.
Uh huh.
Adjusting for the impacts from the merger adjusted earnings per share was 38 cents compared to 52 cents last year.
The decline was primarily related to higher distribution revenues received in the first quarter 2019 relating to the always decision on the 2018 to 2022 distribution right application.
Within the revenues received last year were announced that related to the 2018 distribution rights recognized in the first quarter 2019.
Which translated into approximately 11 cents earnings per share.
You sought and should be taken into account when considering the compatibility.
I'm pleased with these results, which is a testament to the resiliency of our employees and the fundamentals of the business.
Our first quarter within you know this purchase power was lower year over year by 11.4%.
As mentioned the primary driver of the decrease came from the onetime catch up revenue as a result that 2018 distribution rights application.
Revenue was also affected by decreasing transmission revenues, resulting from lower average monthly, Ontario, 60 minutes peak demand on account of list I went out in the first quarter of Twentytwenty.
Lastly, the first quarter was wondering which we benefited from favorable weather.
Well go to 19 may have impacted peak demand marginally much we saw less favorable weather all three months, which results in a year or the quarterly decrease of approximately 7%.
As Mark mentioned, we support the government actions to temporarily eliminate tons of these processes, Ontario, as more and more people were required to stay home.
We're pleased that customers across until you're benefiting from this program with no impact to our revenues.
Turning to operating expenditures, we were substantially loans, primarily due to cost associated with the termination of the merger agreement and project write off related to the Lake Superior Link project in the first quarter of 2019.
The year over year decrease eliminating.
Within the quarter amounted to approximately 36.3%. However, all M&A was flat when we exclude the merger termination fee as well as the project expenses from the Lake Superior Link project and the written off last year and the type of 19 related costs of approximately 5 million this year.
Our continued focus on offsetting inflation is especially important journeys unprecedented times.
The impact of the measures taken by hard you want to support our customers, including the pandemic Sun temporary suspension of late fees and extension of the moratorium I'm not expected to be material as I mentioned earlier, we have high operating expenses. This quarter of approximately 5 million, but I did you close to 19.
It includes the temporary stand down off because you look pools and the purchase of additional facility and clean when I did supplies.
We were pleased with the only piece Swift action on they've got it's because we've got to tracking and reporting its quite a bit 19 related impacts.
The only be continues to provide direction and clarification, but as guarded on the establishment of Threeg regulatory deferral accounts to capture the impacts of climate 19.
Yeah.
<unk> billing and system changes as a result, a ton of these pricing.
The two most revenues arising from quite a bit 19, and finally other incremental costs.
This guidance allowed us to include bad debt expense in the regulatory deferral accounts as we sensed that it was probably it would be recovered and teach rights.
Fool 14 billion a bad debt expense has been recognized as a country acid and does not impact net income.
We're also taking other income into cost and lost revenues, but have not recognize them indifferent and accounts at the assessment or whether that probable for recovery remains ongoing.
The short term effects of kindred 19 remain uncertain due to the underlying depth and duration of the pending.
It is challenging to estimate the exact impact on teacher and teacher might be impacted by numerous variables, including with.
That said, we continue to see decreases in April we could you ever you peak demand decrease at approximately 13% a portion of which is likely only kind of type of 19.
Given the variable nature of its really needs.
Mission business impacted more and the distribution business as approximately 60% of distribution becomes a fixed.
During this time increase on M&A costs are expected to be largely offset by decreased expenses sensor resulted impacted with programs.
As a result, the primary impact will come from reduced mode.
Each additional months, we have a 10% reduction load June but taking a period <unk> is expected to decreased by approximately two cents.
On financing.
Several factors to consider when comparing the financing charges you right yeah.
Let us have different financing charges related to convertible debentures redeemed in February 2019.
This was previously recorded unrealized gains on the foreign exchange content and interest expenses related to the convertible debentures, we're all specific to the merger.
However.
Excluding those specific financing charges, we saw a slight increase interest expense due to a higher weighted average loan to debt balance as a result of debt issuances in the second quarter last year as well as our recent 1.1 billion dollar debt issuance temporary twentytwenty.
He said issuance was a landmark as we achieve competitive rates in both the 10 and 30 you bones.
This achievement can be attributed to.
We are robust investment grade debt ratings and a commitment to a strong balance sheet.
Despite the effects of the pandemic, we continue to view and liquidity position favorably.
Quarterly income tax expense increased to 15 million for the first quarter 2020, compared to an income tax recovery of 16 million last year.
The increase in income tax expense was primarily attributable to the 2019 text recovery on the termination scene and financing charges related to the merger as well as incremental tax deductions from the different Texas is sharing as mandated by the only thing.
The latter costs pertaining to this the text message here and well see the offset by lower revenue, making net income neutral.
Due to the reasons discussed above expected tax rate for this quarter was 6.1 person. This is a negative 9.9% in the first quarter last year.
I thought it's an effective tax rate remains unchanged in the range of seeks to 15%.
Moving on to investing activities. The company place 225 mean that message instead of is in the sense quota.
55.2% increase to the probably yeah.
This was largely a result in servicing high voltage underground table replacement work from at least I transmission station two main transmission station.
We also instead of his considerable refurbishment work at the Elgon transmission station.
As a result, cobot 19 pandemic in the latter part of much 2020, we prioritized essential and hot property work and temporarily deferred projects to ensure the safety of our employees and the public.
I started a review of what practices is being conducted to mitigate potential impact could be done team on the capital program in Twentytwenty.
As discussed earlier, you just county challenging to estimate the impact all depending on what progress.
I was just will be dependent on the depth and duration all depend to make as well as the mitigating measures in place across Ontario.
On the regulatory front subsequent to the end of the quota on April 20. Good we received the key decision from the only be well that transmission right application in the decision the only be approved for Threeq went well being of capital investment over the 2020 to 22 period.
While there was a modest reduction will deferral of capital in the amount to 400 billion and the reduction of all M&A in the amount of 10 million from what we had planned we will work within the approved on blooms to do our best to support accustomed and the Ontario economy through productivity improvements and efficiencies.
Since the capital reductions were made to sustaining category, we expect the food cost of capital to be deployed within our next right application.
We're currently evaluating how the decision impacts the timing of the future capital investments and will provide an update you know Q2 results. Once the dropped like what I was thinking updated revenue requirement is filed no later than May 20, <unk> <unk>.
Yeah.
With this decision well with that distribution and transmission business.
Our incentive rate, making frame like now through 2023.
As a reminder, the incentive rate, making constraint gives us the ability to share earnings with our customers. If we earned in excess of 100 basis points above I'll now return on equity.
This means a customers will continue to benefit from our relentless focus on reducing expenses and increasing productivity.
Furthermore, with decisions received the both businesses, we are focused on executing to plan decreasing operation expenditures and increasing productivity.
As Mike mentioned, we also received decisions from the only be on applications for the Amelia and Peter Barbara LTC acquisitions.
Yes, very pleased to proceed with these two transactions.
As a reminder, do you really transaction has a 41 million dollar purchase price, including a proxy 50 million of issuing debt and regulatory liabilities, which is subject to closing adjustments.
In the PDR transaction, we will acquire the business and distribution assets for a purchase price of 105 mean, which is also subject to closing adjustments.
We continue to expect the decision on the appeal of had to say, Texas. It in the first half of this year.
We filed an appeal with the divisional code, which was heard on November 21st 2019.
On March 31st 2020, and additional submission was filed with updates relating to a Supreme Court of Kinda decision in December 2019, which substantially revises administrators more principles.
And strengthens our kids.
The Ontario Divisional court decision is pending.
I'm pleased to concern that the board of directors approved the quarterly dividend.
This dividend continues to reflect the strong long term fundamentals of the business and the good work teammates to doing the benefit of old stakeholders.
[noise] dividend also benefits all on change as the government of until really continues to be a large shareholder hydro one.
Finally at this time, we do not see change the guidance we provided at our recent this today.
Well due to cope with 19, we have prioritized mutant capital delivery to work that is essentially we still aim to completing the capital program on target over the right period.
So that considering the impact of type of 19 and the recent decision on that 20 to 22 transmission ran application. We continued to be committed and to find out guidance of 4% to 7% earnings per share grows 320 22.
I'll stop there and we'd be pleased to take your questions.
Thank you Mark and Chris before we ask the operator to explain how she'd like to organize the queuing they pulling process, where a bit tied on time this quarter as our first ever virtual annual shareholder meeting begins at 930 and.
So I. Please request that participants wishing to ask questions. At this morning to please keep them to a single topic. So that as many people as possible have an opportunity to participate in the time available.
My team and I are always available to respond to follow up questions.
Please go ahead Chen.
Thank you as a reminder to ask a question you need to press star one or your telephone to withdraw your question has to punky placed in Bali compiled the 20 roster.
My first question comes from Rob Hope from Scotiabank. Your line is open.
Good morning, everyone first question, Justin regardless of how you're looking at cost under covert 19, I just want to get a sense of what lever as you think you can pull whether that is vegetation management to offset the lower revenue potential and then also you didnt mention that some cost could be.
The caught up in a regulatory accounts, so want to get a sense of how your slicing and dicing costs, and which one will fall to the bottom line and which ones will.
Be able to be deferred.
But.
Yeah, Thanks, Rob I'm, maybe I'll start and then I'll ask Chris to Ah to go on that.
So so we we're focusing on restarting a lot of the work that we have to pause when the pandemic GAAP broke out and really we do have been some lever is primarily in the productivity.
Range.
I'll remind you as well that the or will you be has asked us to collect cost associated with covance in deferral accounts and those accounts are focused on on collecting the costs of the billing changes we've had to do to to go to a temporary time of use rates.
As well as lost revenues in any incremental costs associated with car cobot, including bad debts.
So recovery these costs will be determined by the only be when they counts are brought for this or <unk> for disposition and we are part of a regulatory working group with the only be and the others in the sector to provide input on on how one when utilities me I'll bring forward. These accounts.
For this disposition. So we do have leveraged that we will be pulling and <unk> and working to offset and we also have these regulatory mechanisms. Chris do you want to had anything to that.
Thanks, but I'm just very quickly into one we booked around $5 billion of costs related to cope with my team that really is the cost of standing down certain work teams.
To comply with government what is and also some additional costs around sonatide sanitation. So let's pause me, but that was not the third we are tracking it.
And then accounts attract new accounts that can be but well before the only be in the future. So the only be set up three accounts really to keep the regulated entities in Ontario hole and they apply the transmission as well as distribution.
That's billing insisting changes associated with ton of use certain costs associated with that.
Lost revenues, so that's a broader category, which pretty quick which could include let alone.
And then finally any incremental costs relating including relating cost related to bad debts. So it is quite broad we are as Mark said, what keeps working with a broader industry group to say what will be included we also have a an obligation on sells a utility operator to try and minimize those cost as much as possible.
And even.
Key to our operating on blogs. So we are getting as moxy dragging some benefit from productivity will also it gets benefit simply from not being able to do certain work because all the government mandated shutdowns that said we are the central city. So we haven't been as impacted by other industries. So overall, we do not expect those costs.
Costs to be a material.
Across the <unk> as a result of either recovery for us managing internally to offset those costs.
Alright, Thanks for that and then maybe a longer term question. It's been interesting to see how the shape of load curve has shifted to under Kobe and I just want to get your sense of like if we are seeing a larger percentage of the population work from home on a longer term basis, which could flatten out some of the peaks.
How would you look to interact with the regulator if it if that could be a permanent shift and that we can see a permanent shutdown in that peak load profile.
Yeah, I know that the I am so they they release there they're planning don't work earlier this year and they're going back actually to look at that as a result, a cold and see what those longer term impacts might be and ER and you're right. We are seeing that a shift in the so called duck curve being that.
With more people at home actually the the residential curve is changing quite a bit and you can see that people are sleeping and quite frankly, but but we will work with <unk>. So to it to look at that long term. It may help by with some of the peaks and I'll remind you. The Pickering is planning on shutting down.
Some of their nuclear and in 2024, so there will be a capacity need at that time. So there may be some some advantages to to a flattening the doctor.
Well, we'll continue to work with the I.S., so and and and I assess if there are long term shifts and load and consumption in the province.
Thank you.
Thank you. Our next question comes from Linda Ezergailis with TD Securities. Your line is open.
Thank you I'll just a follow up to Rob's question about the the shape of the low load curb shift I know you're working with the ISO but is there any potential to revise your projects, including if the duck curve or is it shifted.
That you might not need some of the the transmission projects that you currently proposed.
We're not we're not seen any any impacts to our existing transmission projects.
You know the longer term will will have to wait to see on on how this really comes out and what the I.S. oil is forecasting so I don't see an impact on the and the projects. We're working on today, we are doing some planning work on the Lasik in line and those are longer term that at the <unk>. So.
Hasn't made the decision on whether we're going to work move forward with those to construction or not but we are working on the planning work. So I take it is a pretty early in a bit of a wait and see but I don't see any impacts on our current projects that we have approved.
Okay. Thank you and that just as a follow up on your transmission decision do you have a sense of what the approximate amount of catch up revenue is expected to be booked with second quarter earnings as a result of the decision.
Chris do you want to have stopped.
Yes.
It's approximately one cents Anita they there will be some other minor adjustments unit that was maybe two or three but.
The actual rights impact or because you didn't booking in Q1 is one thing.
Great. Thank you I'll jump back into queue.
Thank you. Our next question comes from Robert Kwan with RBC capital markets Johnson.
Good morning.
I can actually just held back into that kind of at 19 deferral suit. So Chris you mentioned that.
10 million of bad debt.
There's been accreted into the regulatory assets and excluded.
I'm from hitting the piano now you also mentioned 5 million. So that's been put into regulatory account, but you did take [laughter] can you just talked about somebody other things balances and you're putting into accounts right now, particularly anything.
Around lost.
Number, yes, and just to be clear the comments around the names offsets you're planning on accruing and that number instead the.
John is that correct.
Yes, So let me take each part of that so the the the first part around around load well. The after the first the first question you asked what do we deferred or anything we have to but at this point is the $14 million a bad debts that is one that seems to have a lot is.
Consensus that it's it's a simple to measure and it's going to affect ldcs across Ontario and.
And that carrying effectively the but the credit exposure for the whole Lexus industry. So some of those small municipality simply can't do that so suits consensus at that one there is going to be resulted in a timely manner and very probable that recovery. So we booked at one of my fairly comfortable with that decision with everything else we had.
No it's booked I defer so the only other cost that we captured sofa is this net five mean dollar cost of all M&A. There was a slight tax leakage of about $2 million.
So a tech expense is slightly higher than otherwise would have banks, we haven't put as much.
Capital, we don't expect put as much capital incidence or at the time, especially in this year, but I haven't sort of highlighted that <unk> results.
And then we get back to your last question about.
That will be resolved in the next quarter, we'll get to put a lot more lot on it but feeling so far is that while we have some increased costs associated with quite a bit 19, the cost intensive.
Low.
A little at work in the what programs is roughly offsetting that and we are expected by the only be to do how best to try and manage within those Oh M&A overlaps. So what became we'll do that so say filing. We we have your opinion that we can do that and any incremental cost should be recovered from from the only be going forward.
In terms of load the reason why we put no load into what the total account at this point went to attract new account, we need to identify what's the.
The calculation method would be so as I said in my earlier comments the load was down on average 7% each month for the first three month to the Shia so that was before.
So there is no real clear pitchy, yet on exactly what is weather related included related and we'll need to come up with a method of being able to clearly articulate the difference between the two I Shouldnt say that were down 13% in April. We noted we were down 7% ups that points to the 7% weather related and the remaining five quoted that's what we need.
Without so to this point, we put nothing in attracting account and we put a nothing into full account other than I did.
Got it and do you have just an estimate as to what that 6% differential.
Might translate to the also split.
Engineering personnel.
In terms of yeah. So so yes that I Sandeep I had a 10% reduction in mode for a month that would be two cents impact upon results with that's assuming no recovery. So in that case I. Just gave you consider into 13 that'd be a 5% reduction in low that benefit would be one.
Hunting.
[noise] and just finish with on the M&A friends <unk> really acquisitions.
Just give you more confidence and just in terms of how did you go through the decision to do.
Additional deals in the future and obviously, we got to get out.
What's going on right now, but do you think this will accelerate potential teaches actions.
Yeah, It's mark here. So we are obviously pleased with the outcome of Oh those decisions. They took a while to get here, but but we are happy with the outcomes and and we're happy that they approved all the significant elements of our proposal with really minor modifications so from that perspective.
It was really good outcomes as far as whether it will help facilitate further consolidation you know I believe that that that we made a good case for for consolidation and and which did result in the be positive outcomes. On these two well. We're also seeing across the sector for two cleared through Cove. It is that.
There is an advantage to Ah Ah two consolidation and we're seeing a lot of the smaller utilities in the ldcs have liquidity issues. During this time and so things like their billing as well you know there's just a lot of things that are coming to the surface that show that they consolidate.
And for the overall sector can have a lot of positive result, so I am optimistic from that perspective that.
There will be opportunities again willing willing seller willing buyer and not the right price, but but I think we have shown true coal, but that there is an advantage to having a bit the sector. Even further consolidated.
Great. Thanks very much.
Thank you. Our next question comes from Andrew Kuske with Credit Suisse. Your line is open.
Thank you good morning, obviously lots changed in Q1, and then the year to date after the quarters closed off but is there any metrics you could share with us in particular in the residential side on just reliability.
And how that's either been enhanced.
Or it's changed given the shape of the curve is clearly change from a load standpoint.
Yeah, I'll start with that and then I'm going to handed over I'm. We've got a a new member of my executive team on the phone today, David Lee butter, He's our chief operating officer, and a and he has responsibility for for although the field crews. So so what were what we're seeing is a is that.
Because we've stood down some employees and there are there.
Working from home on standby, a response time as a little bit slower to the two outages that we've been having I don't foresee a long term impact on the reliability as a result of some of the work we've stood down our priorities as I said in my opening around Oh, we have determined what work continues and what were some staff.
Found is obviously the first thing is protecting our employees and then we looked at it adds a as you know the work that needs to to carry forward to ensure the reliability and safety of the system. Both in the short medium and long term, we recognize right away that this event wasn't a wasn't a short.
Term event. So we knew that we couldn't just stand on all the work for a short time and then started back up. So we have been you know judicious about how we've done that David do you want to I do want to add to that.
Thanks, Mark Im a good morning, everyone.
Interesting type number liability perspective, we've gone through two storms and as Mark said, a response wasn't quite as fast as it would have been under the pre prior to cobot, but did improve with both storms and we're now very confident we can respond in a similar amount or similar timeframe that we used to even though we have people working from home.
I'll just add the German koby, we've kept our forestry cruise.
Working on a regular course, you crews working because they have such a large impact on reliability and similarly, we've kept our engineering teams working continue to advance the projects and work that grid modernization act choose and have such an impact on reliability. So I actually see this isn't all unity for us to get better we do you different methods to.
The former liability perform restoration and it's also allowed us to focus on how we planned outages were seeing an improvement reliability from fewer planned outages and we're looking at that and see how could we get on to get back to full were capacity after cold and still maintain reliability, but have lower impact from planned outage.
But to answer your question.
Does that's helpful and and then my follow up really relates to the restarts of industrials Theyve gone offline.
So to the extent you've got large loads industrials and your service territories, how do you envision restarts.
Are you being a bit more cautious with the restarts than you would've been in the past stores it really business as usual.
Oh, I think David do you have to I think it's business as usual the restarts.
We've we've taken this opportunity to address all the critical circuit to address some of the critical circuits were looking at all the big industrial loads of their vital to the economy voluntary <unk>, we want to make sure when they're ready to come up ready to service them.
That's great. Thank you.
Thank you asking when so many of you wish that's a question at this time. Please press Star then one are you touched on telephone. Our next question comes from March RBC IVC capital markets. Your line is open.
<unk> wireless I, just want to come back to your comments about the two cents impact every 10% decline though.
Does that assume any offsets from modification of call M&A.
Maybe just.
Since more specific to transmission in a drop in people and but on the on the distinction side I know your land slated given higher fixed charges, but why do you seen so far through the month in April and in terms of not having any impact as you kind of seen a higher residential load and drop off in commercial.
Hi, Mike. Thanks, a question so the two cents impact is the impact across boats.
Transmission and distribution. So it includes both the distribution business as it quite correct, it's impacted less because only 60% of that revenue was fixed so it's got to some smaller revenue and it's a small impact so but the total combined impact of at 10% reduction in load. Among these two cents across the business and that does not.
Include any offset phenomenon that is the the net impact all the load.
Decrease on its own.
Okay. Thanks for clarifying and then just obviously aside from a challenging workforces logistic anything else in terms of on M. saving handset and productivity in terms of supply chain constraints or given the economics for them globally.
Yes, it's what we've seen so if a monkeys.
We reacted very quickly we increased our materials now better in stock by approximately 30%. So we we did quite well on on that front and then have more recent tons. We are seeing delays in materials of somewhere between four and eight weeks at the moment.
That is sort of it got to that point and then it's leveled off and that's the reason why we've seen that is because the leveling off studies is that China's opening up Korea, which is where a lot of the the electricity parts come from actually is opening up as willing do quite well in Maine in managing get closer at 19 risk. So.
We beyond that we haven't seen anything else is pointing nothing material that causes us any concern I will keep monitoring including any of the comments, we hear south of the border around any sort of trade with China that could have an impact but at this point, we're not seeing anything that causes us concern.
Okay. Then here thank you.
[noise]. Thank you and we have time for one more question or last question comes from Patrick Kidding National Bank Financial Your line is open.
Hi, Good morning, everybody, Chris maybe just back to the volume impact there.
Based on your residential versus commercial and industrial customer mix just wanted to get your thoughts on how the a three opening plan in Ontario.
If successful of course might help mitigate some of the impact to load as well as the bad debt expense going forward I'm, just curious jet any base case assumptions that you could share.
I think would you look we've looked at the experience all around the world in terms of what was there.
What was the impact at the height of the type of 19.
Denny and then how they come back since then and most of them has two to three month deep and then it comes back fairly quickly I thought he won't come back to full look, but we'll get something close.
This was that's what they're predicting in areas like China Korea, So I would expect something similar here I think onto.
Canada as a whole within a fairly good job and I'm curious on a good job of managing cobot 19 compared to some other other areas.
So we may not see the same <unk>. The reason why pulled out that we had a 7% reduction in load in the first quarter.
Because yes, we are seeing a 13% reduction in load in April, but it could be that 7% to 8% of that is coming from way, though so we may not be experiencing the same reductions in load that you'll see other parts of the world.
The second I thought I'd say that is what are the statistics kind of being quoted what is the reduction in light compared to this time last year and last year was a very good weather period. So that that difference is accentuated right because lucky had very good weather you. She ahead slightly below normal weather.
And that weather impact is a big chunk of all those reductions.
So long story short is we'll know more in Q2 pet it's probably the best answer and I expect there will be a reduction in Q2 will capture the cost of that and we will seek recovery on that.
And we'll know exactly how the company's ramping up but I don't see this is being 10% for an elongated period of time, if that's the question.
Okay. Thanks for that and then also just on the 4% to 7% S. Cagar through 2022.
Can you just remind us if at the low end to that guidance range.
From back at Investor Day had already factored in any downside through capital plan related to the T X decision.
As well as any oh, M&A drag from potential cobot risks or otherwise.
The answer is yes, because oh, we have reaffirmed guidance in my earlier comments. He is in realized the T X decision and coated daunting, we still have the opinion that over this period or through 2022, we would achieve that 4% to 7% range.
Okay. That's perfect. Thanks again.
Thank you.
And that does conclude our county session for today.
I'd like to turn the call back over all my job is for any further remarks.
Thank you Shannon the management team and hydro one thanks, everyone for their time with this this morning during what is a busy period. We appreciate your interest and your ownership.
If you have any follow up questions that weren't a address on the call up please feel free to reach out and we'll get him answer for you.
Thank you again and enjoy the rest today and see you at the virtual age you have at 930, Thank you and Stacy.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program.
Disconnect everyone have a great day.
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